In our previous article we introduced the commodity markets. Moving forward we will discuss more specific educational topics about commodities and futures. This article discusses some of the fundamentals of the soybean market.
According to the USDA, processed soybeans are the largest source of animal protein feed in the world and the second largest source in the world for vegetable oil.[i] An estimated 90% of oilseeds produced in the U.S. are soybeans. The remaining 10% include cottonseed, sunflowerseed, canola, rapeseed and peanuts.
Soybeans are only second to corn as the most planted field crop in the U.S. As Midwest farmers tend to produce a higher soybean yield and lower cash cost than Southern or Eastern farmers, over 80% of soybean production occurs in the upper Midwest of the United States.
Soybean futures contracts are one of the most liquid of the commodity futures markets. Soybean futures were introduced in 1936. The soybean complex (soybean meal and soybean oil) was introduced as futures contracts in the 1950s.[ii] There are seven standard expiration months for soybean futures; January, March, May, July, August, September, November. Soybean meal and soybean oil futures contracts also include the months of October and December.
The full size contracts are 5,000 bushels per contract. The CME Group also trades mini-sized contracts of 1,000 bushels per contract. Soybeans are priced at cents per bushel. Soybean meal is priced at dollars per short ton. Soybean oil is quoted at cents per pound.
[ii] Self Study Guide to Hedging with Grain and Oilseed Futures and Options. CME Group P.4
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Copyright ©2013 Mark Shore. Contact the author for permission for republication at firstname.lastname@example.org Mark Shore has more than 25 years of experience in the futures markets and managed futures, publishes research, consults on alternative investments and conducts educational workshops. www.shorecapmgmt.com
Mark Shore is also an Adjunct Professor and Board Member of Arditti Center of Risk Management at DePaul University's Kellstadt Graduate School of Business in Chicago where he teaches a managed futures / global macro course and an Adjunct at the New York Institute of Finance. Mark is a contributing writer to Eurex Exchange, Reuters HedgeWorld, CBOE Future Exchange (CFE) and Micro-Cap Review.
Past performance is not necessarily indicative of future results. There is risk of loss when investing in futures and options. Futures and options can be a volatile and risky investment; only use appropriate risk capital; this investment is not for everyone. The opinions expressed are solely those of the author and are only for educational purposes. Please talk to your financial advisor before making any investment decisions.