- Demand, Research and Development
Trading Soybean - Demand, Research and Development
Soybeans aren't sexy... except to a commodities trader. Yet this grain is among the lowest risk, most potentially profitable trades around.
Soybeans were first cultivated in China thousands of years ago, and they continue to be grown there. First arriving in America in the 1800s - they were used to stabilize clipper ships - their use as a food additive has only grown as technology has advanced. When the crops in China were heavily damaged in WWII, the U.S. became one of the largest suppliers.
Thirty-one states in the U.S. now grow soybeans, with Iowa producing over 400 million bushels and Illinois over 500 million.
But the U.S. and Asia now have another major competitor: Brazil. Though suffering from reduced supply the last two years, owing to a long drought, crop yields are recovering and are expected to reach record levels in 2007. Soybeans now rival coffee (along with sugar) as one of Brazil's major exports. In the 2004/5 year, Brazil exported over 20 thousand metric tons of soybeans, two-thirds the U.S. total.
Trading Soybean: Demand is Strong and Rising
At the same time, demand remains strong. American livestock - cattle, chickens and pigs - alone consume over 25 million tons of soybean meal per year. But it's also used in the preparation of dozens of human food products.
That demand is expected to rise, owing to a number of factors that are not likely to be reversed in the foreseeable future.
Population levels throughout most of the world continue to rise. The U.S. population is almost 300 million and still rising. The world population is over 6.5 billion and though the rate of increase is slowing, the level is expected to continue to increase for several decades at least.
Soybeans represent a low-cost food additive that is used the world over that can feed that growing population.
Trading Soybean: Research and Development
Research and development on agricultural yields is continuing to advance. About 1.4 billion hectares were used for cultivation worldwide in 1961. By 1998, less than 40 years later, 1.5 billion hectares were used to grow twice the amount of grain. That's a substantial productivity gain and the advances are just beginning.
Within the last few decades genetics research has improved and scientists now regularly offer implementable genetic techniques to resist disease. By 2005, genetically modified crop production of herbicide-tolerant crops expanded to 87% of soybean production. That figures was only 63% just two years earlier.
Soybean rust continues to be a problem, but there is good reason to believe this can be eliminated in the coming years.
And food isn't the only thing soybeans are used for. Most biodiesel fuel in the U.S. is produced from soybeans, where in Europe canola is used. Corn is used to make ethanol. With rising gasoline prices, pressure continues to encourage converting some vehicles (such as farm equipment) to diesel.
Soybean Futures Contracts
Soybean futures contracts are traded on the CBOT (Chicago Board of Exchange) with the standard contract covering 5,000 bushels. The tick (minimum price fluctuation) is 1/4 cent per bushel, with a maximum price swing per day of 50 cents per bushel above or below the previous day's settlement price.
Investors interested in trading commodities should look into soybeans. Sometimes the plain girl next door is as sexy as any gold-covered Hollywood starlet.