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Commodity Trading: Soybean Futures

Demand / Consumption Considerations

Most of the analysis presented for Soybean tends toward being based upon supply, as demand tends to be fairly evenly distributed throughout the year. However, in the latter part of the year, demand for Soybean Meal tends to support Soybean prices, as Soybean Meal is the preferred winter animal feed, due to its attractive protein and fat content mix.

Whole Soybeans have very limited uses, they can be held for seed for the coming crop, baked, puffed, steamed or roasted for animal feed. The greatest demand for Soybeans is its products, Soybean Oil and Soybean Meal.

Soybean Oil and Soybean Meal are extracted from Soybeans in a process known as “The Crush”. Originally oil and meal were extracted from Soybeans using large mechanical devices, which would crush the beans to extract the oil, and the leftover product is cleaned to make meal. Today, the common method of extraction is chemical, though the process is still referred to as "The Crush".

The major use of Soybean Oil is in the form of edible oil products such as margarine, salad and cooking oil, and shortening. Oil also has limited industrial uses in chemical production, paints, lubricants and varnishes. The major substitutes for Soybean Oil are rapeseed oil, cottonseed oil, sunflower seed oil and animal oils such as butter, lard and fish oil. Because of the highly competitive nature of the oil industry, and the high degree of substitution, Soybean Oil only accounts for about 20 percent of world oil consumption. Increases in the demand for edible oils, or restriction of supply of substitutes, will cause Soybean Oil to become more valuable and thus increasing the demand for Soybeans.

Almost 90 percent of the Soybean Meal produced is used as animal feed. Soybean Meal is an excellent source of protein and amino acids for livestock. Animal feeds are very substitutable, so corn, rapeseed, flaxseed and cottonseed meals are all used in lieu of Soymeal, if they are more favorably priced. The basic demand for Soymeal is tied to livestock prices. As livestock prices increase, so does the demand for feeds such as Soymeal. As the demand for Soybean Meal increases, so does the demand for soybeans.

Demand is a pivotal component of Soybean prices. Demand has been running at record levels for the last several years due to large feed usage and heavy use of Soybean Oil. Compensating for the high usage figures has been extraordinary production. However, with the large amount of usage, any shortcomings in production in the coming years could see prices explode.

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Disclosure of Risk: The risk of loss in trading futures and options can be substantial; therefore, only genuine risk funds should be used. Futures and options ARE not suitable investments for all individuals, and individuals should carefully consider their financial condition in deciding whether to trade. Option traders should be aware that the exercise of a long option would result in a futures position.

SEASONAL TENDENCIES ARE A COMPOSITE OF SOME OF THE MOST CONSISTENT COMMODITY FUTURES SEASONALS THAT HAVE OCCURRED IN THE PAST 15 YEARS. THERE ARE USUALLY UNDERLYING, FUNDAMENTAL CIRCUMSTANCES THAT OCCUR ANNUALLY THAT TEND TO CAUSE THE FUTURES MARKETS TO REACT IN SIMILAR DIRECTIONAL MANNER DURING A CERTAIN CALENDAR YEAR. EVEN IF A SEASONAL TENDENCY OCCURS IN THE FUTURE, IT MAY NOT RESULT IN A PROFITABLE TRANSACTION AS FEES AND THE TIMING OF THE ENTRY AND LIQUIDATION MAY IMPACT ON THE RESULTS. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT HAS IN THE PAST, OR WILL IN THE FUTURE, ACHIEVE PROFITS USING THESE RECOMMENDATIONS. NO REPRESENTATION IS BEING MADE THAT PRICE PATTERNS WILL RECUR IN THE FUTURE.

HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL, OR IS LIKELY TO, ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM.

ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM, IN SPITE OF TRADING LOSSES, ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS, IN GENERAL, OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.