Soybean was first introduced in Europe in the 1700s and has become one of the most important beans in the world, providing both oil and protein. It’s used in many diversified fields including vegetable oil, animal feed and foodstuffs. Due to its importance in the food industry, soybean is an investable asset. It’s traded in the futures contracts.
The United States, Brazil and Argentina lead the exports of Soybean. China and Japan are the leading importers. The Americas contribute to 55% of the world production of soybean. The US exports 37% of the world soybean.
Soybean has two by products: soybean meal and soybean oil. Each of these by-products have their own supply and demand market and a certain correlation between one other. One of the most popular trading strategies when trading soybean is the use of a “crush spread”. A crush spread contract enables the trader to purchase one contract of soybeans and to sell one contract of soybean oil and one contract of soybean meal. This enables the trader to hedge against supply and demand factors.
Soybean prices have been steadily increasing since 2000, and the price is affected by many factors. First of all, several economic variables can drive the short-term prices of Soybean. The most evident one is the US dollar. Since the US is a leading producer of soybean, a higher dollar value lowers the expected exports because importers will have to pay a higher price. This in turn leads to weaken soybean prices. Crude oil prices also affect soybean prices. This correlation between crude oil and soybean is growing continuously with the growing importance of soybean in the biofuel sector. The relationship between these two commodities is positive. Therefore, high crude oil prices are favourable for soybean prices, due to the profitability of biofuel production.
Furthermore, climatic conditions affect the prices of soybean. For a high yield harvest, a hot summer is needed. The mean optimum temperature for the growth of soybean is between 20 and 30°C. Therefore, extreme conditions including droughts are negative for soybean yield. For example in 2009, Argentina (the world’s third largest producer) experienced its worst drought in 50 years. This led to low production and therefore higher prices. Corn also has an impact on the prices of soybean. They compete in many fields such as cooking oil, animal feed and the biofuel industry. In general, if the production of corn falls, soybean prices are anticipated to rise. Soybean prices are affected by politics and logistics in South America. Some experts argue that the political uncertainty in South America can affect soybean prices more than actual production.
Soybean, like other agricultural commodities, has an impact on other grains. For example, an increase in soybean prices has a negative effect on other grains. It’s a substitute good for corn and wheat. Thus, soybean affects their supply and demand chains, which in turn affect the global grain system.