Oybean futures: 6 things you should know. Part 1

Soybean futures: 6 things you should know. Part 1

Soybeans are oil crop and not grain crop, used, first of all, for producing oil which is contained in its beans. Soybean futures are among the most popular contracts in the commodity futures market.

Soybean trading has an international character and the product itself is highly valued in Asia as a natural food. There is an interesting fact. Soybeans are applied even in printing and are used when printing some publications as an alternative to regular ink on the petroleum oil basis. We cannot avoid mentioning China when we speak about soybeans. This state, as expected, will become the main importer of soybeans in the nearest future and will add pressure to the market from the demand side.

In this article:

  • What are soybean futures contracts?
  • Production and consumption of soybeans.
  • Specification of futures contracts.

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What are soybean futures contracts?

Soybeans are the underlying asset for futures contracts of this type of commodity. It is an attractive commodity for trading with the purpose of hedging manufacturers, the major part of demand on which arrives nowadays from the new developing markets. That is why it is not a surprise that the soybean futures contracts trading is a profitable offer for futures traders.

Popularity of soybeans is connected with their importance and unique properties, which allow to use them for production of a very wide spectrum of products. They are used as fodder for young cattle, cheap meat substitute and also for vegetable oil production. According to some sources, the soybean futures price will grow exponentially together with the growth of the world population demand on this type of commodity. Soybean futures, from the point of view of trading, are very liquid contracts which provide the market participants with huge opportunities for profitable intraday trading.

Soybean producers and sellers constitute a big part of participants of the futures market of this commodity. Futures contracts help both groups of participants to hedge risks of price fluctuations in the soybean market. Soybean futures, as well as the majority of futures contracts, are standardized contracts which are traded on the exchange. Their expiration takes place in accordance with the months set in the specification.

Production and consumption of soybeans

Five main countries, which produce soybeans, are the US, Brazil, Argentina, China and India. Together these countries produce 90% of all soybeans in the world and the US share in the overall production takes 55%.

The US is a leading producer of soybeans in the world, which produced 108 million tonnes of this product in 2014. Then goes Brazil with 86.8 million tonnes. According to the 2014 data, the total world soybean production was 249 million tonnes. In the mid 1990s, the US dominated in this world market, exporting not less than 90% of all soybeans produced in the world.

Argentina is on the third place with the volume of production being 53.4 million tonnes. As of 2014, the main importers were China with 41% of the total world import and European Union with 22%. The Chinese soybean import grows exponentially and is estimated in 55 million tonnes and, as forecasted, would grow further. It is expected that China would double the soybean import by 2020 reaching the mark of 110 million tonnes a year.

Soybeans take second place in the US with respect to the area under cultivation with more than 80% of agricultural land located in the Middle West. 74.8 million acres (30.3 million hectares) of the US agricultural lands were allocated in 2008 for cultivation of this agricultural crop. According to the 2010 data, the US accounted for 44% of the whole world soybean export and nearly 35% of their world production.

The soybean imports by Asian countries was 75 million tonnes in 2009 and it is expected that it would grow up to 130 million tonnes by 2019.

Specification of soybean futures contracts

Soybean futures contracts are traded on the Chicago Mercantile Exchange (CME) through the Globex electronic system, which is its subdivision, and also through the network of exchanges and clearing chambers for financial and commodity markets (Intercontinental Exchange – ICE). Two types of soybean futures contracts – standard and mini – are available for trading on the CME.

Standard soybean futures contracts are traded under the ZS ticker. The price of this contract is set in cents for one bushel with the minimum price change (tick) of 0.25 cents for 1 bushel of soybeans, which is USD 12.5 per contract. The price movement of a standard futures contract in USD 1 constitutes 1,000 points, which is equivalent to USD 5,000. The margin requirement for intraday trading is USD 2,500 as a guarantee collateral for a standard futures contract. In general, there are seven contract months: January (F), March (H), May (K), July (N), August (Q), September (U) and November (X).

Standard soybean futures mini contracts are traded under the XK ticker. The price of this contract is set in cents for one bushel with the minimum price change (tick) of 0.125 cents for 1 bushel of soybeans, which is USD 1.25 per contract. The price movement of a standard futures contract in USD 1 constitutes 1,000 points, which is equivalent to USD 1,000. The margin requirement for intraday trading is USD 500 as a guarantee collateral for a standard (mini?) futures contract. In general, there are five contract months: March (H), May (K), July (N), September (U) and December (Z).

Both futures contracts are delivery futures.

The table below presents specification of a standard and mini soybean futures contract.

Contract nameSoybean FuturesMini Soybean Futures
TickerZSXK
Trading periodCME Globex: Sunday – Friday: 19:00 – 07:45 of the next dayCME Globex: Sunday – Friday: 19:00 – 07:45 of the next day
Contract size5,000 bushels (136 tonnes)1,000 bushels (27 tonnes)
Minimum price stepUSD 0.0025 or 0.25 cents per bushelUSD 0.00125 or 0.125 cents per bushel
Step costUSD 12.5USD 1.25
Contract monthsThey are quoted during seven months starting from January (January (F), March (H), May (K), July (N), August (Q), September (U) and November (X)).They are quoted during five months starting from March (March (H), May (K), July (N), September (U) and December (Z)).

Check our blog for publication of the second part of the article about soybean futures. In the second part, we will speak about the main factors, which influence the price of these futures contracts, reports, which should be taken into account when trading them, and also give advice to beginner traders with respect to trading this instrument.

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