Agricultural commodities are an essential part of the world economy although they remain to be
underrated by most traders. They are often thinly traded and even not offered by most online brokers.
In this article on soft commodities, we will focus on soybeans, which is an important geopolitical commodity.
What are soft commodities?
Soybeans belong to a group of commodities known as soft because they are grown. Other popular commodities that belong to this category are corn, wheat, cocoa, cotton, orange juice, coffee and lumber among others.
They differ from other types of commodities that are popular among traders. First, there are energy
commodities, which include oil, coal, natural gas, heating oil, and gasoline. These are more popular items because of their global role.
Gold is the pre-eminent precious metal because it does not have any major real use in the real world. Instead, gold is used mostly for monetary purposes.
Further, there are industrial metals, which, as the name suggests, are used to manufacture items. They include metals like copper, lead, aluminum, and nickel.
Why soybeans is important
For starters, soybeans is an agricultural commodity that has multiple uses. One of the biggest use of soybeans is that they are used as human food in some communities. At times, they are used as a substitute for coffee and tea.
Another major use for soybeans is that of animal feed. Especially in China, most people use soybeans to feed their animals such as pigs. This is an important use because many people in the country prefer pig meat than other types.
Further, an important role for soybeans is in the energies market. This is where people use it as a source of energy to manufacture biodiesel. This fuel is then mixed with convectional fuel and sold in gas stations. Estimates are that one bushel of soybean can yield about 1.5 liters of biodiesel, meaning that all soybeans the US produces could produce 5.1 billion gallons of biodiesel.
Soybeans also have an industrial role where they are used to manufacture multiple items. A common product is in the tire industry. Oil from soybeans is essential in improving the quality of some tires.
Soybeans exporting and importing countries
Growing soybeans requires some specific weather conditions to grow well. In most cases, the crop
requires saturated soil before and during germination. It also requires saturated soil during the vegetative stage.
Therefore, not many countries are able to produce soybeans in large scale. The biggest soybean manufacturer globally is the United States, which produces over 4 billion bushels every year. The number has been fluctuating over the years because of external factors like weather and geopolitics.
Another important producer of soybeans is Brazil, the biggest economy in South America. The country is estimated to have produced almost 134 million metric tons of soybeans. The country’s growth has been on an upward trend in the past few years.
Argentina is another important country in the industry because it has similar weather conditions with Brazil. Estimates are that the country produced over 56 metric tons of the crop.
The other top soybean producin countries are China, India, Paraguay, Canada, and Ukraine. Still, when doing trading analysis, people tend to focus on the United States and Brazil.
Top Soybeans importers
As a trader, it is important for you to understand the biggest importing countries and their growth. By understanding this, you will be at a good position to conduct efficient fundamental analysis.
China is the biggest consumer of soybeans in the world. The country buys soybeans worth over $40 billion every year. It is followed by other smaller countries like Mexico, Argentina, and Netherlands.
These countries buy soybeans for a variety of reasons such as animal feeds and energy production. It is worth noting that China has been encouraging farmers to increase their soybean production in a bid to reduce its overreliance on the US.
Top soybeans trading companies
After producing their crops, farmers then rely on the biggest agricultural companies in the world. Many traders even focus on these companies as a proxy for soybeans and other commodities.
The simplest way to understand the biggest soybeans traders in the world is using the short-form ABCD. A stands for Archer Daniels Midlands while B stands for Bunge. C is Cargill while D stands for Dreyfus.
Of these four companies, traders can only buy and sell Bunger and Archer Daniels because they are the only publicly traded firms. Other international companys that deal with soybeans are Olam, Wilmar, and Viterra.
What moves soybeans prices?
There are multiple factors that move soybeans prices. First, there are geopolitical issues because the US and China do not have a close relationship. They view themselves as being competitors instead of partners. During the Trump administration, soybeans was in the spotlight because of the trade war that existed at the time.
Second, soybeans price move because of weather. When there is bad weather in either the US and Brazil, the impact is usually that the price rises.
Third, soybeans is a cyclical commodity meaning that when price rises, it leads to more production, which leads to lower prices in the future. A good report that will guide you to know the supply and demand dynamics is known as WASDE, which is published every month by the USDA.
How to do soybean trading
There are several ways in which you can trade soybeans. First, you can trade soybeans futures that are offered by companies like CME. Second, you can trade soybeans CFDs, which are derivatives that track the price of the commodity. Third, you can trade soybeans ETFs like SOYB. The ETF is offered by brokers like Robinhood and Schwab.
Soybeans is an important commodity that you can trade in the financial market. It is a popular one among investors and has some key factors that move it. You can first trade it in a demo account before you move to a real account.
External useful resources
- 6 Things You Must Know About Soybean Futures Trading - Trading Sim