Soybeans that are available for commodity trading come in three different grades. No.2 Yellow are sold at par for the contract price, No.1 Yellow are sold at 6 cents per bushel over the contract price and No.3 Yellow are sold at 6 cents under the contract price.
Soybeans as a commodity have a number of special features. Firstly, soybean trading is booming as the world market for soybeans is huge. In America, livestock such as cattle and pigs consume over 25 million tons of soybean meal, which is produced from soybeans, per year. Soybeans are also regarded as one of the best commodities to deal with for those serious about trading. The high levels of interest and demand coupled with high liquidity leave a lot of room for either great loss or great gain on the commodity market. Soybeans also have derivative components that can be traded at the exchanges, such as soybean oil, so as a commodity soybeans possess a great deal of flexibility when trading futures contracts.
The two main markets for soybeans are the food market and the fuel market. Soybeans are used as foodstuff the world over for both livestock and humans, where they are seen as a low-cost food additive. Several large food companies rely on soybeans for animal feed, including pig farmers, chicken farmers and even fish farmers, who use a fish food composed of corn and soybeans. Soybeans are also used in the manufacture of biodiesel, which has accounted for a large price increase in soybeans options in the last few years.
Soybeans were first produced and cultivated in China, but nowadays the United States accounts for the largest global percentage of soybean production at around 32%. There are 31 states in America that grow soybeans, with the top three being Iowa, Illinois and Indiana. Another main area of production is Brazil, where soybeans are on an equal footing with coffee and sugar as one of the main exports of the country.
Several factors influence the price of soybeans as a commodity. As with most, if not all, agricultural products, the weather plays a large part in the yearly yield of each crop. Poor weather before the crop is harvested will result in a lower yield of crops, which could mean that speculators trading soybean futures could lose out. A second factor that has come to prominence in recent years is the spread of a wind-borne fungal disease know as soybean rust. This again will lower crop yield and quality.
Another factor to consider when trading in soybean options is the demand for corn as use as ethanol. As both corn and soybeans are used to produce biofuel, if the demand for ethanol is higher than the demand for biodiesel then the farmers will use all of their fields to grow corn. This will therefore mean that the supply of soybeans decreases, and the soybean spot price increases.
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