How to Trade Soybean Meal: ZM Trading Guide

Soybean meal (ZM.) is crucial in global agriculture, particularly in the livestock feed industry. As demand for protein-rich animal feed rises, understanding the factors influencing soybean meal prices becomes essential for traders. Factors like weather patterns, logistics disruptions, and geopolitical events all significantly shape market dynamics.

This article explores key market conditions and how soybean meal futures through CFDs offer traders flexibility in speculating price movements. By applying insights into supply disruptions, demand fluctuations, and economic conditions, traders can make informed decisions when navigating the soybean meal market.

TL;DR

• Soybean meal is a high-protein by-product of soybean oil extraction, primarily used in livestock feed.
• Weather events, logistical disruptions, crushing capacity, global feed demand, and economic conditions like geopolitical tensions and currency fluctuations influence soybean meal prices.
• Traders can use CFDs to speculate on soybean meal price movements in both rising and falling markets without owning futures contracts.

What Is Soybean Meal?

Soybean meal is a by-product of soybean oil extraction, primarily used as a high-protein animal feed. It is widely incorporated into the diets of livestock and aquaculture species, including poultry, swine, dairy cows, and fish. About 60% of U.S.- produced soybean meal is used domestically, with the remaining 40% exported to feed various animals globally. Soybean meal provides essential amino acids, making it an ideal choice for improving livestock nutrition and productivity.

Soybean meal is distinct from other soybean products as it is primarily valued for its high protein content, which is essential for animal feed. The meal is highly digestible and used extensively in the feed industry due to its superior nutritional profile compared to other plant-based protein sources. It is especially important in aquaculture, where it is a critical component of fish and shrimp diets.

How to Trade Soybean Meal CFDs

Traders interested in speculating on soybean meal price movements without owning the actual futures contracts can use contracts for difference (CFDs) as an alternative. By trading soybean meal CFDs, you can trade price fluctuations in rising and falling markets depending on global demand shifts, weather patterns, or geopolitical events. For instance, during periods of drought or geopolitical tension, traders may choose to go long on soybean meal CFDs if they anticipate a supply shortage and price increase. Conversely, traders might opt for short positions in times of stable or surplus supply.

CFD trading also allows the use of leverage, enabling traders to control larger positions with a smaller amount of capital. However, while this can enhance potential gains, it also increases the risk of larger losses if the market moves unfavourably. Risk management strategies, such as stop-loss orders, are essential to mitigating these risks and managing your exposure.

Soybean Meal Market Overview

The soybean meal market is essential to global agriculture and the feed industry, driven by the demand for livestock feed, trade policies, and regional agricultural capabilities.

Global Production

China was the largest producer of soybean meal in 2022/2023, with 75.24 million metric tons. Argentina also plays a key role in production, focusing heavily on exports.

Major Exporters

Argentina leads global exports, supported by its large production capacity and favourable trade policies. Brazil is also a major player, though much of its meal is consumed domestically due to its strong livestock industry. The U.S., while an exporter, faces declining market share due to competition and a strong U.S. dollar.

Major Importers

The European Union imported around 16 million metric tons of soybean meal in 2022/2023, driven by its large livestock sector. Despite being a leading producer, China also imports significant amounts of soybeans for domestic crushing, keeping most of the meal within the country.

Market Growth and Pricing

Global demand for soybean meal tends to grow in developing regions, driven by increasing demand for meat and dairy products. Pricing is influenced by factors like weather, crop yields, and trade policies, with weather events in key producing countries like Argentina and Brazil affecting supply and market dynamics.

Supply Factors Influencing Soybean Meal Prices

Supply factors such as weather conditions, trade logistics, and production capabilities all significantly affect the availability of soybean meal, which in turn influences its market price.

Weather Events

Adverse weather, such as droughts or excessive rainfall, can severely impact soybean yields, reducing the supply of soybeans available for crushing into soybean meal. For example, the 2012 U.S. drought resulted in poor crop conditions, leading to significant price hikes for soybeans and soybean meal as supply diminished. However, favourable weather conditions can help boost production and stabilise prices in the long term.

Local Trade and Logistics Issues

Disruptions in transportation, such as shipping delays or logistical bottlenecks, can restrict the movement of soybean meal from production areas to export markets. For instance, the COVID-19 pandemic caused significant delays and losses for U.S. soybean crushers in the first half of the year due to transportation and logistics challenges, affecting soybean meal supply. Conversely, when logistics improve or remain efficient, the flow of soybean meal is smoother, helping to balance prices.

Soybean Crushing Capacity

When domestic crushing capacity increases, it boosts the supply of soybean meal, often leading to price reductions. Higher crushing activity tends to create a more abundant supply of soybean meal, which can ease price pressures. However, when crushing operations are limited due to factors like plant maintenance or lower crush margins, supply can shrink, pushing prices upward.

Demand Factors Influencing Soybean Meal Prices

Shifts in demand, driven by changes in animal feed requirements and broader economic events, also substantially impact the price dynamics of soybean meal.

African Swine Fever (ASF) and Animal Feed Demand

The outbreak of ASF (African Swine Fever) in China, starting in 2018, led to the culling of over 200 million pigs, reducing demand for soybean meal. However, recovering swine populations and industrialised pork production may increase soybean meal demand as more feed is required.

China's Meat Consumption Recovery

Between 2019 and 2021, China's demand for pork, poultry, and beef increased, boosting soybean meal demand for feed. However, if China's demand for meat declines due to changing consumer preferences or economic factors, soybean meal demand may drop.

Global Economic and Geopolitical Events

Global recovery and geopolitical tensions like Russia's invasion of Ukraine in 2022 disrupted agricultural exports and increased demand for stable feed sources like soybean meal. However, if Black Sea exports stabilise, demand for soybean meal may decrease as alternative feed supplies become more accessible.

Market and Economic Conditions Influencing Soybean Meal Prices

Market and economic conditions, such as currency fluctuations and speculative trading, can heavily influence the pricing of soybean meal in global markets.

Strong U.S. Dollar

The strengthening of the U.S. dollar in 2015 placed pressure on U.S. soybean meal exports by making them more expensive for foreign buyers. As a result, U.S. soybean export prices fell by 14.9% that year. However, U.S. soybean meal exports could become more competitive if the dollar weakens, potentially boosting demand and prices.

Speculator Activity

In January 2024, money managers significantly reduced their net long positions in soybean meal futures, reflecting a potential shift in trader sentiment toward lower prices. This sell-off led to increased selling pressure, contributing to a 1.5% price decline on the Chicago Board of Trade (CBOT). However, if global demand for soybean meal rises, speculators may return to long positions, potentially driving prices upward.

Soybean Meal Price Conclusion

CFD trading on soybean meal futures offers traders a way to speculate on price movements without owning the actual futures contracts. Various market conditions provide trading opportunities.

Key takeaways for CFD trading:

• Supply factors: Adverse weather conditions or logistics disruptions can reduce soybean meal supply, creating opportunities to go long in anticipation of price increases.
• Demand influences: Shifts in global livestock feed demand can drive prices up or down, offering opportunities for both long and short positions.
• Economic conditions: Market sentiment, influenced by speculator activity and currency fluctuations, can lead to rapid price changes, requiring traders to adapt quickly.

Understanding these factors helps traders navigate the market while managing risk.

If trading soybean meal futures CFDs interests you, you can start trading ZM. CFDs with Plus500.