Soybeans Trading Guide and Strategies: How to Trade Soy

Soybean, the protein-rich oilseed with increasing global demand, is the fourth most traded commodity globally (as of 2023) trailing only behind natural gas, gold, and crude oil.

Moreover, the high volume of soybeans traded globally contributes to their liquidity and extreme volatility in the commodity futures market.

Therefore, to trade soybean CFDs, it is important to have a well-defined trading plan and strategy to mitigate the risks associated with soybean trading.

Main Points:

• Soybean trading involves the buying and selling of soybean-related financial instruments aiming at gaining exposure to its price swings.
• Market participants involved in soybean trading include merchants, swap dealers, managed funds, and small speculators.
• Key reports offering insights into the supply, demand, and production forecasts of soybean prices include the World Agricultural Supply and Demand Estimate (WASDE), Prospective Plantings Report, Grain Stocks Reports, Crop Production Report, and CONAB’s Report.
• Various soybean trading strategies include trend trading, range trading, and spread trading techniques.

What Is Soybeans Trading?

Soybean trading means the buying and selling of soybean-related financial instruments to potentially profit from changes in the price movement of soybeans. Due to their role as the largest source of protein and key raw materials in various industrial applications, soybeans recorded the most in trading volume in 2023, surpassing major agricultural products like corn, sugar and wheat.

Market Participants Involved in Soybean Trading

According to the Committee for Futures Trading Commission (CFTC) through their Commitment of Traders (COT) Report, participants engaged in soybeans trading are categorised as follows:

• Merchants: These are businesses involved in the cultivation, production and processing of soybeans. They engage in trading soybean futures contracts to manage or hedge their exposure to soybean price fluctuations by locking in prices for a predetermined date. For instance, if a farmer foresees a decrease in soybean prices, he might short the futures market to hedge against potential losses in the profit margin from his soybean sales.
• Swap Dealers: These are businesses and entities that engage in contract agreements to pay a fixed price for soybeans over a certain period or based on the actual market price of soybeans during that time. They also use the futures markets to manage or hedge the risk associated with those swap transactions.
• Managed Funds: Unlike commercial hedgers, such as merchants and swap dealers who use financial instruments to manage business risks, managed funds like Commodity Trading Advisors (CTA), or Commodity Pool Operators (CPO), oversee investments in soybeans on behalf of clients. They may open long positions or short soybean futures depending on market conditions.
• Small speculators: Small speculators, encompassing individual traders and smaller funds, engage in the soybean market through instruments like CFDs. Their primary goal is to gain exposure on short-term price movements based on their analysis of future trends.

How to Trade the Soybeans CFDs

There are a variety of financial instruments providing exposure to soybean price movement. Depending on the entity or individual, they may decide to trade soybean futures contracts, soybean options contracts, soybeans contracts for differences (CFDs), or soybeans exchange-traded funds (ETFs). However, soybean CFDs provide a flexible and accessible means for regular traders to speculate on soybean price movement in the financial market. By opening long and short positions on soybeans CFDs, traders can speculate on the upward or downward movements of the instrument's price.

Steps to Buying and Selling Soybean CFDs with Plus500

To begin trading contracts for differences on soybeans, you can take the following steps:

• Register for a live or demo trading Account.
• Access the Plus500 WebTrader platform on your device.
• Search ‘Soybeans’ using the search function or select ‘Soybeans’ from the ‘Commodities category’ in the instrument section.
• Analyse Soybeans (ZS) price action to decide when to buy (go long) or when to sell (go short).
• Determine the amount of bushels (contract size) you wish to trade.
• Set up your risk management parameters (stop-loss order, take-profit order, etc).
• Select the "Buy" icon to buy or the "Sell" icon to sell.

The Benefits of Trading Soybeans CFDs

• Soybeans, being the most traded agricultural product, can offer high liquidity in financial markets, which often translates to narrower spreads.
• Trading soybeans through CFDs eliminates the need for storage expenses or monthly futures contract rollovers.
• Soybeans can serve as a hedge against inflation and a declining US dollar.
• The difficulty in manipulating commodity prices also makes soybeans an asset that is considered reliable to trade.

The Risks of Trading Soybeans CFDs

• Soybeans can be highly volatile due to the adverse impact of weather conditions and diseases on crop yields.
• The effects of global warming pose potential threats to the production of various crops, including soybeans.
• Trading soybean futures demands a sophisticated understanding, considering storage costs and interest rate pricing.
• Soybean futures also have high margin requirements which may not be feasible for smaller traders.
• Using leverage to trade soybeans increases the risk of greater losses with minor market fluctuations.

What Are the Major Economic Reports Affecting Soybean Prices?

The following reports are closely watched by market participants involved in soybeans trading:

The World Agricultural Supply and Demand Estimate (WASDE) Report

In this report by the US Department of Agriculture (USDA), a comprehensive analysis and forecast for the supply and demand of soybeans and other agricultural commodities is published annually. This report often contributes to significant price fluctuations.

Prospective Plantings Report

This is an annual report also released by the US Department of Agriculture (USDA) at 11:00 a.m. CT on the last business day in March. The report contains data on the primary agricultural products harvested in the previous year and the expected planting acreage for corn and soybeans for the upcoming year.

Grain Stocks Reports

On the first day of March, June, September, and December, the National Agricultural Statistic Service (NASS) releases its quarterly grain stock report. This report offers current information and estimates regarding soybeans and other key grains, categorised by their status and storage data.

Crop Production Report

This report is released by the US Department of Agriculture (USDA) every month. The report contains crop production data for the US, including land size, acreage harvested and a detailed weather summary.

CONAB’s Report

CONAB (Companhia Nacional de Abastecimento) is Brazil’s National Supply Company responsible for collating and publishing reports on agricultural products. Within the CONAB report, one can find details regarding soybean supply and demand, planting surveys, and crop production reports from Brazil. Given Brazil's global dominance in soybean production and exports, the report is frequently contrasted with the USDA (WASDE) report. It is also closely monitored by global soybean traders, merchants, and decision-makers.

What Are Soybeans Trading Strategies?

Various trading strategies can be applied to trading soybeans and may require the application of both technical analysis and fundamental analysis.

Soybeans Trend Trading

Trends in the soybeans market emerge when soybean prices consistently reach higher highs (uptrend) or lower lows (downtrend). To monitor momentum in soybeans price movement, traders may employ the use of technical tools and indicators like moving averages, MACD, and Bollinger Bands.

These tools can be useful for finding ideal entry and exit points in bullish and bearish markets. Therefore, it is crucial to remember that trending markets don't last indefinitely. Therefore, strict exit strategies and risk protection measures must always be put in place.

Soybeans Range trading

Range trading strategies can be applied to trading soybeans during periods of consolidation. In this market condition, price movement tends to stay confined within oversold (support) and overbought (resistance) levels for a certain period rather than reach new highs or lows. Key indicators that can help confirm soybeans overbought and oversold signals include the commodity channel index (CCI), relative strength index (RSI), and momentum indicator. It is important to keep in mind that price action is dynamic and does not stay within ranges forever. Therefore, the use of additional technical indicators and fundamental analysis may be required to validate potential overbought and oversold signals.

Soybeans Spread Trading

Spread trading involves simultaneously buying and selling two correlated assets to profit from the difference in price movement. Here are three ways of soybeans spread trading:

1. Crush Spread
   Soybeans are processed into soybean oil and soybean meal through a process known as crushing. The crush spread represents the price difference between soybeans and their byproducts. To go long on crush spread, traders will buy soybeans and sell soybean oil (ZL) or soybean meal (ZM). Soybean merchants often use crush spread to hedge against the risk of declining prices for their final products.
2. Reverse Crush Spread
   This is the opposite of crush spread trading. Here, traders will open short positions on crush spread by selling soybeans and buying the by-products, soybean oil or soybean meal. By trading reverse crush spread, traders aim to profit from the rise in the price of soybean by-products against the cost of soybeans.
3. Grain Spreads
   Grain spread in the context of soybean trading is based on the difference between the price movement of soybeans and other grains like corn and wheat. Since commodity prices tend to move in tandem, traders can analyse the price ratio of soybeans to any grain and decide trades based on expected changes.
   
   For instance, if the price of soybeans is expected to rise higher than corn prices, traders may simultaneously buy 1 soybean contract and sell 2 corn contracts to potentially profit from the difference in price movement between soybeans and corn.

Essential Practices for Trading Soybeans CFDs

Trading soybeans CFDs can be rewarding but also challenging due to potential risks. Therefore traders should adopt the following practices:

Stay Informed on Weather Conditions

Due to soybeans' high susceptibility to weather conditions like droughts and excessive rainfall, traders should consistently monitor weather forecasts in major soybean-producing regions.

Analyse Market Reports

Publications like the CONAB and USDA reports can provide valuable insights into crop conditions, production forecasts, and market trends. Therefore, it is important to regularly review market reports and forecasts from reputable sources.

Monitor Country-Specific Events

It is important to stay updated with political events, economic policies, and trade agreements from major soybean-producing and consuming countries. These events can significantly impact the soybean market positively or negatively.

Utilise Technical Indicators

Various technical tools provide valuable data for informed trading decisions. Technical indicators like moving averages can be employed to analyse market trends and identify potential turning points in soybean price movements.

Apply Risk Management

Due to the high volatility of the soybean market, a robust risk management strategy is essential to protect your trading capital and avoid significant financial loss. This might involve practices like setting stop-loss orders, diversifying your trading portfolio, and using leverage cautiously.

Why Trade the Soybean CFDs With Plus500?

• Advanced Trading Tools: Plus500 equips you with advanced charting tools and technical indicators, allowing you to identify soybean trends and make strategic trading decisions.
• Cost Effectiveness: High liquidity in the Soybeans market and Plus500 competitive spreads can help reduce trading costs but keep in mind that other fees may apply.
• Flexibility: You can monitor and trade Soybean CFDs across your devices, either on desktop, iOS, or Android devices.
• Fast & Reliable Execution: With Plus500's fast and reliable order execution, traders can open and close trade positions at market-available prices reducing the possibility of slippages.
• Trading Instruments: The platform provides access to a wide variety of major commodities including shares CFDs of leading soybean-related companies.

Conclusion

As the most in-demand protein-rich commodity, with a sector worth over $150 billion and a 6% compound annual growth rate (CAGR), soybeans are the most actively traded soft commodity. This translates to the extreme volatility and high liquidity of its financial derivatives, including the soybean CFD instruments.

To trade soybeans with more confidence, it is important to practise the aforementioned trading strategies and guidelines, which include implementing appropriate risk management.

Frequently Asked Questions (FAQs)

What Causes the Price of Soybean to Decline?

Factors that can cause soybean prices to decline are a strong US dollar, overproduction by large suppliers and bad news regarding soybeans.

When Can I Buy Soybeans?

Based on historical data provided by the Chicago Board of Trade in 2022, soybean prices have shown a consistent pattern of trending high from October post-harvest through June of the following year.

When Can I Sell Soybeans?

Referring to the 30-year, 15-year, and 5-year historical patterns of soybeans provided by the Chicago Board of Trade in 2022, soybean prices usually decline from June following the planting seasons in April and May.