Soybean: Supply and Demand Drivers

Soybean, a versatile legume, has become a cornerstone of the global agricultural commodities market. Soy, along with corn and wheat, is one of the big three global ag commodities. Cultivated for its protein-rich, oil-bearing seeds, soybeans are value-packed and play a crucial role in both human and animal nutrition, as well as industrial applications. After harvest, most beans are further processed where the readily available oil is extracted and the remaining meal is rich in protein.

1) Key Trading Parameters:

Exchange Traded: Chicago Mercantile Exchange (CME), ICE Futures US

Price Quote: US dollars per bushel

Unit of Trade: 60-pound bushel

Futures Contact size: 5000 bushels

Contract Months: Jan, March, May, Jul, Sep, Nov

Settlement: Physical Delivery

2) Market Drivers:

  1. Supply and Demand Dynamics: Global production for soy is led by the US, Brazil and Argentina. These producers export their surplus in the form of soybeans, soybean meal and soybean oil. China and India also produce large soybean crops, but they are consumed domestically. On the demand side, China is by far the largest importer buying primarily soybeans.
  2. The Soy Complex: Unlike like corn and wheat, where trading in downstream products is de-coupled from the primary grain, trading in soybean meal and soybean oil is integrated into the futures markets. Futures traders can participate in each market separately or by trading the relationship between all three products, known as the crush margin. As an example: strong demand for edible oil might raise prices for soybean oil and, indirectly, soybeans to be processed for oil. At the same time, this increased processing activity might create surplus soybean meal, negatively impact the relative value of that component. Traders with a view on oil demand could express their bias in any, or all, of the soy complex markets. These relative value dynamics can create a myriad of trading opportunities.
  3. Livestock Sector: With 85% of the global crop destined for crushing, the value of soybeans is closely tied to livestock and poultry production. Soybean meal is ideally suited as an animal feed, high in overall protein content and balanced in essential amino acids. Incorporating protein into animal rations is critical for livestock producers to increase animal weight gain and reduce the time and money required to grow animals to maturity. Growing global demand for meat translates directly to increased need for soy.
  4. Oil demand: Soybean oil is widely used as salad oil, for frying, and incorporated into sauces and shortenings. Increasingly, soybean oil has also been used as a feedstock to produce biodiesel. Increased demand from the biodiesel sector has provided a boost to historical crush margins and prompted investment in additional soybean processing capacity.
  5. Biotechnology and Sustainability: Like corn, soy productivity has benefited from advancements in seed technology. These advances have been furthered with the use of hybrid, genetically modified (GM) seeds. The biotechnological aspect of soy production has added a layer of complexity to soy trade, though resistance to the use of GM has waned over the past several years. Soybeans have been the subject of sustainability discussions, particularly regarding deforestation in major soy-producing regions, such as the Amazon rainforest. Consumer and investor pressure for sustainable and responsibly sourced soy has increased, affecting market dynamics and supply chain practices.

3) Latest News and Analysis on Soybean

May
21

China Returns to US Soybean Market Amidst Rising Brazilian Prices

1 min read
May
13

Global Soybean Production Set to Hit Record High, Driven by Brazil and US Expansion

2 min read
May
05

Corn and Soy Biofuels Get Green Light for Sustainable Aviation Fuel Tax Credits: WSJ

1 min read
May
04

Argentina Soybean, Corn Output Threatened by Adverse Weather

1 min read
May
03

Heavy Rains Disrupt Brazil Soybean and Corn Harvest, Reuters Reports

1 min read
Apr
30

World Bank Projects Food Price Decline, But Flags Geopolitical and Climate Risks

2 min read
Apr
27

Surge in Green Diesel Feedstock Imports Disrupts US Soy Market: Bloomberg

1 min read
Apr
20

Paraguay's Record Soybean Harvest Faces River Woes | Reuters

1 min read
Apr
20

Soybean Oil Faces Competition in Renewable Diesel Boom | RBN Energy

1 min read