Soybean Futures Contract
The CME (Chicago Mercantile Exchange) Soybean futures contract, reflects the price of number 2-yellow soybeans. Soybeans are physically delivered in a number locations throughout the mid-west of the United States. You can find the delivery points which are listed on the Chicago Mercantile Exchange’s web site here. The grade that can be used has several differentials, which trade as a discount of flat to the benchmark. The United States is one of the largest producers of soybeans in the world only matched by Brazil.
The Chicago Mercantile Exchange Soybean futures contract trades in cents per bushel and there are 5,000 bushels, which is equivalent to 126 metric tons, for each Globex CME futures contract. The minimum price increment is ¼ of a $0.01 which equates to $12.50 per contract. The contract trades Sunday – Friday, 7:00 p.m. – 7:45 a.m. CT and Monday – Friday, 8:30 a.m. – 1:20 p.m. CT. There are 3- different specifications that can be delivered at each of the locations listed as delivery points by the CME. These include:
- U.S. No. 1 Yellow Soybeans (maximum 13% moisture) at 6 cents per bushel over contract price
- U.S. No. 2 Yellow Soybeans (maximum 14% moisture) at contract price
- U.S. No. 3 Yellow Soybeans (maximum 14% moisture) at 6 cents per bushel under contract price
The futures contract is traded in for delivery in, January (F), March (H), May (K), July (N), August (Q), September (U) & November (X). Liquidity which is reflected by the open interest in the contracts available is approximately 1-year. This means that you will be able to get in and out of your positions without substantial slippage in trades of one year or less.
How to Trade
The soybean contract is used for speculation as well as hedging purposes. Farmers and commercials use the CME soybean futures contracts to lock in prices prior to planting and during the harvest season. There are two main drivers of the price of soybeans, which are mainly a reflection of the supply as opposed to demand which is generally stable.
Soybeans are grown throughout the United States, and the prices are traded as a differential relative to the delivery point of the CME futures contract. For example, a soybean growth in Texas would trade at a discount or premium relative to the futures contract which is called the board price (Chicago Board of Trade was the original clearing exchange and was purchased by the CME). The difference in the price is if the soybeans are a similar grade is the transportation cost of sending the soybeans from Texas to a point in the mid-west.
On a weekly basis, during the planting season, through the harvest season, the U.S. Department of Agriculture releases data on the condition of soybeans. This will categorize the condition as good to excellent, and this can be a market moving piece of information.
Additionally, the USDA will also release data describing the size and yield of soybeans between the planting and harvest season. This report describes how many acres of soybeans are likely to be harvested as well as the number of bushels expected. This type of supply data can be market moving, and generate significant volatility.
The weather is also watch carefully by soybean traders, as floods, droughts and frost can affect the yield of soybeans. The National Oceanic Atmospheric Administration supplies forecasts on the weather over the next 6-10 and 8-14 days which is widely observed, but many soybean traders pay for meteorological consultants to get multiple view of the coming weather climate. Once the harvest is over in the U.S. traders will generally switch their attention to Brazil and monitor the weather to the lead up in the Southern hemispheres harvest.