Soybeans Trading: Stocks, ETFs and Derivatives

Soy, a member of the legume family is a staple crop for the diet of humans and many animal species. It stands out for its healthy properties and low fat content.

In 2021, Soy was the world's 42nd most traded products (out of 1,217 products). Making soybeans trading a great choice for traders. This sign and other indicating factors show that the market value of this agricultural raw material will increase. According to the United Nations, the world population will reach 9.7 billion people by 2050 and could reach 10.4 billion by 2080. Hence the consumption and need of soy will undoubtedly increase.

investing soya oil

In addition, soy bean is an important component of the animal feed. It is the most common protein component in the feeding of pigs, poultry and dairy cattle.

Therefore, investing in a commodity of this potential growth over the next couple of years is important and investors don't want to miss the opportunity.

Do you have interest investing in this commodity? Or you want learn how to invest in soy? Proceed on this guide to find the key fundamentals and the financial instruments to do so.

History of Soybeans

The origin of soy dates back to around 1100 B.C., when Chinese farmers first domesticated it.

In the first century A.D. its cultivation began in Japan, Korea and other regions of Asia, where it was used as food and a component for medicines.

By the mid-19th century, soy had arrived in the United States and by the 1870s, this crop had gained great popularity among farmers.

A notable fact is the introduction of soy in countries like Brazil and Argentina, which play a very prominent role in its global trade.

Being a vegetable source of protein, soy is a highly nutritious food and low in cholesterol. It has been cultivated for thousands of years at a low cost and its growth in the market has been vertiginous, thanks to the demand and benefits of its widespread use.

The approximate composition of soy is as follows:

  • 35%-40% protein.
  • 15%-20% fats.
  • 10%-13% moisture.
  • 30% carbohydrates.
  • 5% minerals and ashes.

The social public relation of health sectors encouraging individuals to practice healthier eating habits is without no doubt one of the determining factor for the growth in demand for this raw material.

From soy, derivatives such as flour, meal and oil are obtained. In addition, it is an alternative to meat and dairy products as it is used to produce soy milk and sometimes cheese.

Its use extends to animal feeds, aquaculture, and biofuel production. The legume species is present in textiles, adhesives, wood products and cleaning supplies.

Importance of Soy in Agriculture

Soy benefits farmers by helping them fix the atmospheric nitrogen necessary for the growth and development of plantations. The legume does this through the Nitrogen-fixating bacteria it houses in it root noodles. The bacteria pull nitrogen from the atmosphere, convert it to the form plants can use, fix it into the soil of the plantation. The soy plant absorbs this nitrogen to produce it protein content.

Also, it helps to clear the field for other crops, promote fertilization and soil conservation.

On the other hand, the crop rotation of soy with corn and wheat is beneficial for the health of the soil. The rotation increases organic carbon and nutrients. In addition, it reduces pests and pathogens in crops, making them more profitable.

Furthermore, soy helps to mitigate the impact of greenhouse gas emissions in agricultural systems.

The economic feasibility of soy is associated with the commercial use of its derivatives. Soy flour represents almost two-thirds of production, while soy oil accounts for one-third of the economic value of the crop.

Conclusively, soy is one of the most widespread crops around the world. Its fundamental role in food security stands out, as well as in agricultural sustainability. It has a high concentration of protein and oil in the seeds and requires little nitrogen fertilization.

According to the market research firm, Research and Markets, only the soy flour market will experience an annual growth of 5.1% between 2021 and 2028, going from 55.7 to 78.2 trillion dollars:

Main Soy producers

The Statista Graph below represent the highest Soy producing countries worldwide from 2012-2023, expressed in millions of metric tons:

According to the graphical representation, the total world grain soy production reached 388.01 million metric tons in the 2022/2023 harvest.

Brazil is the largest soy producer with 153 million metric tons, which represents 39.4% of the market. The South American country has been the global leader for 5 of the last 6 years.

The second largest producer is the United States with 116.38 million metric tons, for a 30.0% of the total. The northern colossus led the production between 2012 and 2016, and one last time, in 2018.

The third largest producer is Argentina with 45.5 million metric tons of soy, which represents 11.7% of the total world. However, the southern country has been reducing its production in recent years due to various factors, such as the imposition of withholdings on exports and poor weather conditions. Argentina produced 61.4 million metric tons in the 2014/2015 season.

The top-5 is completed by China and India with 20.33 and 12 million metric tons, respectively.

Main soy consumers

China consumes the most soybeans, followed by the United States, the European Union, and Brazil. These countries and regions maintain large livestock and poultry operations, so they require large amounts of meal.

They also use the raw material to manufacture soybean oil, as well as other derivatives. In fact, China leads the world production of soybean oil.

Trends and statistics in soy consumption

Soy is expected to reach a total consumption value of 192.68 trillion dollars by 2028.

It important to note that in the last season, 2022/2023, the highest consumption of soy meal worldwide was recorded, exceeding 252 million tons.

Another factor to consider is the awareness of healthy eating, including the adoption of veganism, which has boosted the consumption of soy and it derivatives.

Factors affecting Soy Prices

As with most commodities, the price of soy is affected by structural factors such as demand and supply. Other important factors are as follows:

  • The US dollar: The US dollar being one of the major exchange currency this commodities affect it prices. Therefore any fluctuation in the dollar price will influence the price of soy.
  • Emerging markets: The demand for soy is linked to the growth of the economy of emerging markets such as India, China, and South Africa. These market require greater imports of the product as human and livestock food or to manufacture it derivatives such as soybean oil.
  • Substitute products: Rapeseed, flaxseed, and castor oils, to name a few, are competitiors for soybean oil. The production and demand for these oils can have an effect on the price of this important derivative.
  • Ethanol subsidies: The United States provides incentives to corn farmers in order to increase ethanol production. If the government stop the subsidies, a greater number of farmers could choose soy cultivation. This would undoubtedly boost supply and have an effect on the crop price.
  • Climate change: Heat, drought, and extreme weather events can have a strong impact on the yield of global soy production.

Soybean Trading

As said earlier, soy is a fast growing commodity that is a very important and versatile as other commodities. But if you want to make the most of the market It is best to get to the pool earlier to obtain the long-term return of investment. You can invest in the soy commodity using four different financial instrument, they include:

1. Soybean Futures

The futures represent a mandatory agreement between two parties for the purchase and sale of soy at a future date and at a predetermined price.

Futures are standardized derivative contracts that are traded on an electronic exchange, such as the Chicago Board of Trade (CBOT), specialized in agricultural products.

They are operated with margin (leverage), which is why their risk is greater than when operating a spot asset. In addition, you can avoid physical delivery through the contract rollover process.

Investing in soy through futures has two major advantages:

  • These instruments are traded on a centralized and regulated exchange where operations are crossed, so there is great transparency in price setting.
  • The commissions are very low compared to other instruments such as CFDs.

👉 Know about low and zero commission fee Brokers for a cost effective investment plan.

Here are some of the main contracts that ypou can negotiate on the different exchanges:

  • CBOT: ZS (Grains).
  • CBOT: XK (Mini-Grains Contract).
  • CBOT: ZL (Oil).
  • CBOT: ZM (Meal).
  • TOCOM-Tokyo: TGSB.
  • BOVESPA-Sao Paulo: SOY.
  • MATbaROFEX-Buenos Aires: SOJ.ROS.
  • MATbaROFEX-Buenos Aires: SOJ.ROS.M (Mini Contract).

2. Shares of companies related to Soybeans

Purchasing spot shares of agricultural companies and other related sectors represents an indirect investment in the soybean market. Also, you can also buy a pot of shares in companies that only deal in soy and it derivatives without other agricultural products.

In this case, you are not acquiring the raw material, but shares of companies that produce or market this basic product and its derivatives or others that participate in the value chain.

You earn money with stocks through the payment of periodic dividends and/or the increase in their stock market value.

Among the most relevant companies to invest in soybeans that we can find are:

  • Archer-Daniels-Midland Company (NYSE: ADM).
  • Bunge Limited (NYSE: BG).
  • Adecoagro S.A. (NYSE: AGRO).
  • International Flavors & Fragrances Inc. (NYSE: IFF).
  • SunOpta Inc. (NASDAQ: STKL).
  • CHS Inc. CL Pref. (NASDAQ: CHSCL).
  • The Hain Celestial Group Inc. (NASDAQ: HAIN).
  • Evogene (NASDAQ: EVGN).
  • Kikkoman Corp. (Tokyo: 2801).
  • Fuji Oil Co. Ltd. (Tokyo: 2607).
  • House Foods Group Inc. (Tokyo: 2810).
  • Morinaga Milk Industry Co. Ltd. (Tokyo: 2264).
  • Pulmuone Holdi Corporate (Seoul: 017810).
  • Evonik Industries AG (XETRA: EVK).
  • DSM Firmenich AG (Amsterdam: DSFIR).
  • CHR Hansen Holding A/S ADR (OTC: CHYHY).
  • Ajanta Soya Ltd. (BSE-Bombay: AJAS).

3. Soybean-based ETFs

An Exchange Traded Funds (ETFs) is a similar to group investment instrument to a mutual fund. ETFs invest in a specific group of assets, such as stocks, indices and soy futures, in exchange for the payment of a management fee.

The ETF combines the characteristics of a stock with a mutual fund. It can be bought and sold through shares at any time and at our discretion.

The management expense fee may be higher or lower depending on the type of management (active or passive) required by the fund. This is a crucial aspect when choosing an ETF.

There are distributive ETFs that distribute dividends and others that only generate profits from their appreciation.

Here are some of the best ETFs based on soybean assets (pure or diversified) are:

  • Teucrium Soybean Fund (NYSE: SOYB).
  • WisdomTree Soybeans (London: SOYB).
  • WisdomTree Soybean Oil (London: SOYO).
  • UBS Bloomberg CMCI Components Total Return Soybeans USD ETC (London: SOYU).
  • ChinaAMC Feed&Soybean Meal Futures ETF (Shenzhen: 159985).
  • Samsung KODEX Soybeans Futures Special Asset ETF Hedged (Seoul: 138920).
  • Paradigm S&P GSCI Soybeans ER Futures (Taiwan: 00693U).
  • Teucrium Agricultural Fund (NYSE: TAGS).

These funds have a large weight of soybean-based derivatives that seek to replicate the price of this crop.

4. CFD with Soy Exposure

CFDs or Contracts for Difference are derivatives that allow you to speculate on the price of an asset, but without actually acquiring the underlying.

They also operate with margin and their risk is quite high due to leverage. Large profits can be made, but potential losses increase in equal measure.

To invest in soybeans there are CFDs that follow futures contracts and CFDs that follow shares of companies that participate in the soybean value chain.

Keep in mind that, unlike futures, CFDs are not traded on a single market. On the contrary, it will be the broker who makes the counterpart to all your operations.

Also, the commissions that brokers charge for operating with CFDs on soybean assets are based on the spread, which can be burdensome.

Now that you know the key factors that drive the price, the structure of supply and demand, as well as the financial instruments available to invest in soybeans, would you be interested in participating in the direct or indirect trade of this agricultural commodity?

More about investing in commodities

FAQs about Soy Investment

Can I buy stock in soy investment?

Yes, you can. You can also invest in the soy market through futures, ETFs, and CFDs.

Is Soy a good investment?

Soy is a commodity. Because they are used to make staple pantry products and animal feed, they continue to have demand even when the market is struggling, which could make them a good investment

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