With applications in oils, animal feed and in our own meals, soybeans have become a staple crop in the U.S. and many other nations. While soybeans are originally from Southeast Asia, with Chinese farmers among the first to domesticate the crop, the U.S. currently both produces and exports more than any country in the world. But holding the majority of the world’s supply of this legume has made the U.S. extremely vulnerable to a new trend that looks to have a big impact on the commodity’s price [for more commodity news and analysis subscribe to our free newsletter].
Soybean Price Volatility
Soybeans reached their highest price in over 25 years last September after the U.S. drought took a major toll on the production and supply of agricultural commodities. Soybeans had already outpaced most summer returns by July, finally maxing out at $1600 per contract in early September. Even after this price correction, soybean prices have stayed relatively high since last summer. See the chart below [also see 3 Commodity Investments To Profit From Population Growth]:
Now, farmers are planting a large number of soybeans to make up for last year’s glut, which will likely cool prices down. Stockpiles are predicted to jump 116% by the end of August 2014. Historically, when the supply of a commodity tries to make up for the deficit of an unprecedented year like 2012, prices are almost sure to come down.
Playing For the Dip
Investors should take some time before the next big soybean price movement to prepare their portfolio. Below we outline ways to make a play on soybeans for investors looking to take a side on this agricultural commodity [see also 50 Ways To Invest In Agriculture]:
- Soybean Futures (ZS): The most direct way to make a play on the soybean market will be using futures contracts. Traded at the Chicago Mercantile Exchange with each contract for 5,000 bushels (about 136 metric tons), futures offer an extremely liquid way to play soybeans.
- Soybean Fund (SOYB): This ETF is the only fund to focus solely on the the soybean market. By investing in multiple futures contracts linked to the commodity, SOYB is a great play for investors looking to diversify their futures exposure.
- Archer Daniels Midland (ADM): This Illinois-based, global food processing and commodities trading corporation specializes in cereal grains and oilseeds, with soybeans being one of its main crops. With revenues close to $89 billion for the fiscal year 2012, ADM’s returns have a strong tie to the performance of the soybean market this coming summer [also see 3 Commodity Stocks To Buy On The Dip: ENB, MON, ADM].
Disclosure: No positions at time of writing.