Grain opportunities for the future- Soybeans

Just like in corn, the United States is the world's largest producer and exporter of soybeans. Thirty-one states in the U.S. produce approximately one-third of the world's annual soybean crop. Brazil is another important producer. As the two largest producers of the grain are in different hemispheres, production is ongoing. When it is summer in Brazil, it is winter in the U.S. and vice versa. Japan is the world's largest importer of soybeans, which is a staple in the nation's diet.

An important foodstuff and staple for human being around the world, soybeans and soybean oil have many applications in our daily diet. Soybean meal, another product of the soybean crush, is feedstock for animal protein such as beef, pork and poultry. The crush spread in soybeans is the process of crushing the beans to produce soybean oil and soybean meal. Just like in crude oil, where the crack spread is the economics of refining or processing raw crude oil into oil products, the crush spread in soybeans reflects the economics of processing raw soybeans into soybean products.

Today, global annual consumption of soybeans is at around 87 pounds or around 2 bushels for each person on earth. Given population growth and global demographics demand for soybeans, and all grains, is bound to grow. An interest statistic is that given the current rate of global consumption in the soybean market, every three minutes the planet adds 441 people.

This translates to an additional annual demand of 643 bushels of beans.

Soybeans have a history of being one of the most speculative grain markets. The volatility of the soybean market draws speculators into the market. Soybeans made all-time highs at $17.9475 per bushel in September 2012. Since then, prices have moved lower.

This year, prices breached the $10 level. Mother Nature has cooperated with all grain markets, including soybeans, over the past two growing seasons and the result has been bumper crops. While expectations are for another year of bumper crops on 2015, only Mother Nature knows for sure what the weather will be. Weather is always the chief determinate of the path of prices in grain markets. Crop disease and weather disturbances (either too much rain or too little) can always throw a monkey wrench into even the best analyst's expectations. Meanwhile, there are a few reasons that soybeans could be shaping up to provide some excellent trading and investing opportunities right now.

First, the absolute price level of soybeans presents an opportunity in itself. Soybeans are down over 40% from the highs. The lower the price of beans goes the less downside considering where they have been in the recent past. Second, soybeans are the only grain that is currently in backwardation, deferred new crop prices are trading below nearby old crop prices. The old crop July soybean futures contract traded on the Chicago Board of Trade (CBOT) division of the Chicago Mercantile Exchange (CME) was at $10.435 per bushel on July 10, 2015 while the new crop November contract was trading at $10.22 on the same day.

The backwardation of 21.5 cents indicates that supplies of beans are currently tight. It also assumes that this year's harvest will fill in any market tightness. This is a leap of faith that depends on Mother Nature's cooperation in providing ideal growing conditions. Finally, crush spreads have moved higher over recent months. In April 2015 the synthetic soybean crush spread that trades on the CBOT was at the $7.58 per bushel level. As of July 10, this spread moved to $10.36 per bushel, an increase of 37%. This tells us that the demand for soybean products, oil and meal, has increased as the price of raw soybeans moved lower. This is a bullish indicator for the price of raw soybeans, it is indicative of underlying demand. When crude oil was moving to the lows in January through March of 2015, the crack spreads moved higher signaling increasing demand for oil products and crude oil, by extension.

As a result, crude oil found a bottom and has since moved higher from $42 to $60 per barrel. These days we are seeing the same type of action in the soybean market, which could result in the same type of reaction in months ahead.

For many reasons the soybean market offers some interesting opportunities to traders and investors lately. Soybeans trade on the futures exchange and there are ETF and ETN products that reflect price action in this important grain market. There are always opportunities in the grain markets, today soybeans could offer some of the best for the future.