How to invest in soybeans (2024)?
Soybeans are an essential crop for the world economy and have many applications. You can invest in soybeans, soybean oil, and soybean meal by investing in soybean CFDs and ETFs through various brokers. But why would you want to invest in soybeans? In this article, we will discuss the soybean market and why it is so interesting to invest in.
How to invest in soybeans?
You can invest in soybeans through various brokers. You can buy soybeans as a raw commodity, trade CFDs, and buy futures or options.
Method 1: Actively invest in soybeans through derivatives
By far the most popular and accessible way to invest in soybeans is by investing in derivatives. You can use CFDs (contracts for difference) to speculate on price increases and decreases of the soybean price.
Note that trading CFDs is mainly meant for the short term, and due to volatility, you can achieve significant price gains, but also losses.
If you are interested in investing in soybeans, sign up for a free demo account:
Method 2: Follow the price of soybeans with trackers
If you want to invest in soybeans for the long term, you can choose trackers. Trackers are investment products designed to track the price of an underlying asset or asset. An example of a soybean tracker fund is the Teucrium Soybean ETF.
Investing in soybeans with a tracker or ETF can be very cost-effective: transaction costs on an ETF are low.
Method 3: Invest in soybean options
With options, you buy the ability to buy or sell soybeans at a certain price in the future. With options, you can achieve a lot of profit if you buy or sell at the right price, and you can determine the duration yourself. To learn more about investing in options, you can read our extensive article on investing in options.
Method 4: invest in Soybean Stocks
Lastly, it is possible to buy soybean stocks. By buying soybean shares, you indirectly invest in the price development of soybeans. When the price of soybeans increases, soybean-related companies make more profit. Good examples of companies that derive their profit from soybeans are Norfolk Southern Corporation and Farmland Partners Inc.
Of course, the price of soybeans is not 100% connected to soybean stock prices. When you invest in a company, other factors also come into play. Think, for example, of the company’s competitive position.
For this reason, it is wise to always study a company’s fundamental data before buying stocks. This procedure is called conducting fundamental analysis and is essential for any professional investor.
Do you want to know which brokers are best for buying soybean stocks? Then examine the overview below:
| Brokers | Benefits | Register |
|---|---|---|
 | Buy without commissions. Your capital is at risk. Other fees may apply. | |
 | Speculate with CFD's on increasing & decreasing prices of ! 82% of retail CFD accounts lose money. | |
 | Benefit from low fees, an innovative platform & high security! | |
 | Speculate on price increases and decreases of with a free demo! |
Method 5: Futures
You can also invest in the price development of soybeans by using futures. With a future, you buy a delivery of a certain amount of soybeans at a certain price at a certain time. Trading in futures is quite complex and large amounts are usually involved: personally, I would not recommend this way of investing.
Why could it be interesting to invest in soybeans?
- Hedge against inflation: commodity prices often rise with inflation. Commodities can therefore be a good hedge against inflation.
- Diversification: by investing a part of your money in commodities, you add diversification to your portfolio. This reduces the volatility of your investments as a whole.
- High demand in America: 50% of the demand for soybeans comes from America. This demand is growing strongly: people are increasingly looking for healthy food.
What are soybeans used for?
Although most soybeans are used for the extraction of soybean oil (used as a vegetable oil for culinary purposes) and soybean meal (mainly used as a raw material for agriculture), whole soybeans are also tradable.
Soybeans are edible, and if you’ve ever been to a sushi restaurant, you may have been offered soybeans as a starter, called Edamame in Japanese.
The United States dominates the soybean market and accounts for more than 50 percent of the total global production. Brazil is a distant second with about 20 percent of the market. The US harvest begins in September and soybean production is cyclical.
How is the price of soybeans determined?
The price of soybeans is determined by the interplay of supply and demand. When demand is higher or supply is smaller, the price can rise.
The price of soybeans is often correlated with the prices of other grains such as corn and wheat. In addition, there are some economic factors that influence the soybean price:
1. Production in the US
The United States is the largest producer and exporter of soybeans. Events in that country are crucial to follow when investing in soybeans. Political factors such as harvest subsidies can have a significant effect on prices. Additionally, weather conditions in the US can affect production figures.
2. The US Dollar
The US Dollar is the world’s reserve currency. As a result, soybeans and other commodities are quoted in US dollars. When the dollar becomes more expensive, so does the price of soybean since foreign investors pay in other currencies for soybeans. A high dollar price can therefore put pressure on the price of soybeans.
3. Demand for Soybeans from Emerging Markets
China imports more soybeans than it produces. As the economy grows, the demand for agricultural commodities will increase. India and emerging countries in Africa will also need more food to feed their people as their economy grows.
As emerging market countries become richer, their consumption of meat is likely to increase. Since soybean meal is used to produce animal feed, this should also increase prices for the commodity.
4. Alternative Oils
Oils produced from soybean meal compete with many other oilseeds, including castor, rapeseed, linseed, and cottonseed. These alternative oils are taking an increasingly larger share of the soy oil market. Eventually, the pricing and availability of alternative oils could have an effect on soybean pricing.
5. Ethanol Subsidies
The US government heavily subsidizes corn farmers to stimulate ethanol production. At the beginning of the growing season, US farmers make choices about planting corn and soybeans. If corn subsidies were to end, farmers could devote more agricultural land to soybeans. The resulting increase in soybean supply would likely put pressure on prices.
6. Consumer Taste
Consumer taste constantly fluctuates. When consumers consume more soybeans, demand and price will also increase. In Japan, for example, raw soybeans are consumed as a snack under the name Edame.
Why it may be wise to invest in soybeans
Soybean oil, better known as vegetable oil, is an extract of soybeans. Soybean meal is another extract of soybeans that is a protein-rich food with a high energy content, mainly used as a raw material for cattle, pigs, and poultry.
Soybean oil is the most used culinary oil in the United States and the rest of the world, partly due to its healthy nutritional characteristics. Soybean oil is also becoming an increasingly popular additive in alternative energy technology such as biodiesel.
Both the demand for healthy food and alternative energy sources are increasing, which can give the price of soybeans a positive boost.
Disadvantages of investing in soybeans
Since soybeans are a primary component of animal feed, soybean prices can only rise as much as the government allows. This is due to the increasing costs of soybean meal and oil, which will raise the price of many consumer products, from meat to soy kitchen items to many other commercial products.
Furthermore, there is a potential risk of overproduction if farmers decide to allocate more land to soybeans to meet increasing demand. Last but not least, soy is also vulnerable to replacement by other grains and oils.
Investing in soybeans with leverage and short positions
If you want to actively invest in soybeans, you can do so by trading in soybean derivatives or soybean CFDs. This way of investing in soybeans has two advantages. You can use a leverage, and you could also speculate on a declining soybean price by going short.
With leverage, you can make a large investment in soybeans with a relatively small amount of money. With a leverage of 1:5, for example, you can trade in soybean CFDs with only 100 dollars, but worth up to 500 dollars. A 10% increase in the soybean price would then result in a profit of 50%. Unfortunately, the opposite is also true: when the price falls by 10%, you lose 50% of your investment.
Investing through leverage means that your potential profits and losses are multiplied. This is especially useful for investors who want to invest in soybeans or the stock market in general with little money.
As I mentioned above, you can also open a short position. With a short position, you speculate on the decline in the current soybean price. Keep in mind that going short is a tactic for experienced investors and that the risks associated with short selling are significantly higher than simply buying or going long.
Do you want to try active investing? Use the button below to open a free demo account with a CFD broker:
Investment tips for trading soybeans
Investing in soybeans is one of the best ways to speculate on a weak US dollar and higher inflation in the United States. Since agricultural commodities, such as soybeans, are priced in US dollars, the performance of the world’s largest economy plays a crucial role in their pricing.
The easy-money policy of the US Federal Reserve Bank has kept the US dollar weak. Moreover, US central bankers are likely to continue this policy to support consumer borrowing and spending. A weak dollar could fuel inflation problems and drive up soybean prices.
