Trading Soybean Futures

Trading Soybean Futures

I have always had this “trader’s fantasy” of trading soybean futures back in 2008 when “beans were in the teens” for the first time in over 20 years, but unfortunately, I completely missed that parabolic move, for reasons that are so stupid it’s ridiculous. I basically liquidated my commodity account in about 2005 so that I could fund a start-up business that basically went nowhere. It caused a very rough financial time for my family & I, and we are still somewhat in the process of recovery from that debacle. But I have never lost my passion for and love of the futures markets…I have been an off-and-on commodity trader since 2001 (more off than on, I guess), and trading is truly one of the most challenging and rewarding endeavors around. As far as trading soybeans goes, I have historically shied away from them in favor of the other grains such as corn, oats and wheat, and I think this is mainly due to the fact that beans usually have higher margins than their other grain counterparts. If you ever want to talk about a market that is notorious for intense volatility, soybean futures are the market for you. The beans are well-known for having extremely volatile moves typically during the summer months, and as I’m sure you are aware, any whispers of drought or lack of normal crop supplies, especially going into summer, can create parabolic moves to the upside. Limit moves in succession are not uncommon when things like this happen, and let me tell you, thousands of dollars can be made or lost in only hours in the soybean futures market.

Image courtesy of Google Images
Image courtesy of Google Images

Soybean Futures Trading

I have a friend who told me about one of his experiences with trading soybean futures. He and a buddy put some money together to buy a couple of soybean contracts, and then soybeans had a strong move up (I’m not sure if it was a limit move or not), and he and his buddy ended up making $25,000 in one trading day. Folks, this type of stuff is not uncommon. The sad part about it is that they got arrogant after that huge win, and ended up losing all of it back to the markets. True indeed is the saying that “the markets giveth, and the markets taketh away”. So dealing with soybean futures specifically, one contract represents 5,000 bushels of beans, making one whole uptick worth $50.00. What this means is if beans go from 750 to 751, you have just made fifty bucks (if you bought beans). Since soybeans are quoted in cents per bushel, the actual price looks more like this: 750.00, where the two places after the decimal represent quarter-moves in price. The smallest tick up (the “point”, as it’s called) is actually worth $12.50, as it is a quarter-of-a-cent per bushel price move. So then, if beans go from 750.00 to 750.25, that would equal a $12.50 move in price, and $12.50 in open profit added to your account balance—if you were long. Again, leverage is a two-edged sword, so you could just as easily lose this type of money if the price goes down when you’re long. I strongly encourage anyone who has the chutzpah to enter the arena of trading soybean futures to make sure that they can stomach the violent agitations in price that can happen in that market, especially when supply and demand fundamentals get all out of whack. Not trying to discourage anyone, just wanting to bring across a complete picture of not only the rewards of trading soybeans, but also the risks.

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