Soybeans: Boring Beans or a Hot Commodity?

"Beans to the teens, beans to the teens!" That was the rallying cry for an earlier generation of commodity speculators. Soybeans remain a pillar of the agricultural trading complex, however many traders today ignore what they consider the "boring bean" in search of newer, faster, and more exotic markets.

Well, beans hit the teens this year, and just yesterday hit a new 3-month high due to increased demand and severe weather in the Midwest. Over the last several years, this boring bean has been in a blazing uptrend turning it into a truly hot commodity. This article will lay out the basics of soybean trading using the popular Soybean E-mini contract.

The Soybean E-mini contract is traded on the CBOT now part of the CME group. Its symbol is YK for the open auction session and XB for the electronic version. The contract months are September, November, January, March, May, July, August. The contract size is 1000 bushels and it trades in 1/8th cent per bushel or $1.25 per tick. This is opposed to the full size contract of 5000 bushels and 1/4 cent per bushel or $12.50 per tick. The daily price limit on the E-minis is $0.70 per bushel or $500.00 per contract. The exchange margin requirement is $945.00/contract initial and $700.00 to maintain the position.

The Current Fundamental Picture

Severe rains in the Midwest have curtailed US soybean production.

"We are losing soybean yield and acres," Brian Hoops, President of Midwest Market Solutions, told Bloomberg yesterday. Soybeans are the second biggest US crop behind corn and supplies appear tight for both. Bloomberg also reported that the US Government stated that soybean stockpiles will fall to 125 million in August. As AG commodities are weather dependent, the current conditions paint a very bullish picture for soybeans.

The Technical Picture

Soybeans hit a 3-month high yesterday at $15.3875; an all time high was hit on March 3rd at $15.8650. The early speculators' dream rallying call of "beans to the teens" was finally realized this year. If you look at a monthly chart, you’ll see a consistent uptrend with a sharp rise in prices since 2006.

On the weekly chart, you can see a clear uptrend to the March highs then a pull back, and now another assault on the highs. If the highs get taken out, technical analysts would say that price is likely to continue higher.

It appears that both the fundamental and technical picture for soybeans remains very bullish. I believe traders should take a serious look at the "boring bean" right about now.

Good Luck!

Dave Goodboy is Vice President of Marketing for a New York City based multi-strategy fund.