Soybean Futures Strategy (Backtest And Example)

Last Updated on December 16, 2022

Soybean has become one of the world’s most extensively cultivated commodities due to its versatility. As a result, the trading volume of soybean futures is now second only to that of crude oil, maize, and natural gas. Soybeans are a staple food for people all over the world, its products, soybean meal and soybean oil, have a wide range of uses. Want to trade a soybean futures strategy?

A soybean futures strategy refers to the methodologies and techniques you can use to trade soybean futures contracts profitably and would include technical and fundamental analyses of the soybean futures market. Soybean futures are futures contracts with soybean as the underlying asset.

Such contracts represent a legally binding agreement to receive or deliver the specified quantity of soybean on a future date, at a pre-agreed price. The contract trades on the CME Globex platform and is settled by the physical delivery of the specified quantity and quality of soybean.

In this post, we answer some questions about the Soybean futures strategy. After explaining the basics, we show you a backtested trading strategy.

What are Soybean futures?

Soybean futures are futures contracts whose underlying asset is soybeans. A soybean contract represents a tradable and legally binding agreement to receive or deliver the specified quantity of soybean on a future date, at a pre-agreed price. The contract trades on the CME Globex platform and is settled by the physical delivery of the specified quantity and quality of soybean at the expiration of the contract — the seller of the soybean futures contract delivers the specified quantity and quality of soybean to the buyer through the exchange.

Traders who just want to speculate on the soybean price without getting involved in the delivery can close out their trades before expiry or roll over their contracts. Commodity speculators love to trade soybean futures because of its liquidity and the opportunities to take advantage of price fluctuations. You can use the contract to hedge future price charges, diversify your portfolio, or simply trade price fluctuations.

What is a Soybean futures strategy?

A soybean futures strategy refers to the methods and techniques you can use to profitably trade the soybean futures market. This strategy should include technical and fundamental analyses to find appropriate entry and exit signals.

In performing fundamental analysis, you study the USDA reports for soybeans, including weather and crop production and demand, and also consider other macroeconomic factors. With technical analysis, you should be able to look at the soybean futures chart to determine the best entry point to purchase a contract so you don’t buy too high and risk a huge loss. In addition to your analysis for entry and exit signals, you need to have some risk management and trade management techniques.

Soybean futures strategy backtest

A strategy backtest with trading rules and settings is coming shortly.

What is the seasonality of Soybean futures?

When it comes to financial trading, seasonality refers to the tendency of an asset’s price to move in a fairly predictable way during certain periods of the year. The periods here may refer to the months of the year or the four seasons (winter, spring, summer, and fall) of the year.

Soybean futures have been noted to perform poorly in the summer months. It performs well during the winter and spring seasons. Its performance during the fall season is mixed. See the chart below:

Soybean futures strategy
Source: Equity Clock

What moves the Soybean market What affects the Soybean market the most?

The most important factor is the weather conditions in the US and Brazil, as those two countries account for about 70 percent of soybean export. When there are adverse weather situations in those countries, soybean prices tend to rise.

Another important factor is the reports from the USDA, such as the USDA World Agricultural Supply and Demand Estimate (WASDE) Report, which forecasts the demand and supply from various regions; the USDA Prospective Planting Report, which indicates the crop farmers prefer to plant; Grain Stocks Reports, which offers updates on stocks of soybeans; and Crop Production Reports.

How are Soybean futures traded?

Soybean futures contracts are traded on the CME Group’s futures exchange in full and mini contract sizes. The contract trades from Sunday to Friday, 7:00 p.m. – 7:45 a.m. CT, and Monday to Friday, from 8:30 a.m. – 1:20 p.m. CT. Trading on CME’s Globex electronic platform, the contract can be traded from anywhere.

The full contract size is 5,000 bushels of soybean, while the mini contract size is 1,000 bushels of soybean. The price quotation is in US cents per bushel.

There are 15 monthly contracts of January, March, May, August, and September, and 8 monthly contracts of July and November listed annually after the termination of trading in the November contract of the current year. Settlement is by physical delivery method, and trading terminates on the business day prior to the 15th day of the contract month.

How do you start trading Soybean futures?

You trade the contract through a futures broker, which grants you access to the CME Group’s exchange where soybean futures contracts are traded. To start trading, you have to register with a futures broker and fund your account. It may also be possible to register directly with the Globex trading platform but you need a broker to clear your trades.

If you just want to speculate on price movements, an alternative is to trade the CFD of futures contracts via an online CFD broker, such as IG. With a CFD contract, you are in an agreement with the broker to exchange the price difference between the opening and closing of a trade. CFDs enable you to trade price fluctuations without having to worry about the rigors of asset delivery in direct futures trading.

What is the Soybean trading at?

Soybean futures were trading at 1480’2 USX (US cents) as of December 13, 2022. See the chart here on the CME platform chart. The chart was captured from TradingView.

As the price changes from time to time, what is quoted here may not be the price it would be trading when you are reading this post. To get the real-time price on the CME platform or directly from TradingView, click either of those links.

What’s Soybean futures hour?

Soybean futures trading hours on the CME Globex electronic platform are as follows: Sunday to Friday, from 7:00 p.m. – 7:45 a.m. CT, and Monday to Friday, from 8:30 a.m. – 1:20 p.m. CT.

For Trading at Settlement (TAS), the schedule is Sunday – Friday 7:00 p.m. – 7:45 a.m., and Monday – Friday 8:30 a.m. – 1:15 p.m. CT.

CME ClearPort’s schedule is Sunday 5:00 p.m. – Friday 5:45 p.m. CT with no reporting Monday – Thursday from 5:45 p.m. – 6:00 p.m. CT.

Where can I find trading charts?

Charts can be found on any trading platform, provided it offers chart services. If your platform does offer charts, you can subscribe to trading charts via a third-party platform, such as MultiCharts.

Alternatively, you can also use TradingView, which even offers free access to charts of different instruments. However, if you want to connect to your broker, you have to subscribe to the Pro services. You can also access the TradingView chart via the CME platform.

Another option is Yahoo Finance, which is also free, but has fewer tools for technical analysis when compared to TradingView.

What are the trading symbols for Soybean futures?

There are two contract specifications for soybean futures on the CME’s Globex platform: the full contract and the mini contract. The full contract’s trading symbol is ZS, while the micro contract’s symbol is XK. The product code on CME ClearPort is C for the full contract and YK for the mini contract.

What is the specification for the Soybean futures contract?

One full contract of soybean futures is equivalent to 5,000 bushels (approximately 136 metric tons) of soybean, while one mini contract is equivalent to 1,000 bushels (approximately 27 metric tons) of soybean. The price quotation is in U.S. cents per bushel. The minimum price fluctuation of the full contract is 1/4 of one cent (0.0025) per bushel = $12.50; that of the mini contract is 1/8 cent (0.00125) per bushel = $1.25.

For both contract sizes, there are 15 monthly contracts of January, March, May, August, and September, and 8 monthly contracts of July and November listed annually after the termination of trading in the November contract of the current year. Settlement is by physical delivery method, and trading terminates on the business day prior to the 15th day of the contract month.

Why should you start trading Soybean futures?

There are many reasons to trade soybean futures. These are some of them:

  • Since soybean is a commodity and commodity prices rise with inflation, you trade the contract to hedge against inflation.
  • You can use the contract to secure good prices ahead of harvest if you are a soybean farmer
  • If you make livestock feed or run a soybean processing plant, you would trade the contract to ensure a stable supply of soybean
  • If you are an investor, you may trade the contract to diversify your portfolio
  • If you are a short-term trader, you may trade to speculate on price fluctuations or benefit from spread trading

What is the contract size?

One full contract of soybean futures is equivalent to 5,000 bushels of soybean, while a mini contract is equivalent to 1,000 bushels of soybean. The price of a bushel of soybean as of writing is 1480’2 cents or $14.80. So, the USD worth of a full contract of soybean is 5,000 x $14.80 = $74,000. That of the mini contract would be 1,000 x $14.80 = $14,800.

What is the tick size?

The tick size of one full contract of soybean futures is $12.50 per tick per contract, while the tick size of the mini contract is $1.25 per tick per contract.

What is the minimum price fluctuation for Soybean futures?

The minimum price fluctuation of the full contract is 1/4 of one cent (0.0025) per bushel, while that of the mini contract is 1/8 cent (0.00125) per bushel.

Are there any ETFs?

Yes, there is an ETF that offers pure-play exposure to soybean prices — Teucrium Soybean Fund (SOYB). The fund tracks an index of soybean futures contracts. SOYB reflects the performance of soybeans by holding Chicago Board of Trade soybean futures contracts with three different expiration dates.

What factors affect Soybean prices?

These are some of the factors that affect soybean prices:

  • Weather conditions in the US and Brazil, as those two countries account for about 70 percent of soybeans export — adverse weather situations in those countries can affect soybeans prices.
  • Some reports from the USDA, such as the USDA World Agricultural Supply and Demand Estimate (WASDE) Report, which forecasts the demand and supply from various regions; the USDA Prospective Planting Report, which indicates the crop farmers prefer to plant; Grain Stocks Reports, which offers updates on stocks of soybeans; and Crop Production Reports.
  • Lack of ethanol subsidies from the U.S. government — this can push farmers to devote more acres to soybeans, thereby increasing supply and pushing down prices.

What is the all-time high for Soybean futures?

Based on the TradingView chart for soybean futures, the all-time high of the soybean futures contracts is 1789’0 US cents, which it reached in September 2012.

What are the biggest risks in trading Soybean futures?

The biggest risk when trading soybean futures comes from adverse price movement, which can be disastrous when overleveraged. As a leveraged instrument, soybean futures can give oversized losses because the losses are calculated using the actual value of the contract size traded, not the margin deposited by the trader. With a 20x leverage, a 5% negative movement would wipe out your account.

What is the settlement method?

Deliverable

What is the settlement procedure?

There is the normal daily settlement where CME Group staff determines the daily settlements in CBOT Soybeans (ZS) futures based on trading activity on CME Globex between 13:14:00 and 13:15:00 Central Time (CT), the settlement period.

On expiry, the contract is settled by the delivery of the specified quantity of soybeans supervised by the exchange.

What is the block minimum for Soybean futures?

RTH – 200

ETH/ATH – 100

What is the difference between Soybean futures and the CFD for Soybean?

Soybean futures trade on commodity exchanges and have expiry dates, while soybean CFDs are offered by online forex brokers and can be traded without expiry.

Which forex pair is the same as Soybean futures

Soybean CFD

What are some important dates for this market?

Some important dates in the soybean futures market include:

  • 1848 when the Chicago Board of Trade (CBOT) was formed
  • October 5, 1936, when the first soybean futures contract was traded
  • September 2012 when it reached its current all-time high of 1789’0 US cents

What is the highest Soybean has ever been its all-time high?

Based on the TradingView chart for soybean futures, the highest price soybean futures contracts have ever reached was 1789’0 US cents, which happened in September 2012.

What is the lowest Soybean has ever been its all-time low?

Based on the TradingView chart for soybean futures, the lowest price soybean futures contracts have ever fallen to was 237’0 US cents, which happened in March 1969.

Conclusion

You can use the soybean futures strategy to speculate on the direction of soybean prices, diversify your portfolio into the soft commodity market, or hedge your exposure in the market.

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