Soybean Meal Futures Strategy (Backtest And Example)

Last Updated on December 16, 2022

With high protein levels, amino acid balance, and overall nutrient content, soybean meal is the world’s choice for a non-animal protein supplement. Given the high demand for this commodity, soybean meal futures are actively traded on commodity exchanges. Want to know about the soybean meal futures strategy?

A soybean meal futures strategy refers to the methods and techniques you can use to trade soybean meal futures contracts profitably. Soybean meal futures are contracts that represent a legally binding agreement to receive or deliver the specified quantity of soybean meal 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 meal.

In this post, we answer some questions about the soybean meal futures strategy. After explaining the basics, we show you an example of a backtested trading strategy.

What are Soybean Meal futures?

Discovered since 1920, when soybean oil extraction started, soybean meal is the part of soybeans left after soybean oil has been extracted. Soybean meal is used in making both human and animal food — it is a staple in livestock and poultry diets and an important source of protein for vegans. Given the numerous uses and the high demand for soybean meal, soybean meal futures are actively traded on the CBOT commodity exchange, which is a member of the CME group.

Soybean meal futures are standardized contracts that trade on a commodity exchange, which represents a legally binding agreement to receive or deliver the specified quantity of soybean meal 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 meal.

This futures contract provides you with a way to diversify your portfolio into the soft commodity market or hedge your exposure in the market. If you are a retail trader, you can also use the contract to speculate on the future price of soybean meal.

What is a Soybean Meal futures strategy?

A soybean meal futures strategy refers to the methods and techniques for trading soybean meal futures profitably, which can include the fundamental and technical analysis strategies you can use for market timing, as well as their techniques for position sizing and risk management.

It is important to have a robust trading strategy if you want to trade futures with any success. Your soybean meal futures strategy must be able to tell you when to enter and exit a trade to make profits.

Soybean Meal futures strategy backtest

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

What is the seasonality of Soybean Meal futures?

Seasonality in soybean meal futures refers to the tendency of prices to move in a fairly predictable way during certain periods of the year, which can be the months of the year or the four seasons (winter, spring, summer, and fall) of the year.

Soybean harvest begins in September and continues through October into mid-November. As such, soybean meals tend to follow a pattern where prices begin to decline in the July-August time frame, continuing through “February break,” before reaching their seasonal highs at the beginning of the summer. See the chart below:

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

The most important factor is the price of soybean because soybean meal is produced from soybeans. Other factors include the demand from China, the availability of substitutes, and key industry reports, such as Feed Grains Demand Outlook, the USDA World Agricultural Supply and Demand Estimate (WASDE) Report, the USDA Prospective Planting Report, Grain Stocks Reports, and Crop Production Reports.

How are Soybean Meal futures traded?

Soybean meal futures contracts are traded on the CME Group’s CBOT exchange, and through the Globex electronic platform, they can be traded from anywhere around the world. On the Globex platform, the contract trades from Sundays to Fridays: 7:00 p.m. – 7:45 a.m. CT, and Monday – Friday: 8:30 a.m. – 1:20 p.m. CT. One contract unit is equivalent to 100 short tons of soybean meal, and the pricing is in US dollars and cents per short ton (STN).

There are 15 monthly contracts of January, March, May, August, and September, and 12 monthly contracts of July, October, and December listed annually after the termination of trading in the December contract of the current year. The contract expires on the 15th day of the contract month, and settlement is by physical delivery. Trading terminates on the business day prior to the contract expiry.

How do you start trading Soybean Meal futures?

You trade the contract through a futures broker, which would grant you access to the exchange where soybean meal futures contracts are traded and help to clear your trades. To get started, register with a futures broker and fund your account. Since futures contracts are leveraged instruments, you need not have the full dollar worth of the contract before you can trade it.

You may also trade the CFD of soybean meal futures via a CFD broker like 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.

What is the Soybean Meal trading at?

As of December 9, 2022, soybean meal futures were trading at $453.10. See the chart here on the CME platform chart. You can check the chart on TradingView.

Note that since the price changes from time to time, what is quoted here may not be the price it’s 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 Meal futures hour?

Soybean meal 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, but there is no reporting Monday – Thursday from 5:45 p.m. – 6:00 p.m. CT.

Where can I find trading charts?

You can get the chart on any trading platform that offers chart services. If your platform does offer charts, you can subscribe to trading charts via a third-party platform, such as MultiCharts. You can also use TradingView, which offers free access to charts of different instruments. But to connect to your broker, you have to subscribe to the Pro services. Other sources of soybean meal futures charts include Yahoo Finance.

What are the trading symbols for Soybean Meal futures?

The trading symbol and clearing product codes for soybean meal futures are as follows:

  • CME Globex: ZM
  • CME ClearPort: 06
  • Clearing: 06
  • TAS: ZMT

What is the specification for the Soybean Meal futures contract?

One contract unit of soybean meal futures is equivalent to 100 short tons (approximately 91 metric tons) of soybean meal, and the price quotation is in US dollars and cents per short ton (STN). The minimum price fluctuation is 0.1 per short ton, which translates to a tick size of $10.00.

There are 15 monthly contracts of January, March, May, August, and September, and 12 monthly contracts of July, October, and December listed annually after the termination of trading in the December contract of the current year. The contract expires on the 15th day of the contract month, and settlement is by physical delivery. Trading terminates on the business day prior to the contract expiry — the 15th day of the contract month.

Why should you start trading Soybean Meal futures?

These are some of the reasons to trade soybean meal futures:

  • To hedge against inflation, as soybean meal is a commodity and commodity prices rise with inflation
  • To secure good prices for your product if you produce soybean meal
  • To ensure a stable supply of soybean if you run a soybean meal processing plant that makes animal feeds
  • To diversify your portfolio into the soft commodity market if you are an investor
  • To speculate on price fluctuations or benefit from spread trading if you are an active trader

What is the contract size?

One contract unit of soybean meal futures is equivalent to 100 short tons of soybean meal. Given the current price of $453.10, as of writing, the total USD worth of one contract would be 100 x $453.10 = $45,310.

What is the tick size?

The tick size of one contract unit of soybean meal futures is $10.00.

What is the minimum price fluctuation for Soybean Meal futures?

The minimum price fluctuation of one contract unit is 0.1 per STN.

Are there any ETFs?

While there are no ETFs that specifically track the soybean meal market, there is an ETF that offers 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 Meal prices?

The factors that affect soybean meal prices include:

  • Soybean prices: Since soybean meal is produced from soybeans, soybean prices have the greatest effects on the price of soybean meal. High soybean prices will increase the price of soybean meal, and low soybean prices will lead to a decline in soybean meal prices.
  • The demand from China: With China being the biggest producer of livestock and the highest consumer of soybean meal in the world, its demand for soybean meal can affect prices.
  • Availability of substitutes: When substitutes, such as castor meal, rapeseed meal, linseed meal, and cottonseed meal, are readily available, the demand for soybean meal will reduce and so will the price.
  • Key industry reports: Examples include: the Feed Grains Demand Outlook; 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

What is the all-time high for Soybean Meal futures?

Based on the TradingView chart for soybean meal futures, the all-time high of the soybean meal futures contracts is $544.4. The market reached that price in September 2012.

What are the biggest risks in trading Soybean Meal futures?

The biggest risks when trading any type of futures, including soybean meal futures, come from adverse price movements. The reason is that futures are a leveraged instrument. With leveraged instruments, losses are calculated using the actual value of the contract size traded, rather than the margin deposited.

For example, if you trade with a 20x leverage, a 1% adverse movement would lead to a 20% loss, and a 5% negative movement would result in a 100% loss in your account — your account will be wiped out, and if the broker does not guarantee negative balance protection, you may end up owing the broker.

What is the settlement method?

Deliverable.

What is the settlement procedure?

Each trading day, there is a daily settlement where CME Group staff determines the daily settlements in CBOT Soybean Meal (ZM) futures on trading activity on CME Globex between 13:14:00 and 13:15:00 Central Time (CT), the settlement period.

On contract expiry, the seller delivers the specified quantity of soybean meal to the buyer. CME Group staff determines the final settlement price of the expiring CBOT Soybean Meal (ZM) futures contract based on trading activity on CME Globex between 12:00:00 and 12:01:00 Central Time (CT), the settlement period, on the day of expiration.

What is the block minimum for Soybean Meal futures?

RTH – 100

ETH/ATH – 50

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

Futures trade on standard exchanges and have expiry dates, while CFDs are offered by forex brokers and do not have expiry dates.

Which forex pair is the same as Soybean Meal futures

Soybean meal CFD

What are some important dates for this market?

These are some of the important dates in the soybean meal futures market:

  • 1920 when soybean meal was first produced
  • August 9, 1951, when the first soybean meal futures contract was traded
  • September 2012 when the market reached its current all-time high of $544.4

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

Based on the TradingView chart for soybean meal futures, the highest price soybean meal futures contracts have ever gotten to was $544.4. The market got to that price level in September 2012.

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

Based on the TradingView chart for soybean meal futures, the lowest price soybean meal futures contracts have ever fallen to was $70.2. The market fell to that level in April 1970.

Conclusion

You can use the soybean meal futures strategy to trade price fluctuations, diversify your investment portfolio into the soft commodity market, or hedge your exposure in the market.

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