Soybeans are king of the speculative trading "soy" complex. The complex includes soybeans, soymeal and soybean oil. Soymeal is used primarily as feed. Poultry and cattle producers use the majority of soymeal. The majority of soybean oil is used for cooking and salad oil.For about $1200 of account margin you can control a 5,000 bushel contract of Soybeans worth about $35,000. A 10 cent move equals $500. (example: a move from 750 to 760)For about $600 you can control 60,000 pounds of soybean oil worth about $16,000. A $1 move equals $600. (example: 28 to 29)For about $900 you can control 100 tons of soymeal worth about $20,000. A full 10 point move equals $1000. (example: 210 to 220)As you can see, you are permitted the privilege of tremendous leverage. There is great potential for both profit or loss if you choose to use it. Bear in mind you are NOT required to use leverage and may deposit all or any part of the contact's value into your account. For example, if you maintain $35,000 in your account for one contract of soybeans, you have 100% of the soybean contract covered and essentially are not trading on leverageRecently, soybean oil has attained notoriety as an alternative fuel source. (Bio-diesel) Similar attention goes to corn / ethanol fuels.
There is a trading strategy based on the processing of soybean products. It's called a "crush" spread. It works by buying one soybean contract; then sell one soybean oil and one soymeal contract. To profit, you want the soybean contract to gain on the soybean oil and meal contracts. A "spread" is the difference between the two legs.There is also a "reverse crush" spread. You would sell one soybean contact; then buy one soybean oil contract and buy one soy meal contract. Notice that one soybean contract ($35,000) is worth roughly the same value as an oil and meal contract.($16,000 and $20,000) Thus, this is a reasonably balanced spread.Soybeans, soybean oil and soymeal futures all tend to trend in the same direction but still have different patterns and habits. It's a good idea to buy the strongest of the three and sell the weakest of the three. One way to determine the strongest is to watch the chart's rising bottoms in an uptrend. Pick the commodity making the highest bottoms. You want the one with the most inclined stair step uptrend. This is the strongest of the group to buy. You can also see this evidence when comparing a sideways bottom formation between the three. Reverse this for analyzing a topping area to sell short.For the serious trader, soybean complex futures and options are one of the top trading commodities. They have it all; liquidity, volume, open interest and great moves up and down. The charts show many classic patterns. Look for triangles, head and shoulders, breakouts, spikes and gaps. Soybeans can be a chartist's dream. Beans also exhibit regular seasonal and cyclic patterns to use as rough guidelines.The soybean market often trends for long periods of time because it's based on a specific crop. In the last forty years, the lowest price was in 1968 at $2.38 a bushel. The all-time high is 1973 at $12.90.The rallying cry of the bean bulls has been "Beans in the teens!" It may happen one day.In the last five years, Brazil and Argentina have become big soybean producers. Their seasonal harvests are the reverse of the U.S. American traders need to keep an eye on our southern neighbor's production and growing seasons. Some say soybeans will never approach the old highs because of these new suppliers in the market. Never say never.Of course, weather is a major market mover. During the summer, big moves can occur around monthly or weekly reports. Selling into these reports can be profitable. Fifty-cent limit moves ($2500) are not unusual when the market is rolling and a report comes out.The soybean complex lends itself to all types of different strategies in options and futures. Spreads, straddles, strangles and synthetics are all good ways to trade when the forecast is high probability.
The CBOT has recently started trading electronically as well as overnight in a shortened session. At this time, all soybean complex options continue to be pit traded.Wheat Futures and options are probably the most volatile of the grain group. Wheat can move very quickly. Wheat is better suited to an intermediate level commodity trader wanting quicker results and more risk. Wheat futures and options can trade counter to corn and soybeans. This is probably because rain is not as important to wheat as to corn and soybeans.Over the last forty years, wheat has traded as low as $1.20 in the late 1960's and as high as $7.50 in the mid 1990's. One dollar a bushel moves can occur when the market is active. ($5,000) Hang on to your hat when trading wheat. There is an old trader's adage that goes, "Don't sell your wheat until it boils!" It's true that wheat has a tendency to end a bull campaign with fireworks and spike tops. Panic shortages are unique to commodities. Shortages rare in the stock market.Good Trading!There is substantial risk of loss trading futures and options and may not be suitable for all types of investors. Only risk capital should be used.
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