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Soybeans


General Characteristics

 - Soybean is an important global crop and processed soybean is the largest source of protein feed and second largest source of vegetable oil in the world. 
 - The major portion of the global and domestic crop is solvent-extracted with hexane to yield soy oil and obtain soymeal, which is widely used in the animal feed industry. It is estimated that above 85% of the output is crushed worldwide. 
 - Though, a very small proportion of the crop is consumed directly by humans, soybean products appear in a large variety of processed foods. 
 - The cultivation of soybean is successful in climates with hot summers, with temperatures between 20°C to 30°C being optimum. Temperatures below 20°C and over 40°C are found to retard growth significantly. 
 - It can grow in a wide range of soils, with optimum growth in moist alluvial soils with a good organic content. 
 - Modern soybean varieties generally reach a height of around 1 m (3 ft), and take 80-120 days from sowing to harvesting. 
           
Soybean Fields




Soybean crops in the top producing countries

Global Market

 - The annual global soybean production has been in the range of 250-300 million tonnes in the recent years, accounting for 55-58% of total global oilseed output of around 400-500 million tonnes. 
 - US, Brazil, Argentina, China and India are the major producers in order of production with production in these countries ranging around 80-90, 70-80, 40-50, 14-16 and 8-10 million tonnes in the recent couple of years. 
 - Weather, acreage under other competitive crops like corn, cotton and pests & diseases are the major factors influencing production. 
 - While in US, India and China crop starts arriving from Aug-Sept, it starts from Jan-Feb in S. America. 
 - The annual global trade in soybean is estimated to be around 90-100 million tonnes. 
 - While, USA (35 -45 million tonnes), Brazil (30-40 million tonnes), Argentina (7-10 million tonnes) are the exporters of beans, China (50-70 million tonnes) and EU (10-12 million tonnes) are the major importers. 
 - In addition to soybean, soy oil and soymeal are also widely traded globally with annual trade of around 9 million tonnes and 52 million tonnes respectively. While, US is the largest exporters for soybeans, Argentina is the largest exporter of soy oil and soy meal globally.        
   

World soybean supply & demand

Soy global trade flows

Important World Soy Markets

 - Chicago Mercantile Exchange, which acquired Chicago Board of Trade - the world's oldest soy futures market. 
 - Dalian Commodity Exchange - trades the most liquid soybean contracts in the world.    
 - Argentina and Brazil FOB determine the physical prices.     


Global soybean exports

Global soybean imports


World Soybean Supply & Use

The market for soy in Europe

 - Europe relies on soy, most of it imported from South America, to meet demand for meat and dairy products. The EU produces less than 1 million tonnes of soy a year, and imports around 35 million tonnes. Demand for soy within the EU uses an area of almost 15 million ha, 13 million ha of which is in South America.
 - To give some idea of the scale of Europe’s dependence on imported soy, this is equivalent to 90% of Germany’s entire agricultural area. The main European importers of soy are countries with large industrial-scale pig and chicken production.
 - Under European agricultural policy, tariffs on animal feed are lower than for many other agricultural products, so soy meal is a relatively cheap import. Demand for soy grew following the ban on processed animal proteins in animal feed, such as meat and bone meal, as a result of the mad cow disease outbreak in the 1990s. It has risen further because fishmeal, another potential animal feed, is increasingly used in fish farming.
 - European soybean imports also surged after the World Trade Organization was formed in 1995, removing many restrictions on international trade. The increase in support for the production of biofuels is also a factor in the soy imports into Europe.


EU soy imports 

EU soybean imports




Market Influencing Factors

 - The soybean has two byproducts: soybean meal and soybean oil. Each byproduct market enjoys its own supply and demand chain and a relationship with one another. Soybean trading uses a strategy called the crush spread, in which a trader purchases one contract of soybeans (S) and sells one contract of soybean oil (BO) and one contract of soybean meal (SM). This is a way to diminish exposure to market forces and to create a hedge against supply and demand factors.  
 - One of the most controversial influences in the soybean market is the concept of genetic modification or genetically modified organisms (GMO). Soybeans were modified to be resistant to herbicides by introducing genes taken from bacteria. Within a 10-year range from 1997-2007, the population of GMO soybeans increased from about 8% to 89%. While still a polarizing issue among consumers, GMO soybean crops have been tentatively accepted.  
 - The United States Department of Agriculture (USDA) releases several important reports on soybeans. Each year in March, the Prospective Plantings is released, detailing how many and which crops will be planted by farmers for the upcoming season. Every month thereafter, the USDA releases a monthly Crop Production report, which estimates the supply and demand for soybeans. The final important report is the Grain Stocks report, which is released four times a year and examines the supply of soybeans and various other grains on a state-by-state basis and whether the soybeans are offsite or onsite. 
 - Brazil is the second largest producer of soybeans behind the U.S. In 2005, Brazil produced 52.7 million metric tons, and is attempting to expand soybean cultivation further. However, the country faces opposition from various environment groups that dispute the soybean industry's encroachment on the Amazon rain forest and the overall deforestation of Brazil for profit.    


Soybean Futures & Cash (11.10.2014) 



CBOT Soybean Futures (Weekly Chart: Sept 2005 - Oct 2014 + 11.10.2014 Close)

 
Conclusion

 - The soybean's price increases have a negative impact on other grains. Farmers only have so much arable land to plant crops. As a substitute good, it pushes corn and wheat aside, adversely affecting their supply and demand chains, which in turn significantly affects our global grain system. Global supplies are interdependent among countries, making all grains negatively interdependent because of the fight for limited resources. All of this leads to extreme fluctuations in the price and volatility of soybeans - the perfect environment in which to trade. 


Growth in global soy area