Soybean futures began trading at the Chicago Board of Trade in 1932, followed by futures on its byproducts: Soybean Oil in 1946 and Soybean Meal in 1947.
As the world’s largest source of animal protein feed, and the second largest source of vegetable oil, soybeans are one of the most important crops around the globe.
Soybeans and soybean byproducts are the most-traded agricultural commodities, comprising more than 10% of the total value of the global agriculture trade.
Soybeans were cultivated as long ago as 2800 BC in China, where it was considered one of the five sacred grains. The soybean was introduced in the U.S. around 1800, and this country is now the largest producer of soybeans in the world, harvesting more than 118 million metric tons a year, and exporting approximately 45%.
While more than 150 varieties of soybeans are grown in the U.S., adapting to a range of soil and climate conditions from Mississippi to the Canadian border, the yellow soybean is the dominant class in commercial markets.
The heart of soybean production is the Midwest, but significant production also occurs in Mississippi, Arkansas and along the East Coast. In fact, the soybean-growing belt overlaps with much of the central and southern areas of the corn belt.
In the main part of the soybean belt, planting takes place from late April through June, with harvest beginning in late September and ending in late November. In some areas in the South with long growing seasons, soybeans are double cropped with soft red winter wheat. Here, following wheat harvest, soybeans are planted in the wheat stubble.
About 2/3 of the total soybean crop is processed, or crushed, into soybean oil and soybean meal. The term crush refers to the physical process of converting soybeans into its oil and meal byproducts.
The crush spread, also sometimes referred to as simply the crush, refers to the difference between the value of soybean meal and oil and the price of soybeans, and represents the gross processing margin from crushing soybeans.
The value of the crush spread is known as the board crush when calculated using futures prices, and is considered to be a gauge, though not an exact indication, of the profitability of processing soybeans into oil and meal. In theory, the greater the crush spread value, the greater the potential profitability. In theory, the greater crush value, the greater the potential profitability.
Soybean meal is used by feed manufacturers as a prime ingredient in high-protein animal feed for poultry and livestock. It is also further processed into human foods, such as soy grits, flour and prepared foods, and is a key component in meat or dairy substitutes, like soymilk and tofu.
After initial processing, soybean oil is further refined and used in cooking oils, margarines, mayonnaise and salad dressings and industrial chemicals. Soybean oil may also be left unprocessed and used in the production of biodiesel fuels.
Because of the use of soybean byproducts for animal feed, the domestic and foreign demand for soybeans is closely aligned with the livestock and poultry industry.
U.S. soybean exports have increased dramatically since 2000 as the demand for meat and poultry has increased in Europe, Asia, developing economies and China.
In recent years, U.S. soybean producers faced increased competition from South American farmers in Argentina and Brazil, who have a lower cost of production. For U.S. farmers, this increases the importance of having an efficient transportation system to move crops from the field to markets here and abroad. Domestic demand for soybeans is handled primarily by truck and rail. Transportation of exported soybean is by ocean freight, with the ocean shipping cost being a factor in the choice of port.
The majority of exported soybeans are shipped through the Mississippi Gulf coast. However, shipping from the Pacific Northwest is sometimes price-competitive for Asia-bound soybeans.
At every stage of the soybean production chain, from planting, growing and harvest, to exporting and processing, market participants face the risk of adverse price movements caused by the vagaries of the market and supply and demand.
Futures and options on Soybeans, Soybean Meal and Soybean Oil, as well as options on the Soybean Crush, provide a means to manage this risk and take advantage of potential profit opportunities.