Soybean Futures

On the following link (Soybean Futures Contract Specs – CME Group) you will be able to access currently traded soybean future contracts. Access the information on the site, and answer the following questions:

1. What is the meaning of “soybean futures”?

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Any future is an agreement to buy or sell the underlying asset, at an agreed price and at an agreed date. That is also the case here, where the future is an agreement to buy (one party) and sell (another party) the amount of soybeans set out in the future contract. If you look at the specs section of the link above, you will find the contract if for 5,000 bushels or approximately 136 metric tons and that is the amount of soybeans expected to be traded at maturity.

2. What is the price of a soybean future?

At the time I prepared these solutions, the price was 1,603.4 cents per bushel, but this price is constantly being updated as trading happens.

3. Who would be interested in buying and selling soybean futures?

As with any other future, there are two types of investors buying them:

· Hedgers, i.e. someone with a “position” (for example a company that uses soybeans to put in cans, mis with other vegetables, prepare ready-made meals, etc, who is going to need the beans in the future) and who wants to reduce their risk. In this case, they will fix today the price at which they will buy the soybeans in the future.

· Speculators, who don’t have any position but expect certain price movements and wants to take advantage of those movements. Someone who expects prices to go up, buys futures, so that they can buy the soybeans at the agreed future price and sell in the market at the time at a higher price, thus making a profit. Someone who expects the price to go down will instead sell the future and profit from buying in the market at a lower price and sell by executing the contract

Given that the majority of trade in commodity futures is now done by speculators who don’t need the underlying commodity, most of the contracts are not exercised at maturity but rather settled beforehand with no exchange of the underlying asset, but just by exchange of the monetary profit/loss of the contract.


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