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How to invest in soybeans
Find out about 4 ways to invest in this popular crop including futures, futures options, ETFs and stocks.
Besides being an ingredient in sushi, soybeans are used to make soy milk, vegetable oil and feedstock. You can invest in soybeans in different forms including beans, oil and meal (coarse flour). Most investors opt for soybean futures, but you can also invest in futures options, exchange-traded funds (ETFs) and companies that deal with soybean-containing foods and products.
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Why invest in soybeans?
Soybeans are a commodity. Because they are used to make staple pantry products and animal feed, they continue to have demand even when the market is struggling, which could make them a good investment. Of course, with the recent coronavirus outbreak, it’s at a relatively low price. But it’s expected that this will recover towards the end of the year.
What are soybeans and what are they used for?
You might be more familiar with soybeans with their Japanese name, “edamame.” These are often offered in sushi restaurants—delicious with a sprinkle of salt and a little soy sauce! Soybeans aren’t just used for food, though. Oil can be extracted from soybeans and used to make vegetable oil, margarine and shortening, which many people have in their cupboards.
Soybeans is also made into a coarse flour, or meal, which can be used to feed poultry and livestock. It’s also used to make protein alternatives and soy milk. On the industrial side, it can be found in paint, resins, plastics and biodiesel fuel.
The majority of the global supply of soybeans comes from the United States, Brazil and Argentina. Soybeans are the third largest field crop in Canada based on the amount of cash income and direct program subsidies that it generates.
How can I invest in soybeans?
There are 4 main ways that you can invest in soybeans:
- Buy soybean futures
- Buy soybean futures options
- Buy soybean exchange-traded funds (ETFs)
- Buy stocks in companies that deal with soybeans
Buy soybean futures
What are futures contracts?
A “future” is just a legal agreement to buy something at a later date. If the prices change between the date that you make the agreement and the date that you agree to make the purchase, there won’t be a change to the price you pay.This can work in your favour, if you buy the futures contract while the prices are low and they increase before the agreed date, then you make a profit. It can also go the other way, though!
To buy soybean futures, you agree to buy a set number of bushels of soybeans at a set price. On the date of expiration, the transaction is made.
Upon expiration of the contract, you’re often required to actually receive the delivery of soybeans, so (unless you’re hungry or own a sushi restaurant or otherwise have a need for a ton of soybeans), you’d need to exit your position prior to this.
Buy soybean futures options
Futures options give you some of the benefits of buying soybean futures, without getting any soybeans delivered to your home. Futures options are the right to buy or sell futures in a specific time period at a set price. Options can be traded, and become worthless if they aren’t used.
Buy soybean exchange-traded funds (ETFs)
Exchange-traded funds are a popular investment choice. They’re aimed at tracking the performance of an asset, in this case, soybeans.
ETFs can be traded on an exchange in the same way you could trade equities on the stock exchange.
The main soybean ETF is Teucrium Soybean (NYSEArca: SOYB), which is a fund aimed at giving direct exposure to soybeans without futures contracts. It can be purchased on the NYSE Arca. The Invesco DB Agriculture Fund (NYSEArca: DBA) is an ETF that isn’t solely focused on soybeans but still provides some exposure to the crop.
Buy stocks in companies that deal with soybeans
The following companies deal with soybeans and may be worth investing in if you want to back the products and processes that rely on the crop.
- Burcon NutraScience Corporation (TSX: BU)
- SunOpta Inc. (TSX: SOY)
- Archer-Daniels-Midland Company (NYSE: ADM)
- Bunge Limited (NYSE: BG)
- Bayer Aktiengesellschaft (XETRA: BAYN.DE)
- China Foods Limited (HKSE: 0506.HK)
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Frequently asked questions
Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading CFDs and forex on leverage comes with a higher risk of losing money rapidly. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades.
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