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Soybeans are used to make soy milk and vegetable oil as well as being popular appetisers in sushi. You might not have heard of soybeans or soybean oil before, or at least not by this name, but it’s crucial for feedstock and the production of vegetable oil. There are several different forms of soybean that you can invest in, such as in the beans, soybean oil, and soybean meal. Usually, you would do so with soybean futures, but you can also invest in futures options and exchange-traded funds (ETFs).
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 is 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 some soy sauce! They’re not just eaten, though! The oil is extracted from soybeans and used to make vegetable oil, which you undoubtedly have in your cupboard.
Another use for soybeans is for animal feed. Soybeans are made up of 80% meal which is used to feed poultry and livestock. It is also used to make protein alternatives and soy milk.
How can I invest in soybeans?
There are three main ways that you can invest in soybeans:
- Buy soybean futures
- Buy soybean futures options
- Buy soybean exchange-traded funds (ETFs)
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, which is a fund aimed at giving direct exposure to soybeans without futures contracts. It can be purchased on the NYSE Arca.
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