Soybean future and soybean option

Soybean future and soybean option contracts are traded on the Chicago Board of Trade. Soybeans originated in China but over the centuries have been cultivated in many temperate areas around the globe. George Washington Carver first tested soybeans, among other plants, to find out uses for them and diminish the dependence on cotton as the single commodity of the Southern economy. He invented soybean based varnishes, paints, inks, mayonnaise, salad dressings, linoleum, plastic and even fuel. Soybean based inks are currently being used in over 3000 various newspapers across the U.S. including the LA Times. Henry Ford and Mr. Carver partnered up and used soybeans to make plastic window handles, gas pedals and even dent proof trunk covers for many of the Fords built in the 1930's and 40's. The original diesel engine, invented by Rudolph Diesel, actually ran off of peanut oil based on Carver's research and today's diesel engines can run almost entirely on soybean oil. Using soybeans as a fuel product is just recently becoming investigated again because the high petroleum prices have made it economically feasible to use green fuels such as ethanol made from corn and sugar and bio diesel fuels made from soybean oil. These fuels are renewable annually and can greatly lessen our dependence on foreign oil. Bio diesel fuel is being used more and more as an alternative to pure petroleum based diesel. Bio diesel biodegrades as quickly as sugar and is 10 times less toxic than salt. Soybeans many uses make it one of the most versatile agricultural commodities.
Soybeans are vital for a diverse array of food and industrial products. They provide the raw material for livestock feeds, cooking oils, and salad dressings, not to mention industrial products, fungicides, and antibiotics. In the United States alone, farmers grow just under half the world's supply, and they remain a leading dollar-earner among U.S. agricultural exports. Soybean futures contracts and soybean option contracts are one of the most active of all the agricultural futures markets.
Price stability is essential for those businesses that rely on soybeans for their manufacturing processes. Global supplies fluctuate continuously due to planting decisions made every spring, as well as variations in temperature and precipitation throughout the growing season. In addition, demand never ceases to change. As a result, prices can vary substantially from day to day.
Ironically, futures markets are perceived for their volatility, but, in reality, the markets provide the mechanism to ensure fairly consistent pricing of soybean and soy products. The price of cooking oil, for example, does not rise or fall to the degree of prices for unprocessed soybeans.
The Diversity of Soybeans
Q - What is meant by the term soybean complex?
A - The term refers to the soybean, its two principal by-products: soybean oil and meal, and their special interrelationship throughout the production, processing, and marketing processes.
Whole soybean products are especially appreciated in Asia and among natural-food devotees in Europe and the United States. Soybeans provide the basis for low fat sources of protein such as tofu, miso, and soymilk.
Soybean oil remains the most widely used edible oil in the United States, with consumption exceeding that of all other fats and oils combined. It is a major ingredient in cooking oil, margarine, mayonnaise, salad dressing, and shortening. Lecithin is a natural emulsifier derived from soybean oil and, without it; chocolate would separate from cocoa butter and spoil many sweet moments.
Soybean meal is the dominant protein supplement used in U.S. livestock and poultry feeds. Soy products are also used to make baby food, diet-food products, beer and ale, and noodles. Technical uses include adhesives, cleansing materials, polyesters, and other textiles.
Futures markets supply the mechanism for long-term business planning, which can lead to operational profitability for farmers, processors, livestock producers, and food manufacturers.
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Indispensable Financial Tools
Q - Who can trade soybean futures and options?
A - Virtually everyone. Farmers, merchandisers, processors, and other hedgers in the agricultural commodity pipeline use CBOT futures and options to manage prices. Futures and options contracts are designed to promote better business planning, more consistent product quality and service, and increased operational profitability. Speculators also trade in the pursuit of profitable returns on their investments, even though they may not have direct involvement in agribusiness.
Here are some specific examples of why people trade soybean futures and soybean options:
• A soybean processing plant uses soybean, soybean oil, and soybean meal futures to hedge its gross processing margin - the difference between the cost of soybeans and the eventual revenue of the finished oil and meal. Buying soybean futures protects against rising inputs costs. Selling soybean oil and meal futures protects against falling prices for the later sales of meal and oil. The risk-management program helps to stabilize costs and pricing, thereby giving the processor a competitive advantage in the marketplace.
• Pursuing greater return on capitol, an attorney decides to trade commodities futures. After analyzing different data, she anticipates soybean prices to rise and, with the help of a broker, buys a soybean futures contract. Three weeks later, weather conditions reduce the harvest forecast and soybean prices rise. The investor sells her futures contract at a price greater than what she paid for it, thereby profiting from the transaction even though her profession has no direct link to farming or food production. By participating in the trading process as a speculator, she adds liquidity to the marketplace and provides hedgers with an outlet to transfer their risk.

Soybean Future Contract Specifications

Soybean Futures

Size - 5,000 bushels
Tick Size - $0.025/bu
Daily Price Limit - $0.50/bu
Strike Price - $0.25/bu
Contract Months - Jan, Mar, May, Jul, Aug, Sep, Nov
Last Trading Day - Seventh business day proceeding the last business day of the delivery month.
Expiration Day - N/A
Trading Hours - 9:30 a.m. - 1:15 p.m.
Ticker Symbol - S

Soybean Options

Size - One CBOT Soybean Futures
Tick Size - 1/8c/bu
Daily Price Limit - $0.50/bu
Strike Price - N/A
Contract Months - Jan, Mar, May, Jul, Aug, Sep, Nov
Last Trading Day - Last Friday proceeding the first notice day of the corresponding soybean futures contract by at least five business days
Expiration Day - Unexercised options expire at 10 a.m. on the first Saturday following the last trading day.
Trading Hours - 9:30 a.m. - 1:15 p.m.
Ticker Symbol - CZ- call;-PZ- put

What is Soybean Rust?
Soybean rust is a serious disease causing crop losses in other parts of the world. Two fungal species, Phakopsora pachyrhizi (also known as the Asian species) and P. meibomiae, cause soybean rust and are spread primarily by windborne spores that can be transported over long distances. Asian soybean rust, P. pachyrhizi, the more aggressive of the two species, was first reported in Japan in 1903 and was confined to the Eastern Hemisphere until its presence was documented in Hawaii in the mid-nineties.
Soybean rust symptoms are similar for P. pachyrhizi and P. meibomiae species. Symptoms begin on the lower leaves of the plant as small lesions that increase in size and change from gray to tan or reddish brown on the undersides of the leaves. Tan lesions, when mature, consist of small pustules surrounded by a slightly discolored deadened area with masses of tan spores on the lower leaf surface. Reddish brown lesions have a larger reddish brown deadened area, with a limited number of pustules and few visible spores on the lower leaf surface. Once pod set begins on soybean, infection can spread rapidly to the middle and upper leaves of the plant.
Economic implications
In recent years, soybean rust has reduced yields and raised production costs for soybeans in every major production region of the world except the United States. The recent and rapid spread of the pathogen in South America prompted the Economic Research Service (ERS), in April 2004, to publish a study of the economic and policy impacts of its windborne entry into the United States.
This analysis demonstrates that, while soybean producers and consumers do realize some new costs as a result of soybean rust, the U.S. agricultural sector as a whole is minimally affected after adjusting to the presence of this new pest. Such resilience, seen in response to past shocks to the agricultural system, is explained by the availability of substitute crops (in production) and commodities (in consumption), as well as the technological savvy to mitigate pest losses.
In the first year of SBR infestation, assuming that U.S. producers are able to treat with fungicides upon SBR detection, the expected value of losses (given that a rust outbreak occurs) across all U.S. agricultural producers and consumers would range from $640 million to $1,341 million, depending on the severity of infestation. These losses, which represent less than 1 percent of net economic benefits derived from agricultural activity, demonstrate the flexibility and resilience of the U.S. agricultural system as a whole.
In the medium term, for all the yield loss scenarios:
Soybean acreage declines in the most susceptible, higher cost soybean production regions, and is supplanted by alternative crops (largely cotton in Southern regions).
Soybean acreage increases in regions less susceptible to SBR (Southern Plains, Northern Plains and Lake States).
Acreage increases do not offset acreage declines; U.S. soybean acreage declines and U.S. soybean prices increase.
CBOT South American Soybean Futures
Soybean production in South America has recently surpassed North American production. Additionally, North American soybean production is forecast to stabilize while South American production is anticipated to grow by 60% during the next five years. Although the current CBOT Soybean futures contract is an effective hedge for many users, the Chicago Board of Trade is interested in meeting the needs of customers who want a futures contract with a higher correlation to the South American soybean market.
The Chicago Board of Trade has worked cooperatively with federal and state governments, local and global agribusiness firms, port officials, multinational banks, exchanges and trade associations in South America to develop a new CBOT Soybean futures contract that will serve as an effective hedging tool for buyers and sellers of South American soybeans
Product: ANEC 41 Standards for Brazilian Soybeans (Effective January 1, 2005 ) Basis Bulk Carrier, Delivered Free On Board, Stowed and Trimmed

Trading Platforms: Open Auction and e-cbot ®

Trading Hours: Open Auction: 9:30 a.m. - 1:15 p.m. Monday thru Friday*
CBOT Electronic Platform: 7:31 p.m. - 6:00 a.m.*
Note: Expiring contract closes at 12:00 p.m. on last trading day

Contract Months: Jan, Mar, May, Jul, Aug, Sep, and Nov

Contract Unit: 5,000 bushels

Minimum Fluctuation: ¼ of one cent ($0.0025) per bushel ($12.50 per tick)

Maximum Fluctuation: Fifty cents ($0.50) per bushel ($2,500 per contract)

Speculative Limits: 600 contracts net in spot month,
1,000 contracts net in any month,
1,000 contracts net in all months combined

First Position Day: Two business days prior to the first calendar day of the delivery month

First Notice Day: One business day prior to the first calendar day of the delivery month

First Delivery Day: First business day of the delivery month

Last Trading Day: The business day prior to the 15 th calendar day of the delivery month

Last Delivery Day: Second business day following the last trading day of the delivery month

Delivery: Primary physical delivery at the Paranaguá Export Corridor with delivery privileges also granted to the Port of Paranaguá and the Port of Santos . Deliveries at Port of Santos will be at a 5-cent per bushel premium

Ticker Symbol: Open auction – BS
Electronic – ZK
Benefits of CBOT South American Soybeans
Where South American Soybean Production Meets the Strengths of the CBOT
Since 1936, the Chicago Board of Trade has offered trading in soybean futures contracts. With the recent expansion of soybean production in South America , the CBOT has responded to its customers' needs by developing a futures contract based on the South American soybean market – continuing to provide innovative leadership as the global benchmark for soybean prices.
Buyers and sellers of South American soybeans will be able to enjoy the following benefits by trading CBOT South American Soybean futures (SAB):
Global Benchmark – a contract designed to be an effective tool for price discovery, price risk management, trading and spreading opportunities
Enhanced Hedging Efficiency – high correlation between the CBOT SAB futures contract and South American spot soybean prices (based on FOB Port of Paranagua and Port of Santos values)
CBOT Clearing – unrivaled financial integrity backed by the Common Clearing Link
Liquidity – tight bid/offer spreads creates market efficiency
Transparency – level playing field means open access for traders
Arbitrage Opportunities – trade the spread between CBOT Soybean and CBOT SAB futures
Two Trading Platforms – trade when you want

Open Auction:
9:30 a.m. to 1:15 p.m. – Chicago
12:30 p.m. to 4:15 p.m. – Sao Paulo & Buenos Aires
3:30 p.m. to 7:15 p.m. – London
11:30 p.m. to 3:15 a.m. – Beijing
12:30 a.m. (next day) to 4:15 a.m. – Tokyo

Electronic Platform (e-cbot® ):
7:13 p.m. - 6:00 a.m. - Chicago
10:31 p.m. to 9:00 a.m. Sao Paulo & Buenos Aires
1:31 a.m. to 12:00 p.m. London
2:31 a.m. to 1:00 p.m. Rotterdam
9:31 a.m. to 8:00 p.m. Beijing
10:31 a.m. to 9:00 p.m. Tokyo

CBOT: A BRAND YOU CAN TRUST – A CONTRACT YOU SHOULD TRADE
Over 155 years of customer confidence
Proven soybean markets for nearly 70 years
Unmatched integrity
A strong commitment to customer service
1. When did the Chicago Board of Trade (CBOT®) first start trading soybean futures?
The CBOT Soybean complex has a long and successful history as the global benchmark for soybeans and soybean product prices.
CBOT Soybean futures started trading on October 5, 1936 .
CBOT Soybean Oil futures started trading on July 17, 1950 .
CBOT Soybean Meal futures started trading on August 19, 1951 .
2. Why is the CBOT developing a South American Soybean (SAB) futures contract?
The CBOT is meeting the needs of global customers who buy and sell South American soybeans and want a highly correlated price risk management tool and a transparent soybean pricing reference. This addition to the Soybean complex will strengthen the CBOT's position as the global soybean benchmark.
3. Will the CBOT SAB futures contract replace CBOT Soybean futures?
No. The CBOT SAB futures contract will be an addition to the CBOT Soybean complex and will enhance the CBOT's leadership role in the global agricultural industry.
4. Who was involved in the development of the S.A. Soybean future contract?
The CBOT initiated an extensive outreach program to collect input from all stakeholders in the South American soybean value chain, including cooperatives and crushing operations, producers, multinational trading firms, and buyers in Asia and Europe . Additionally, CBOT representatives worked with officials from South American federal and state governments, local exchanges, trade associations, financial institutions, port authorities and CBOT members.
5. What are the major benefits of the CBOT SAB contract?
There will be many potential benefits to trading the CBOT SAB contract, some unique to the SAB contract and some that are common with all CBOT products:
Global benchmark – may be used for pricing, risk management and trading
Premier financial integrity – CBOT as a self regulatory organization and Common Clearing Link
Efficient hedging – high correlation expected with South American soybean spot markets
Arbitrage opportunities – spread with other CBOT soybean products
Liquidity – CBOT SAB and CBOT Soybean futures contracts together may provide one liquidity pool of exceptional depth as arbitrage between these two products enhances liquidity in the CBOT soybean complex
Global access to open auction and electronic platforms – level playing field
More than 14 hours of trading – trade during hours convenient to you
Competitive exchange fees – efficient trading costs
CBOT brand – global recognition
6. What is the CBOT South American Soybean futures contract size?
5,000 bushels, which is identical to CBOT Soybean futures.
7. What is the metric ton equivalent of a 5,000 bushel soybean futures contract?
136.08 metric tons (rounded up); the CBOT has an agricultural metric conversion calculator located under the Education tab on www.cbot.com.
8. What is the CBOT SAB futures contract pricing unit?
Cents per bushel, which is identical to CBOT Soybean futures.
9. What is the tick size (minimum price fluctuation)?
1/4 of a cent ($.0025) per bushel or $12.50 per contract, which is identical to CBOT Soybean futures.
10. What are the maximum daily price limits?
Fifty cents per bushel or $2,500 per contract, which is identical to CBOT Soybean futures. Note that daily price limits are removed for the expiring contract beginning with the first position day.
11. What are the CBOT SAB futures contract months?
January, March, May, July, August, September and November, which are identical to the CBOT Soybean futures contract months
12. What are the speculative limits for the CBOT SAB futures contract?
600 contracts net in spot month; 3,500 in any single month; 5,500 contracts net in all months combined (Pending CFTC certification)
13. Is the CBOT SAB futures contract physical delivery or cash-settled?
Physical delivery
14. Where are the physical delivery locations?
Paranagua Export Corridor and Port of Paranagua at par value. Port of Santos at a 5-cent premium.
15. What firms are regular for delivery?
The CBOT is in the process of accepting applications from qualified firms and inspecting their physical facilities. As part of the approval process, the CBOT will post the names of the applicants for regularity.
16. Will CBOT SAB futures contracts be available on both CBOT trading platforms?
Yes, CBOT SAB futures will be available for trading in open auction and on e-cbot.