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Soybeans Soar, Creating Trading Opportunity

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This summer's hot, dry weather has taken its toll on soybean crops, and as such, prices have spiked. Now could be the perfect opportunity for a short sale.

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The summer of 2013 has been notably cooler than the scorcher that 2012 brought, but August saw the heat turned up on the US, having a marked impact on a number of commodities. Soybeans, in particular, have seen their prices spike, as the hot and dry weather of the last few weeks has taken its toll. The run higher could throw a wrench in the commodity's standard cycle, making it all the more difficult to trade.

Soybean Yields in Danger

Soybeans are in the limelight more than any other grain right now, as they enter the "crucial, yield-determining stages of growth, including setting pods and filling them out with beans. Dry conditions during those stages can reduce expected output," writes Kelsey Gee. If the crop yield comes in lower than expected, demand will outweigh supply and push prices higher. For now, prices have been rising in anticipation of such an event.

Since the beginning of August, soybean prices are up approximately 11.5%. Compare that to a number of other grains that have seen their prices either dip or hold flat, as they are not in the same stage of growth that currently defines soybeans.

A Trading Opportunity

Soybeans, like all commodities, tend to follow a cyclical, seasonal trend; this is one of the reasons that traders are so attracted to commodities. Typically, soybeans will make a major high in early September before experiencing a massive fallout, typically bottoming in early October. Should soybeans follow the same trend that they have averaged the past two decades, now could be a perfect opportunity for a short.

However, investors will need to keep a keen eye on the weather, as, so far, the unfavorable conditions have held prices from falling into their normal trend. If temperatures across the country remain high with little rain, you can expect prices to buck their trend and remain high. On the flip side, should more favorable conditions shine through and crop yields are normal, soybeans are likely in for a rough month. Weather is the name of the game for anyone looking to trade this commodity; keeping a keen eye on forecasts and conditions will keep you ahead of the game.

Below, we outline several ways investors can make a play on soybeans:
  • Teucrium Soybean Fund (NYSEARCA:SOYB): This ETF takes a unique spin on commodities investing, holding multiple soybean futures contracts at a time to mitigate the impact of contango and unfavorable contract rolls. Already the fund has seen increased activity, with its one month average volume sitting 25% higher than its three month average.
  • Soybean Futures: The CBOT has a very liquid market for anyone looking to trade Soybean futures. Currently, the November contract is dominating volume, so that will be your best bet if you are aiming for high liquidity.
  • Bunge Limited (NYSE:BG): This agribusiness firm is well known for selling a number of commodities, with soybeans a major product. Though the stock will not be a pure play, higher soybean prices will translate into higher sales for the company.
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Editor's note: This article by Jared Cummans was originally published on Commodity HQ.
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