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- CRB Fundamentals - 2008 Commodity Articles


Soybean is the common name for the annual leguminous plant and its seed. The soybean is a member of the oilseed family and is not considered a grain. The soybean seeds are contained in pods and are nearly spherical in shape. The seeds are usually light yellow in color. The seeds contain 20% oil and 40% protein. Soybeans were an ancient food crop in China, Japan, and Korea and were only introduced to the U.S. in the early 1800s. Today, soybeans are the second largest crop produced in the U.S. behind corn. Soybean production in the U.S. is concentrated in the Midwest and the lower Mississippi Valley. Soybean crops in the U.S. are planted in May or June and are harvested in autumn. Soybean plants usually reach maturity 100-150 days after planting depending on growing conditions.

Soybeans are used to produce a wide variety of food products. The key value of soybeans lies in the relatively high protein content, which makes it an excellent source of protein without many of the negative factors of animal meat. Popular soy-based food products include whole soybeans (roasted for snacks or used in sauces, stews and soups), soy oil for cooking and baking, soy flour, protein concentrates, isolated soy protein (which contains up to 92% protein), soy milk and baby formula (as an alternative to dairy products), soy yogurt, soy cheese, soy nut butter, soy sprouts, tofu and tofu products (soybean curd), soy sauce (which is produced by a fermentation process), and meat alternatives (hamburgers, breakfast sausage, etc).

The primary market for soybean futures is at the Chicago Board of Trade. The CBOT's soybean contract calls for the delivery of 5,000 bushels of No. 2 yellow soybeans (at contract par), No. 1 yellow soybeans (at 6 cents per bushel above the contract price), or No. 3 yellow soybeans (at a 6 cents under the contract price). Soybean futures are also traded at exchanges in Brazil, Argentina, China, and Tokyo.

Prices - Soybean futures prices trended higher throughout 2007 on strong global demand and tightening world supplies. The 2007-08 U.S. soybean crop fell -18.9% y/y to 2.585 billion bushels and stockpiles of soybeans began shrinking. U.S. carry-over stocks of soybeans in 2007-08 fell sharply by -76% y/y to a 4-year low of 140 million bushels and global soybean carry-over stocks also fell sharply by -25% y/y to 47.44 million metric tons. Prices continued to rise as the USDA kept lowering its forecasts for the 2007-08 U.S. soybean crop and lowering their projections for 2007-08-soybean carry-over. Soybean prices were also supported by a projected -2.1% drop in Argentina soybean production (the world's third-largest soybean exporter) due to dry weather and strong Chinese demand for U.S. soybeans (+11% y/y). With demand surging and world production declining, soybean prices ended 2007 at a record $11.99 a bushel, up 75% y/y. Prices continued to rise in 2008 and in early March 2008 as soybean prices touched a record high of $15.70 a bushel. The weaker dollar encouraged commodity fund buying of soybeans, as did the increased biofuel usage potential with the passage by Congress of new energy legislation in December 2007. Other supportive factors in 2007 included the 57% rally in crude oil prices (which was supportive for biodiesel prices), the 77% rally in wheat prices and the 17% rally in corn prices. The soybean market may see increased acres being planted for the 2008-09 season due to high soybean prices and increased profits relative to corn or cotton.

Supply - World soybean production during the 2006-07 (latest available) marketing year (Sep-Aug) rose by +5.3% yr/yr to 229.398 million metric tons, which was a new record high. World soybean production has more than doubled from the 81 million metric ton level seen in 1980. The world's largest soybean producers were the U.S. with 38% of world production in 2006-07, Brazil (25%), Argentina (19%), China (7%), and India (3%). China's soybean production has roughly doubled since 1980. Brazil's production has risen by almost 4 times since 1980.

U.S. soybean production in 2006-07 rose by +5.3% yr/yr to 3.204 billion bushels which is a new record high. U.S. farmers are forecasted to harvest 66.100 million acres of soybeans in 2007-08, which is down from the 2006-07 record high of 74.602. The forecasted average yield of 41.5 bushels per acre in 2007-08, is 3.5% from the 2005-06 record high of 43.0. U.S. ending stocks for the 2006-07 marketing year (September 1), rose sharply by +75.7% to 449 million bushels from 256 million bushels in 2005-06 and thus recovered further from the 3-decade low of 112 million bushels seen in 2003-04.

Demand - Total U.S. distribution in 2007-08 rose +0.2% to 3.039 billion bushels. The distribution tables for U.S. soybeans for the 2007-08 marketing year show that 59% of U.S. soybean usage went for crushing into soybean oil and meal, 36% for exports, and 6% for seed and residual. The quantity of soybeans that went for crushing rose +1.1% yr/yr in 2007-08 to 1.790 billion bushels. The world soybean crush rose +5.3% yr/yr in 2006-07 to 194.125 million metric tons, which was a new record high and was more than double the level seen in 1980.

Trade - World exports of soybeans in 2006-07 rose +8.5% yr/yr to 69.508 million metric tons, which was a new record high. The world's largest soybean exporters are the U.S. with 43% of world exports in 2006-07, Brazil with 38% of world exports, and Argentina with 11% of world exports. U.S. soybean exports in 2006-07 rose +16.1% yr/yr to 29.937 million metric tons, which was a new record high. Brazil's soybean exports have more than quadrupled in the past decade and in 2006-07 were virtually unchanged from the record high of 25.911 million metric tons posted in 2005-06. The world's largest importers of soybeans in 2006-07 were China with 46% of world imports, the European Union with 21%, Japan with 6%, and Mexico with 6%. China's imports in 2006-07 rose +11.2% yr/yr to a record high of 31.500 million metric tons from negligible levels prior to 1994.

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