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Soybean Futures are Up On News of South -
Last year’s torrential rains across Latin America are over and things have dried out, a little too much. For commodity traders the most recent news is that soybean futures are up on news of South American drought. The combination of high global demand for food, the prospect of diminished production capacity, and futures trading make for profit potential. Traders may simply but futures contacts so soybean futures are up on news of South American drought. More cautious traders may trade options on soybean futures, hedging investment risk while still taking advantage of the leverage that options trading offers. A big part of how to trade commodities is fundamental analysis of weather trends as well as global supply figures. However, when the market starts to move, other speculators buy and sell futures with the intent of making a profit. As often as not futures prices can overshoot price targets that fundamentals might predict. As such traders always need to keep an eye on market sentiment.
Global Demand for Food
The population of the world is growing. And, many previously poor nations are becoming wealthy and eating better. A recent news item noted that bikini sizes in Brazil are getting larger as the lithe young girl from Ipanema has filled out due to an abundant supply of calories. All of this leads to a higher global demand for food. These factors are demographic and strong. Trading with this information in mind is not trying to outguess the market. The only questions are how much and how soon.
Diminished Production Capacity
As urban areas grow, previously productive farm land gets covered up with suburbs, concrete shopping center parking lots, and highways. And there is always the weather. This last year was historic with flooding across much of South America. And then the rains stopped and the dry season, South American summer, arrived. There has been no rain in some areas for months, just as crops should be ripening. Yields will likely be down across much of Brazil and Argentina. This situation is not as urgent as what was caused by the recent draught in Eurasia but sufficient to for us to see soybean futures rise on news of South American drought. This is similar to trading a disaster such as the Japanese tsunami or a hurricane in the Gulf of Mexico, except that a drought develops slower that than the arrival of a hurricane or tsunami wave.
Futures trading allows producers and buyers of grains, meats, and other commodities to hedge investment risk. It allows speculators to profit from careful analysis of fundamentals and astute technical analysis of market sentiment.