Soybean Agreement

According to the U.S. Department of Agriculture, China agreed to purchase 9.89 million tons of U.S. soybeans between September 2020 and August 2021. Of this amount, $3.27 million was set aside in August and an additional $2.07 million this month. Take, for example, a soybean producer. While the soybean crop is in the soil in the spring, the farmer wants to sell his crop in October after the harvest. In the market, the farmer is long a position in the treasury market. The farmer is concerned that prices will fall before he can sell his soybean crop. In order to compensate for the losses resulting from a possible fall in prices, the farmer will now sell an equivalent number of bushels on the futures market and buy them back later when the time comes to sell the crop on the cash market. Losses resulting from a lower cash market price may be partially offset by a shorts gain in the futures market. This is called the short hedge.

There are seven different grain products that are marketed to the Chicago Board of Trade: corn, oats, wheat, soybeans, rice, soy flour and soybean oil. The soy contract, such as wheat, oats and corn, is also trading the size of 5,000 Scheffel contracts. It works in dollars and cents, like corn and wheat, but is generally the most volatile of all contracts. The size of the tic is a quarter of a cent (or $12.50). In addition to soybeans, wheat is a fairly volatile market with large daily ranges. As it is so widespread, there may be large daily swings. In fact, it is not uncommon for a message to move this market boundary in a hurry up or down. An oat contract, such as corn, wheat and soybeans, is for the delivery of 5,000 bushels. It moves in the same 50 dollar/penny steps as corn. For example, if a merchant has long oats at $1.40 and sells for $1.45, he would earn 5 cents per wood or $250 per contract ($1.45 – $1.40 – 5 cents, 5 cents x $5,000 – $250). Oats also act in quarter-cent increments.

China can also choose the date on which shipments are made or cancel them altogether. The Asian nation withdrew from the purchase of about 800,000 tonnes of soybeans in February 2019, causing crop prices to fall. Beijing can use reservations as a way to counter U.S. trade pressure and influence other hotbeds of diplomatic crisis such as Hong Kong`s security law, sanctions against Huawei Technologies and country decoupling of advanced technology.

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