If you followed the agricultural market over the past few weeks, you would have been witness to the biggest Bull-run SAFEX has ever experienced.
Some pretty amazing leaps, with maize futures contracts trading at limit within minutes from the market opening and no one selling had you wished you joined the party (like today). People have and continue to make HUGE profits, doubling, tripling and quadrupling their money within a week! Just to give you an idea of what I'm talking about, let me give you an example:
Say you took R10 000 and put it down as margin (deposit) on buying one White Maize Futures Contract for delivery in Dec '12, 4 weeks ago on Monday, the 18th of June and you only sold it again this Monday (16 July), you would have made a whopping R70 000! That's R80 000 back in your pocket as you get your R10 000 margin back. If you went further and bought another contract with every R10 000 you made over these four weeks, the figure would have been double that! That's a profit of around 1600% in 4 weeks! Amazing stuff.
So what happened?
In short, it's a question of expectations and reality.
This season American farmers planted a record area of corn. The last time they planted this much was back in the forties. The expectation of course then was that a record amount of corn will be harvested as well, forcing the market into a bearish trend. All this changed with the corn belt experiencing hot and dry conditions around a critical stage in the development of the plant. With each passing week the condition of the crop worsened and every report that comes out looks worst than the last. Now, it's a question of supply and demand and with the harvest looking like the worst in 20 years, the supply is dreadful and this created a buying frenzy within the market.
To add to the already extremely bullish market, countries like China and Japan are buying grains like mad men. Just like the rest of the world, they were also under the impression that the price of corn were going down and so they waited to buy at the cheapest price possible. As the situation turned and did not recover to the previous lows they are now left to buy their yearly consumption needs a bit late and at the current prevailing prices adding support to the market.
It's uncertain how long this is extremely bullish trend is going to continue. Technical analysis shows that the market is way overbought and that a pullback is imminent, but with the situation being as it is, it seems that that will not happen soon. A pullback will occur for sure, but with the next WASDE report coming out in about three weeks time and the sentiment being as it is, it's very difficult to predict when