Arabica coffee futures finished higher Monday, recovering from early losses. The most active contract for December delivery settled 215 points higher at 153.55 cents a pound. Prices were under pressure early due to specs liquidations following Friday’s action. The COT (CIT supplemental) report showed non-commercials adding 1,791 longs for a net total of 39,951 appeared to influence the initial selling as well. The non-commercial categories added 5.7 %, and now are holding the largest net long position since March 2008. In related news, COOXUPE, the largest coffee coop in Brazil announced they estimate the 2016-17 Brazil coffee crop at 52 million bags, compared to CONAB’s latest estimate of 49.64 million bags.
London Market- It may be the start of the week but Robusta just could not get going today. A lack of fresh fundamental or macroeconomic news doing little to help. The board did gain a little ground against Friday’s settlement but the lack of volume (the second lowest this month) tells its own story. Support was found via arbitrage traders as Nov/Dec values narrowed a further cent to 61.35. Funds continue to seek downside protection against longs via the Nov 1800 put with another 300 purchased at $4 today. This week’s COT figures showed the funds to have added a further 998 lots over the reporting period. The net managed money position now stands at 37,076 lots long. This is smallest week/week gain in the managed money position over the last month, suggesting the fund’s appetite for Robusta may be on the wane.
A brief rally attempt in New York coffee at the start of active trading fell one-half cent shy of unchanged whereupon the market shifted fortunes and fell the rest of the session. We closed 3¼¢ from the day's high, below yesterday's low. The 9-day smoothed slow stochastic slipped back into sell mode confirming a bearish divergence on the recent rally to seventeen-month highs.
Daily uptrend starting on 17-August will be at 150.25¢ in December NY on Monday. 1-June uptrend at 144.57¢. November London 31-August uptrend broken today. 18-August uptrend at $1898. 5-April uptrend at $1834.
December New York (KCEZ6) settled near its low (3%), down 3.90¢. Volume was 7½% above average at an estimated 33,849 lots including an estimated 1,326 EFP's, 69 EFS's, 173 TAS and 8,238 spreads. 4,527 calls and 3,972 puts also traded. The KCEZ6-LRCF7 arbitrage: 61.48¢. Ratio: 1.6817. €: $1.1235+¼%. BRL: 3.2368/$-½%. CRB: -1.7%. Crude oil: -3.8%. S&P500:-½%. Open interest: 183,771+4,518 (50-day stochastic: 79%; 125-day: 56%).
November London (LRCX6) settled in its bottom quarter (16%), down thirty-six dollars. Volume was ten percent below average at an estimated 12,689 lots including 4,434 spreads and 398 EFP's. 505 calls and 1,245 puts also traded. Open interest: 118,008+2,681 (50-day stochastic: 100%; 125-day: 83%).
The Brazilian government sold all 69,670 bags on offer at yesterday's auction of official government coffee stocks.
No rain fell in Brazil coffee production areas Thursday and today will be mostly dry. Showers will develop from Rio de Janeiro to Cerrado Mineiro Saturday and shift northward Sunday through Wednesday of next week. Most of the shower will stay light and should not induce any significant flowering. - World Weather, Inc.
CFTC reports that large speculators were net buyers of 1,791 lots of Coffee “C” in the week ending September 20th leaving them net long 39,951 lots. Large hedgers sold 1,885 leaving them short 84,240. Index traders sold 363 lots ( long 39,803). Small traders bought 457 lots (long 4,486).
Coffee never stood a chance today following a technical breakdown yesterday, a weak global investing environment, and a reinvigorated Bear. Roasters took advantage of the sell-off to add some much needed cover, though it seems that by and large most are willing to wait for a marginal move lower still before stepping in more substantially. Origin was steadily active pricing as reports of good physical activity is related by the trade. Robusta also featured an outside day low as the arb came in a bit in what must be a relief to those who have built a position based on the relative physical balance sheets in each market. The weakness in the London market does however serve as a reminder that it oftentimes has a difficult time separating itself from its sister market. For all the relief some are expressing in the relative weakness of the last two days, KC did nonetheless manage to hold above the uptrend line of support and mid Bollinger bands while still gaining 225 points on the week. There are always two ways to view a market’s performance, and with today’s COT number showing an increase in both longs and shorts, one wonders how much this will shade thinking coming in Monday morning.
A tremendously dull day was marked in Robusta, with Arabica posting dreadful volumes through 12:30 EDT on a small rally as a strong BRL encouraged an already quite long spec community to add. However, with London closed, KC dramatically found its mojo as 3000 or so lots in Dec traded in a 2 minute period as prices rallied 300 points, taking out the 3/8ths retracement in the process. While peak prices would not last through settlement, an impressive +400 day was put in the books as KC2 settled at its highest level since Feb 18th. Tomorrow morning’s Conab report, due for release around 8am NY time, should not be an opinion forming event for discretionary traders familiar with coffee, however it remains to be seen if outside forces or algos pick up on potential out-of-line numbers. The true events of the coming day are the twin decisions of the US Fed and Bank of Japan, which should combine to provide a dynamic macro trading environment. Reports abound of heavy physical volumes continuing to trade in Brazil with soft differentials. It now bears watching when this manifests in substantial futures flow.
On a background of concern over the crops of Brazil, Vietnam and Indonesia, New York coffee futures traded strongly higher for the second straight day today fueled by buy stops at sixteen-month highs in Dec16 futures, at nineteen-month highs on a second-month weekly basis. The rally began slowly at the opening of the active trading period (post 8 am NY time), adding about 2½¢ to yesterday's close, then accelerated shortly after the London market closed, adding the final three cents of the move in one three-minute period.
December New York (KCEZ6) settled eighty percent to its high, up four cents. Volume was fifteen percent above average at an estimated 35,646 lots including an estimated 634 EFP's, 74 EFS's, 645 TAS and 9,671 spreads. 4,361 calls and 5,920 puts also traded. The KCEZ6-LRCF7 arbitrage: 64.95¢+1.28¢ . Ratio: 1.7246+0.0157. €: $1.1156-0.2%. BRL: 3.2527/$+0.6%. CRB: +¾%. Crude oil: +1.1%. S&P500:+0.1%. Open interest: 180,960+1,866.
November London (LRCX6) settled in its lower half (36%), down five dollars . Volume was nine percent above average at an estimated 15,150 lots including 4,125 spreads and 1,665 EFP's. 3,200 calls and 1,678 puts also traded. Open interest: 110,445-916.
ICE Europe reports that commercial traders were net sellers of 5,574 10-tonne lots of robusta coffee in the week ending September 13th increasing their net short position to a record 42,222 lots. Managed money was the biggest buyer at 3,952 lots, increasing their net long position to 36,078 lots - 1,993 lots shy of the record long position of 38,071 lots set on 7-August-2012. ICE Europe commitments of traders data goes back to October 2011.
The European Coffee Federation estimates that coffee stocks in Antwerp, Bremen, Hamburg, Genova, Le Havre and Trieste rose 17,461 tonnes (2.4%) in June to 742,142 tonnes. The biggest increases were in Hamburg (+9,339 tonnes +7.4%), and Genova (+8,390 tonnes +7.8%). Stocks are 38,476 tonnes (5.5%) higher from 703,666 tonnes in store one year earlier. Hamburg was up 21.5%, Genova up 83%.
Arabica coffee futures rallied Monday as concerns over a possible deficit could continue for the next season. The contract with most of the activity gained 4.40 cents to 152.80 cents a pound. Volume reached 27,593 lots, including 3,058 switches. In options, significant volumes were traded on the December 160 and 170 calls, (750 and 825 lots, respectively). With ending inventories at low levels, Brazil will be dependent on the current crop to keep export commitments. Despite this is an "on "crop year, some weather problems have deteriorated the crop. The situation of the conilon is also worrying. Little of no rains in the Espiritu Santo areas, erode the outlook for the crop. In other factors, dollar weakness helped the commodity complex, as probability for a rate hike during the September FED meeting is only 12%. Participants will follow press releases closely looking for any indication for the December meeting. A constructive December chart in the coffee market attracted speculative buying. A strong bounce from 148 make the prices poise to test the recent highs at 155.70-157.75.
London Market- A fresh wave of fund buying into the commodity basket propelled the Robusta market to post new highs for the year.
A subdued morning was a continuation of last week’s limited flat price activity although the presence of fresh buying raised levels through the previous 2016 high at $1947. Further speculative activity followed as the States came online, eroding moderate origin selling which had been resting above the market, having been absent throughout the passive close to last week.
This week’s COT report showed a further 3952 lots added to the managed money net long as both fresh longs and short covering were present. The merchants’ net short increased a further 5574 lots to 42,222, as 12,997 new short positons were reflective of origin sellers becoming interest as the values continue to rise, outpacing fresh roaster fixations.
Further downside protection continued to trade, as 1000 Jan 1800 puts were bought at $24 with a 17% delta hedge at $1979.
TO HIKE, OR NOT TO HIKE, THAT IS THE QUESTION
The day after tomorrow, Wednesday September 21st, the FOMC finishes its meeting and market participants see only a 20% chance of a hike to happen, according to Bloomberg. Several analysts share the opinion that a move before the US-presidential elections will not happen and the bets for a December increase of interest rates are fairly divided 50/50 (give or take). Interestingly though a couple of weeks ago Janet Yellen and two influent governors of the FED used words that were read as if Sep meeting was a “live” one, therefore if the “normalization” does not take place, at least a more hawkish speech can be expected. That being said, if a non-hike is priced at such high levels it seems to me that nothing but a negative outcome will be the result for risky-assets on Wednesday afternoon, likely to firm up the US dollar. Tomorrow the Bank of Japan will be the first test for investors on its decision of offering further stimulus, or not. Equities in the past five days went south while commodity indices today gapped up as the week started with the Dollar Index losing ground. Coffee in New York had a technical break-out after holding last week above key support levels (a delay response on the sugar rally from Friday as well?!). Robusta prices resumed the uptrend being at shooting distance from 2000, good news for coffee holders.
London coffee is making sequential new recent highs just before the start of the Vietnamese crop, a move that is more in line with most of the bullish stories that run around in regards to global Supply and Demand. The spike on prices comes in good timing, although it would be better if it can be sustained and carry on for another 2 months when availability will increase from the largest producing country of this variety. Worries on the situation of the north of Espírito Santo have not diminished, with several players thinking that next year crop is very unlikely to recover in volume, while some think it is better to wait a little to have a better idea. Certified stocks for ICE robusta are at 2.3 mln bags, not a lot but might not change much with the arrival of new coffee in the market. On the arabica front the light amount of rains that have been fallen in Brazil and the forecasts of a wetter end of September / beginning of October are not making many nervous about a potential upside move in the market (reason why we saw the board quickly rallying: a contrary play?). Inventories in general at consuming countries are not changing much, still at historical high levels, argument that bears use a lot along with the tepid demand seen from roasters. Shipments from Brazil, Colombia and Vietnam are healthy in numbers feeding end-users/traders; one more reason that does not help bears to make a case and buy the market (yet?). Exports in Vietnam in the first eleven months of their crop year, Oct-Aug, are up 33% from a year ago, running at 26.8 mln bags. Brazil exported 2.69 mln bags in August, a number likely to be revised upward according to CECAFE, and the shipment pace in September suggests an even higher figure. Colombia shipments in August were also large as delays that took place in July during the trucker’s strike boosted up the number a month later and likely will not to fall too much at the last month of their crop-year. The flow of coffee in the local markets that have beans available have been good, with Brazil seeing Co-ops releasing quite a bit of coffee, which allows exporters to extend their coverage. If the rain season arrives with no delays in the major origin one could expect farmers to be more willing sellers as warehouses are being reported to be full at most producing regions. ICE arabica certs that back in March during the NCA conference were at 1.46 mln bags are now at 1.26 mln bag, a lot more than the thought (back then) that we would see it closer to 1 mln bags (round number). In fact those following the daily warehouse reports released by the exchange see new coffee being certified – no home found for it? Looking at the COT reports the commercials have caught up a bit on their buying and have also added more selling in London, or an increase of 7,423 lots on the long side and 12,997 lots on the short column. Managed-money is getting longer, being now 36,078 lots net-long. In New York commercials liquidated longs and shorts, while non-commercials reduced only 559 contracts of their longs to 38,160 contracts. The BRL and the COP appreciated slightly in the past sessions, but not as much as the “C” has rallied therefore more selling can be found on new gains of arabica prices. The performance of currencies will add gas to make the technical picture more positive or attract profit-taking, with central banks dictating the tone. I am flying to London tonight to participate, as a panelist, on the ICO Consultative Forum on Wednesday. For those attending I will see you there.
After several days failing to sustain intra-day gains, but only sliding lower a couple of points NY broke a key-resistance settling near the high today and it seems ready to test 155.70 on the December16 contract. If it makes a new high the next upside target will then be 157.65 and 160.60. Support areas are at 149.60, 147.40 and 146.60. London November16 has resistance at 1979, 1992, 2000 and 2019 while support levels are at 1924, 1889 and 1872.
Have a good week and good trades,
Arabica coffee futures ended with little change at the end of another quiet session. The most active contract for December delivery settled at 148.40, 50 point s lower. Volume reached only 12,000 lots including 1,778 switches. The absence of fundamental news and any significant technical development cause the lack of participation. The dollar was firm against the main currencies; however a firm real discouraged coffee sales. The real reversed earlier losses, as positive sentiment was generated by President Temer’s veto salary increases of some public workers. Other Latin American currencies, the Colombian and Mexican pesos were down more than 1 percent as commodities prices fell. During the week, prices finished 235 points lower, consolidating near short term moving averages during the latter half of the week.
London Market- Options drove the majority of noteworthy action in London as a further subdued session drew the week to a close.
Values fell $6 off the opening bell responding to final hour weakness in the ‘C’ contract last night. Dollar strength, aided by U.S consumer prices increasing more than previously expected, prevented any significant tests to the upside.
Exposure continues to be built around the Nov 2100 call where 1000 lots traded at $13, which will be of significance if the market continues to test further highs. Conversely, downside protection remained of interest to participants with an additional 800 lots of the Nov 1800 put traded at $12.
ORIGINS BENEFITING AS THEIR CURRENCIES SLIDE
Risk assets had a steep decline last Friday after a voting member of the FOMC commented that the economy could overheat if rates remain low. The fall came a day after ECB’s president disappointed the expectations for an extension of the bond buying program of the monetary authority, saying that the committee will study how to ensure its QE program doesn’t run out of bonds to buy – not very encouraging. Oddly not even the bond market rallied, in fact bonds fell taking yields higher, another worrying signal as one of the major reasons equities have been going higher is related to the poor yields of bonds that make stocks relatively “cheap”. The Dollar Index strengthened on the day, but it remains still away from early September levels. As it has been the case in the previous collapse of equities, investors jumped in to buy it after all past “big” falls therefore today US indices went up on renewed speculation that a hike is not around the corner. Commodities could not hold last week and lost ground with a more pronounced high volatility for energy products. Coffee markets pared the recent gains after seven consecutive higher closes on robusta while the arabica felt more on speculators reducing their long exposure. The first though resumed the uptrend today and a new high being reached tomorrow could spark more buying interest.
The “C” recent move above 155.00 cts / lb came in good timing for several origins that also had their currencies devalued. In Brazilian Reais, for instance, New York traded above R$ 500.00 cts for the first time since the middle of July. In Colombian Peso the level reached was COP 4500 cts, not very far also from July 4600 cts. In Lempira the Hondurans could sell their coffee at HNL 35.00 cts, the highest level since February 2015, period coinciding with the Peruvians that had prices in Sols at PEN 5.24 cts. In favor of the Brazilians there is also the interest rates, kept at 14.25% by the CB, which allow farmers to sell the back of the curve at historically high prices when fixing the sales of the 17/18 and 18/19 crops. The nearby physical activity on the major origin was reported to be very good, easing the replacement levels and allowing some cheaper FOB offers also. Commercial gross-short, as per the latest COT, increased in one week by 3.56 mln bags, or 12,543 contracts, also attesting a better flow in general. The proximity of the harvest for mild-producing countries could limit the upside along with the selling appetite of Brazil, unless, of course, non-commercials keep pouring more longs on their books. From a macro perspective, which for quite some time has been the major influence for commodities in general, one can also bet on more buying interest by funds if the Dollar gets weaker or any central bank announces a new (old) stimulus package. Curiously we can notice that the index traders have been buying coffee in the past two weeks (commercial fixation through OTC?). Bulls remain confident on a further appreciation of the board based on a deficit scenario for the current crop and next year. The commercial gross-long position barely changing is another reason that some are looking for higher prices of New York – even though historically it is not usually a market mover. Weather-wise the perception transpiring by the participants is that all is fine for now. The most worrying region is the North of Espirito Santo that needs to be closely monitored. Bears keep arguing that inventories at the consuming nations are more than enough to fare through a current surplus year and a potential deficit one in 17/18 that will then prepare the trees for another boost production in 18/19 if everything plans out nicely – a stretch analysis though as we are far away with some many variables in play. Being practical what matter is if NY and London will take a breath of the recent upside move and attract spec liquidation, likely to feed some underneath commercial buying, and where will it head to after: 135 or 170 cts for the Arabica and 1700 or 2200 for the robusta. On the first it would not be surprising to see more selling getting into the market as new coffee is harvested and having funds holding a net-long of 40k lots again. For robusta, based on the option’s activity, it seems like many are positive on the short/mid-term and less friendly for the beginning of 2017. At the same time differentials got cheaper for Vietnamese qualities for shipment on the last quarter of the year and the arrival of new crop can bring more selling to the board. If someone is betting on the robusta market looking at the conilon situation it can get tricky as Brazil cannot import coffee therefore the impact, if things turn out bad, will be felt more on the arabica availability. The macro will continue to dominate and define how much buying appetite we can find in these markets.
A gap left today on the opening in NY was filled during the most active trading-time, with the settlement being very near the day’s high. The close is just at a support uptrend channel on December16 contract with the first level to be observed being 150.70 for tomorrow. A failure on holding it will then make the market likely to test 149.30, 148.45 and more important the 146.20, as the key support. On the upside resistance levels are at 152.90, 153.55, and 155.70. London November16 contract had a nice recovery after breaking Friday’s low and could test a new high. Resistance is at 1932, then 1959, 1979 and 2004 – for the week. Support is at 1889, 1860, 1843, 1836 and 1810.
Have a good week and good trades,
Good Morning!! Coffee prices were higher overnight, despite lower risk appetites due to pressure from outside markets like crude oil and equities. There are several supply-side developments that could keep prices fairly well supported early this week. Brazil's Arabica production has been strong this season, but this is the "on year" of their 2-year crop cycle. Their crop next season could fall by 6 million bags or more from this year, and that estimate was made before the impact of mostly dry weather over the past few months and several frost scares were factored-in. Colombia has made great strides in recovering from their production problems in recent years, but their monthly output totals have started to plateau, and they have may reached a near-term production ceiling. This in turn puts additional importance on the upcoming Vietnamese crop, which has seen near-drought conditions for much of 2016 and now may not see late-season benefit of additional precipitation from a La Nina weather event, as that may not begin this year. Indonesia is seeing some above normal dry season rains that could be unfavorable to the maturing crop and delay harvest. December coffee will find near-term support at 150.70 and then 148.45, with resistance is at 155.00. A move above the mid-July high would leave 165.20 as a longer-term upside target.