Positions look to be well cleaned up heading into first notice day, as KCH OI entered the day at 6426 (2206 H AA’s, 98 EFS, and 7495 combined H based spreads). The session began in an encouraging manner as KC gapped higher on the opening, and with volatility relatively low posting a mere 160 point range. That gap was left open from 14745 to 14765 basis K. Early strength may have been best attributed to the BRL, which closed at 3.0574 last night after trading to the strongest level since June 18, 2015. While the BRL would ultimately succumb to relative weakness as the Brazilian Central Bank appeared effective in their continued swap based assault on the currency, it seemed to matter little to KC on a fairly quiet day. Anecdotally, it seemed many traders were focused on getting FND out of the way before the next move materializes. The question to be answered tomorrow is whether the First Notice Day Bounce of lore awaits coffee, or rather is Yeti-like in authenticity.
Arabica coffee futures consolidated higher Wednesday on a spread-dominated session. The benchmark contract for March delivery settled 85 points higher at 144.50 cents a pound. Volume reached 47,333 lots including 15,430 switches. The nearby Mar-May switch weakened 15 points to end at -2.45 cents. As we approach the delivery period, less producer selling has been present. The dollar traded between positive and negative territory, adding volatility to the commodity complex. Better than expected US economic data helped the currency early, however comments from Mrs. Janet Yellen, Chairwoman of the Federal Reserve, acknowledging the economic grow has been “quite disappointing“, pushed the currency down later on the session. Colombia exporters expressed concern about a possible trucker strike in Colombia. The National Crusade, a trucker union, denied today that they have given an ultimatum date for the government to reach an agreement to their petitions. Last year, a trucker strike during June-July caused disruptions of the coffee exports. The fly crop which begin in April could be affected as well.
GCA green coffee stocks increased by 66,627 bags during Jan to 6,322,767 60-kg bags. Last year Jan’s green stocks increased 907 bags. The average change of the last five years has been an increment of 4,754 bags
London Market-Weakness in the nearby structure saw flat price values fall through the early stages of the session before a mid-afternoon recovery resulted in London closing in positive territory for the first time this week.
The opening bell saw the March/May spread immediately replicate yesterday’s action, weakening to $33 discount through good volumes, driving outright prices lower through the 100 day moving average at $2124. Roasters once again returned to halt additional moves lower, providing a solid base for the market to move higher later in the session. Strength in the Brazilian Real drew intra-day buying back into the ‘C’ contract which also acted to pull London higher, accentuated by the May/July strengthening into $9 discount through 2800 lots. Technically, the market maintains its uptrend, twice rebounding from consecutive breaches of the 100 day moving average at $2124 basis May.
March options expired with an anchor price of $2091, while further options turnover was generated with 1100 lots of the July 2100 puts bought alongside the selling of 1100 May 2200 calls.
Dollar rose after Fed chair Janet Yellen commented about the economic outlook and the possibility of more interest-rate increases. The statements made today have increased the odds for a rate hike in the next FOMC meeting from 30 to 34 percent amongst investors. The move pushed commodity indices lower, they bounced back towards the middle of the day. Real traded to 3.0925/$.
The London market traded sideways for most of the day until the move down in Arabica uncovered a void in Robusta, which dropped to the low of the day. That move below yesterday’s low was rapidly met by speculative buying jumping into the market, once again showing interest to hold the market around the 2100 area. Volume was healthy but most of it was done via the spreads with about 9,500 executed against the front month.
New York market seemed to be moving quietly north as the Real crossed the 3.09 level, but took a turn once the currency came back to 3.10. The market eroded for the rest of the session. Speculative positions were liquidated pushing the flat price lower for the day yet it was able to come back in the last half hour to settle above yesterday’s low. With only 2 days before FND, the activity was concentrated again on the spread transactions, showing almost 13,000 lots against the March position.
KCEH7 settled -0.60 cents lower with volume estimated at 49,923 lots, including 19,281 spreads, 3,650 EFP's, 125 EFS's and 957 TAS. 2,465 calls, 1,633 puts also traded. €=$1.0574. BRL: 3.11/$. CRB: 1.9205. Crude oil 52.87. S&P500 2333.5. Open interest 177,679-3,359.
LRCH7 settled $11 lower with volume estimated at 29,543 lots, including 13,543 spreads, and 116 EFP's. 948 calls and 1,101 puts also traded. Open interest: 152,788+205.
Coffee posted a predictably choppy performance as March options rolled off the board. OI for the serial was most pronounced chiefly in strikes far from relevance (2nd most OI was the 200C with 3572, 3rd was the 135P with 3250). Meanwhile the heaviest ownership was in the nearby H 150 P with 4155 coming into the day. Paper is thought to be the primary short, which perhaps could indicate a freshly materialized underwater position for some naked grantors – limiting buying possibilities in the short term. Interestingly, the most active minute of trading came in the form of aggressive selling, which returned during the settlement period. However, last minute action outpaced that of the 1:23 time, and the dying moment’s buying erasing the MOC losses. With KCK settling in the middle of a 200 point day, and volume being aided by heavy spread activity ahead of FND (around 11k HK, 2300 HN), it is difficult to get terribly excited about this particular Friday reversal, particularly as we trade a second consecutive weekly lower low and lower high following four weeks to the contrary. Robusta trading was even less inspired, chopping its way generally lower before end of day buying forced a positive close. Spreads settled weak, with HK going out -31
A corrective bounce perhaps out of shear downside exhaustion, or more cynically related to the release of some lower end crop estimates, along with lingering concerns over net drying throughout Brazil’s coffee belt. For the first time since the 23rd of January New York was able to generate a higher high and low while London managed to accrete $20 at settlement, yet still traded a sixth day of lower highs and a fourth of lower lows. On the third day of the official index roll, volume in New York was highly concentrated in March/May which traded 15,459 times in a range of 245 to 225 under, while another 4,381 May/July changed hands between 230 and 220 under. The dollar index has strengthened every day of the last six, but the effect of a firmer green back on coffee prices has a dubious correlation as the Real trades sideways, yet teeters on the cusp of a 3 ½ month high. Tomorrow brings us March option expiration with open interest in the 145 strike balanced at around 1300 lots each, while the 150 call had 3,079 lots open and the 140 put 3,070 lots open entering the day.
Rains are now a given in Espirito Santo, although the effects of the recent lack of precipitation are yet to be determined. Headlines about re-importation of Conillons garner attention, although clarity is lacking. London traded lower, yet managed to put up an inside session holding Friday’s low by all of a dollar. Resting bids from industry were accommodated, as funds and trade were the day’s most active sellers. The London COT report indicated the sideways market action over the reporting week was nothing more than met the eye, as funds whittled their record long position down by a mere 659 lots. New York started the week under pressure aided in part by the COT report which showed that funds reduced long exposure by net of 238 lots despite the market losing 10 cents in value over the reporting period. A new low for the move in Arabica found managed money on both sides of the market, while origin and industry were largely in absencia, with the former reluctant to sell weakness, and the latter comfortably covered in March and finding no urgency to add down the curve.
Arabica coffee futures dropped sharply as weather improves in Brazil. The most active contract for March delivery fell 2.8% or 4.20 cents to 145.95 cents a pound. Volume reached 47,075 lots including 12,089 switches. In options, activity was mostly on the nearby March contract in the close-to-the-money strikes. Volatility continued to diminish. The action was influenced by the London market, as Robusta prices were pressured with producer selling expected to resume at the end of the Tet holiday. The technical weakness in the chart added bearishness to the market. The breakage of the 20, 50, and 200 day moving averages accelerated the movement, posting five consecutive negative hours towards the close. In related news, the IHCAFE Honduras, reported January exports totaled 821,669 60-kg bags, up 41.6% from the same month last year. Accumulative exports for the first four month of the season to 1,410,667 60-kg bags, showing an increase of 40.6% from the same period last year.
London Market- London completely erodes previous gains above $2200 as the speculative community reverse nearby long exposure, amid a back drop of returning Asian pressure and a lack of official news relating to Brazil approving Robusta imports.
Values opened at unchanged and initially attempted to hold above the previous day’s settlement. However, through the early exchanges Vietnamese offers resting $10 above became very visual around the market and with no official news surrounding the Brazilian import situation the spec community started to liquidate. With limited commercial support in place values set back swiftly, unlocking stops first through $2235 and then $2200, at which stage volume accelerated aided by delta hedge selling generated from the 4,775 lots open in march17 $2200 calls and 4,050 lots open in march17 $2150 calls. Given the bulk of the non commercials long position rests in March17, the liquidation seen through the session weighed on all March17 based structure with h/k weakening to $18 discount on over 5,000 lots.
Arabica coffee futures for March delivery settled 60 points higher to 150.15 cents per pound. The volume increased to 57,603 lots, boosted by 18,323 switches. The nearby switch, March-May narrowed 5 points to end at -2.35 cents. The dollar was a significant factor in today’s session, affecting the dollar-denominated commodity prices, and causing the reversal of the coffee futures prices action. Concerns ahead of the FED decision triggered the volatility of the greenback. The FED left the interest rate unchanged. The real was mostly unchanged at USDBRL 3.1505. From SOMAR, rains in Brazil continued concentrated over Parana, Sao Paulo and southern Minas. An ample coverage, that includes Espiritu Santo is expected from next weekend. Arbitrage activity was noted when the market turned into positive territory, erasing the day’s loses, as soon as the Robusta market closed in London.
In options, high open interest is noted in March puts below the market, with expiration only 9 days away. 1000 lots of the 170/200 call spread in July were traded today, with a sale of the 140 put and the market at 155.00 in the morning.
London Market- Volatility is cyclical so they say and after a long period of relatively benign action in Robusta the market is certainly starting to take on a more active tone. Following a disappointing start given the call off of New York, London excelled itself to the upside as rumours started to circulate that there may be an impending announcement from the Brazilian government regarding the importation of Robusta. Values pushed sharply higher, bringing Vietnamese sellers back early from the end of their Tet celebrations to put a lid on values above $2260. As time passed and the ‘announcement’ was clarified as comments in a Reuters article, the board slipped back but did not capitulate, ending the day posting minor gains. Despite all the fireworks, the 2200/2265 range remains intact for now.
The month of January went off the books with London and New York succumbing to pressure, as funds lightened up in the face of a weaker real while rain is forecast to fall over the next week in the parched Conillon region of Brazil. The real traded to the brink of, but failed to break through, the 3.10 level for the third time in 6 months, a level which many analysts expect the central bank would reduce or even eliminate the rollover of the next maturity of FX Swaps. Origin were active sellers in London as differentials are softening, while funds carry record long exposure in the futures market. At the low for the day, March London had fallen by $43, its steepest intraday dip since the 22nd of December, yet still managed to hold last Wednesday’s 2193 low. Despite today’s weaker performance, the Robusta market ended the month at the highest monthly close in the front month contract since June of 2011, and since July 2012, basis the 2nd month. New York followed directional suit with systems being the heaviest sellers on the day as the market traded a 6th session of lower lows. Open interest in N.Y. has increased by 5,281 lots since the January 24 high (and COT cutoff date) of 15695, which is worth noting due to the selloff that has ensued following funds adding 6,479 net longs over the reporting week. The Arabica market outperformed on the month accreting 9% versus a 4% gain for the Robusta market, and, while London has had the story to watch, New York was the beneficiary of fund rebalancing.
Arabica coffee futures closed lower Monday as the weather prospects in Brazil improved. The most active contract for March delivery settled 125 points lower at 151.15 cents per pound. Volume reached 28,086 lots including 7,874 switches. The active switch March-May widened 5 points to end at -2.55 cents. The volume of switches has been below the average, due to a significant reduction of the open interest. As Oct 30, ahead of the Dec delivery period, the OI totaled 214,133 lots compared with 184,448 today. A more humid Brazil coffee belt is expected for the next 6-10 days. According to CROPCAST, an American based weather analyst, above normal rainfall is forecasted across most of the coffee areas, and will bring a notable relief to the coffee trees. Friday’s COT report showed commercials increasing their short position by 7,736 to 63,412 net shorts, while non-commercial increased their long position by 6,479 to 25,281 net longs. In other news, large US firms will report quarterly results this week that will help to reveal the state of the economy. The FOMC will publish on Wednesday a policy statement after the two-day meeting. Analyst do not expect a change in interest rates.
London Market- Commitment of Trader numbers were released this morning, revealing yet another build in the managed money position. Net long now just over 47,000 lots long basis the Disaggregated futures and options report. The increase in position coming from fresh longs in contrast to Arabica which has seen similar gains but on short-covering. In outright terms it was very much a game of two halves: early weakness attracting an element of short-term spec commitment before the scale down buying that has been in place around the mid-term moving averages for some days now retook control, leaving the board to work its way back to unchanged by day’s end. March 2400 Calls traded actively through the second half of the session as bargain hunters took advantage of the dip. Last trading day for the January contract tomorrow.