The week commenced on a negative note with KC trading all of a 120 point range, its tightest in 5 weeks, settling at 119.45 for a seepage of 70 points. London traded in a $20, 1757-1777 range settling $11 lower at 1767 basis May. New York opened down 5 points at 12010, which proved to be the high for the day with the 120 level not to see the light of day again by 6 a.m. under the first day of trading in U.S. daylight savings time. Prices gravitated to trade the 118.90 low for the by 9 a.m. and wandered about in a one cent range for the remainder of the session. Friday’s COT report showed the net fund short position to have been pared back by 2,628 lots, which was on the low end of the range of expectations. The gross commercial position increased by 5,982 lots on the long side and 8,314 on the short side which confirmed our perspective on origin flows, and when coupled with the fund position for the most part kept bullish sentiment at bay. Apropos of nothing, a 120 point range with little to get excited about.
KC traded in a 2.20 point range which, while it was tight, proved to be an outside session accompanied by a fresh 2 week low and settled at 120.30 for a loss of .45 points. The algo selling continued unabated and was absorbed by a sizeable dose of industry buying. Origin were quiet and the sidebar comments revolved around the market being stuck between a rock and a hard place are getting long in the tooth. London in the meantime traded a triple top at 1788 and formed a double bottom with Wednesday’s 1754 low settling down $25 at 1760 basis May. Tomorrow brings with it KC April option expiry. The April 120 put traded 916 times and with open interest entering the day standing at 2,978 lots it could be another rational for the market finding buyers as we approach the strike. Another chunky gain of 12,309 lots over the COT reporting week will make tomorrow’s release closely watched, especially since the market had a net increase of only .15 points basis May.
Arabica lacked direction on the day, at times trading with the currencies, commodity complex, and even on its own(!!) ultimately posting a final print 15 points lower at 120.95. Volume was better than the energy in the market, which was lacking in positivity with irritable feedback from numerous directions – most notably but unsurprisingly origin & spec. Options were relatively quiet with what appeared to be the initiation of the familiar 110 / 100 PS, this time in KCU to the tune of 500 lots. One would imagine that trade will become familiar, likely paired with a CS in due time. Robusta had a clear sponsor, closing 1777 +22 as an undercurrent of buying fought off Brazilian offers throughout the session. Spreads again tightened, taking KN into a -23 settlement from a recent low of -30 only 4 days ago as London certs dropped 77 lots.
A fourth gap lower since September 25th of last year started the week on a negative note as KC settled at 121.10 for a loss of 1.10 points. Prices fell to a low of 11995 before industry, and short term specs attracted by the bottom of the range, stepped in to provide cushion. Recapping the gaps, a September 25th gap remains void and sits from 137.45-137.70, followed by October 11th’s from 133.55-133.75, January 8th’s 130.00 to 130.30, and today’s opening of 121.65 to Friday’s low of 121.75 basis May. All of those gaps were formed on the opening print. The previous gap, and the last time a gap lower in KC2 was filled, was the gap from 157.90-158.00 formed on September 23, 2016 and was filled 3 weeks later. The most logical impetus for today’s sell off appeared to be Friday’s COT report which saw the net non-commercial short pared back by 5,199 lots with 3,147 new longs and a reduction of 2,052 gross shorts. Equally if not more interesting was the increase in the gross commercial shorts by 7,689 lots, which if viewed as a proxy for origin indicates there has been active hedging at current levels. If there is a silver lining to today’s performance it might be found in settling .65 points below the high of the gap, while the previous 4 gaps settled between 2.55 and 3.40 points lower.
Tomorrow’s o.i. will be watched closely as will the COT on a reporting week when total open interest increased by 8,091 lots and the market had a net gain of 140 points.
In light of recent performances, March came in like a lion, as New York kept pace with Robusta to settle at 123.95 for a gain of 1.95 points, while London accreted $44 settling at 1768 basis May. London saw 159 lots issues on First Notice Day as open interest in March decreased by 3,668 to stand at 3,348 lots. HK weakened by $7 yet remained inverted closing at 39 over while KN traded $4 dearer to settle at 26 under. KC rallied at a steady pace on what appeared to be some risk parity unwind along with short term systems buying as the market crescendoed to trade an 8 day high and settle 10 points off the pinnacle of the day. Open interest increased by 2,595 lots on yesterday’s .90 point pop and curiously also increased by 2,756 lots on Monday’s .80 point gain while most expected a decrease due to some short covering. Inquiring minds wonder whether there have been new outright or spread longs or a combo of both. Tomorrow’s o.i. will be watched closely as will the COT on a reporting week when total open interest increased by 8,091 lots and the market had a net gain of 140 points.
KC closed the week in painful fashion, settling +.10, 121.00. While the plus sign was welcome to many, the win was marginal at best, having traded up to 122.80 shortly after the traditional NY opening hour. Sentiment was buoyant at that time, with traders seemingly happy to head into the weekend. However, as prices ground lower with very little commercial activity those moods grew gradually evermore sour, with the market being described as “dead,” defined by “attrition,” and termed simply by one as “yuck.” Spreads waffled in both markets with low volume. Robusta settled down $8 at 1751, a mere dollar off the low as end of day sellers mounted a final attack on the close. The 1751 settlement matches the 40DMA, and the 5 and 100 have a mere $48 discrepancy.
The net non-commercial position came in at short 58,554 lots…just shy of the record short of 58,960 and higher than most expectations.
A fourth consecutive close in the red for KC, settling down .80 points at a fresh contract settlement low of 118.90, just .15 points above the 118.75 contract low in May. Open interest over the COT reporting week has decreased by 8,941 lots as the market fell 535 points into yesterday’s FND. While the open interest decrease can likely be attributed to FND clean up, price action alone suggests a good chunk of those fund shorts have been piled back on. The most notable option trade of the day was paper selling 1225 of the Dec 140 calls laid up with 128.10 carrying a 37 delta at 555 points. Origin noted stopping themselves out again while industry nibble lightly as a matter of course. Sentiment continues to worsen, yet it is reported that the darkest hour is just before the dawn!
KC spent the day in a 150 point range settling KCK 20 points off the low at 119.70, down .75 points. The opening minute alone saw the low print for the day and a one cent 119.50-120.50 range, posting a second consecutive contract low. Brazil was noted selling in what appeared a case of throwing in the towel in a market that has struggled to maintain any rallies. There were 1,018 notices issued on First Notice day, all through one clearing house while the main stopper received 848 lots through the same fcm. The arb widened by a cent as London outperformed, bouncing off of a fourth session of lower lows as technical buying emerged and short term specs attempted some bottom picking.
KC settled a cent lower at 124.10 basis May while activity in the outrights was downright mundane. A 190 point range on the day was within the 385 point band we have traded in over the past 7 days and the 690 point range we have been stuck in for the last 27 trading days. Total volume of 59,583 lots included 24,291 spreads of which 14,986 were HK’s between 240 and 220 under as positions are rolled and/or squared up ahead of Tuesday’s first notice day. Robusta attracted renewed focus as CSO’s started trading and for the first day of a launch trading was rather active. The first trade posted was the KN -30 put trading 110 times between 5-9 points, followed by 850 KN 0(flat) calls trading at 3 points and 1210 KN 5 under calls at 6 points. While KN traded between a $23 and $26 discount, HK traded to a $35 premium and has doubled over the past 2 weeks as certified stocks have fallen 25% over the past 2 months and GCA/ECF stocks have seen a steady decline.
Coffee was again a mere leaf blowing in the macro winds, settling up 5 points at 125.10 after trading tick to tick with the Dollar index from 8:20 EST onwards. The CPI number set the tone for the trading day as intense focus hones in on inflation risk and the theoretical responses of central banks. Brazil was a noted seller on the day, irrespective of a 2% gain in the BRL, as shippers are forced to fix ahead of FND. In BRL terms, the recent spate of Brazil selling has coincided with the best price in KC/BRL terms since January 9th, and with intraday prices between 402 and 415. Spread volumes were good post-index roll, yet the bid / ask never moved, spending the entirety of the day -230 / -225. Robusta continues to ascend in tiny increments, posting a 5th positive day and 9 of the last 12, settling up $4 at 1782. The K 1800 strike was the object of desire on both the put and call front. Around 1500 K 1800 C traded 53, delta neutral, and 1000 K 1800 P traded 67, laid up as well.