Arabica fell 150 points to settle 119.35 in unremarkable trading. Prices slipped throughout the European hours in “risk off” trading, and the entire range was in place by 8:30EDT when a quick 1000ish lot selloff sent prices to the day’s low – yet found no follow through. The DXY seemed to be a weight on the day, but more than anything boredom seems to be overcoming traders as prices retreat to the well-worn range. Options were fairly quiet after yesterday’s monster session, although there was some notable if esoteric paper around; nearly 600 N 137.50 C / Z 95.00 fences traded at a 6 point premium to the put, and a couple of apparent rolls came in with similar quantities. London traded a nearly perfect layover with KC before diverging lower with chunky MOC selling painting the close. RCN settled 1751, -39 as N/U slipped to 10 over under late day pressure.
While KCN closed a modest 65 points higher at 120.85, the day’s flow felt stronger than price alone would suggest as systematic buying pulsed through the market throughout. Good chunks of Brazil selling were noted down the board on our desk, and trade house prop selling accompanied them – presumably sparked in part by that very origin action which has repeatedly been a sign that the market is topping. The real excitement was in the options arena where vol was bid all day, particularly in the back where the Z 140 and 150 C saw size buying at firm prices. To reduce the market to any given strike would be foolish; a total 18,435 calls traded on the day vs 6301 puts – fairly monstrous volume. The BRL was a clear driver for the majority of the day, and the sugar/coffee proxy trade was obvious as well. Robusta fell $5 to 1790, again topping out at 1799 and failing to crack the psychological barrier of 1800. Origin took a breather in London from our vantage, though one imagines they will be reengaged if another crack through the top of the long term trend can be achieved.
Arabica took its cues from the FX market, slipping under the weight of the DXY and BRL as the latter traded to the verge of 3.70. KC closed 117.05, -55, and while spec selling dominated the day, roasters were all too happy to accept price as they added impressive length throughout the morning. Origin was reported to be around, though we did not see it in any meaningful quantity, and much of the trade was dubious as to their impact. Interesting late day buying sent KC spiking higher in a short lived rally as iceberged offers were eclipsed, gaining around 75 points on modest volume before being sold back down. Robusta featured more volatility in thinner trading – seemingly attracting less algorithmic depth – yet largely remained in tune with her sister market. Origin was quiet from our perspective on London as well, a bit of an outlier considering how prevalent their selling has been on our books for quite some time.
A 135 point range in Arabica was (under)achieved between 8:10 and 9:45 a.m. as N.Y. posted a 6th lower high and 5th consecutive lower low yet managed to close positive for the first time in 5 days, at 119.55 plus 80 points. Open interest has been topsy-turvy over the past two days, with yesterday’s activity accompanied by a drop of 3,245 lots while Tuesday’s 1.15 point drop saw an increase of 2,077 lots. For the record the COT reporting week saw a drop of 10,648 lots on a net loss of 520 points in value. Chalk up today’s positive, albeit not exactly exuberant close in N.Y., to a 1.3% gain in the BRL, which, not coincidentally, put in its first positive performance in 5 days. Today’s close places the market essentially midway between the 115.85-123.75 settlement range of the April 17-May 2 rally. The last time the market recovered from a similar rally/ sell off phase was following the Dec-Jan run from 135.20-159.30 when prices retreated to 144.20 then proceeded to bounce to 153.30, a 60% retracement of the pull back. Not encouraging but to look at the glass half full…we are certainly overdue.
New York suffered a third day of losses, settling at 119.60, relinquishing 1.15 points in value. Not coincidentally, the dollar rallied for a third day running, which did little to support coffee prices as traders awaited the U.S. President’s decision on whether the U.S. will pull out of nuclear accord with Iranian. KC prices, which rallied 1065 points on the move from 115.30-125.95, an average of .92 pts a day over 11 days, have fallen 660 points or 62% over the past four sessions. An analyses of open interest clearly reminds us that we are in a liquidating market. On the move from 115.30-125.95 between April 17 and May 2, open interest dropped by 21,733 lots, albeit with FND in the mix. Since the high, today not-withstanding, o.i.,has dropped by 6,511 lots, of which 3,450 lots were on Monday’s action alone. Simply put since mid-April KC has had commitment issues.
KC traded a second day of consolidation, settling plus .60 points at 124.35. N.Y opened up on the low for the day, a tick above yesterday’s low and ultimately put up an inside session as residual systems buying matched off against short term specs lightening up on longs. Open interest showed a hefty reduction of 6,214 lots and while the market settled down on the day Wednesday, the trade averaged weighted price was higher at 125.03 which is suggestive of a fair amount of short covering. The release brought out some selling and the market briefly dipped to 124.10, but was followed by a bounce to the high of 125.40 and at the end of the day proved to be a textbook consolidative performance. Discretionary bulls, encouraged by, yet cautious of, the technically inspired rally, were noted lightening up on futures and replacing with some upside calls. Origin a presence but not as heavy as yesterday in light of the firmer real ($/R 3.5292 +.64%), and softer dollar overall following yesterday’s fed decision to keep interest rates unchanged.
Coffee shook off a strong dollar, and a weak overnight BRL close, to rally 200 points on the day while settling 124.80. Brazil was closed for the day, and were likely pleased to have much of their scale selling filled as they enjoyed their caipirinhias by the pool. OI revealed a fair amount of short covering – or was perceived to have – and the first thought is that another bout was ongoing throughout today as several momentum signals have been flipped. Perhaps the lead has been buried, as robusta was the story on the day, albeit a condensed cliff notes version that could have been carried out in a 10 minute session. A fairly monstrous 5093 notices changed hands 1x1 on FND. Much discussion was had over whether such volume can be merchandized in a short enough window to make the cost worthwhile, and even more was held over the disparity in OI vs total certs available, and the possibility of a short squeeze in the offing. Conversations aside, the market seemed unable to care until the close when prices exploded to the highest levels since November 16th , convincingly taking out the top end of the 5 month range. The $66 range posted on the close was a mere $1 less than the entire range of April! With Vietnam returning from a four day holiday one imagines they will be quite pleased with the fresh set of circumstances.
Friday’s monster COT induced early (and sustained) buying notwithstanding, Arabica traded a lackluster session in terms of participation, yet settled 1.25 higher at 118.95. The net non-commercial exceeded even the most ambitious of expectations by a wide margin, coming in at -70,577. While a significant max would have led to a snap rally in prior years, perhaps it is a sign of the cynical times that the best KC could muster was a test of the 26MA. While the kindling for a potential rally in the future continues to stack without spark, the nearby picture is less comforting. The roughly $500+/- million (depending on whether looking at the gross or net sales) short spec KC investment made around the $1.18 price last week closed the day a mere $3.7m underwater even with the 125 point rally – a speedbump met by origin on our books. The BRL trading to nearly 3.45 changes the picture dramatically for the producer in that origin to the detriment of the market; while prices are 2.25 clb below the YTD median line in USD terms, they are actually above the same in BRL terms, closing 4.096 BRL today vs 3.978 year to date. Robusta closed $10 higher at 1769 as spreads took top billing, yet was greeted by renewed Vietnam selling.
Coffee garnered a first notice day bounce, settling 117.70 +1.45 and posting a higher high, higher low in mostly quiet trading. Perplexingly after two days of BRL centric trading, coffee ignored the currency and ascended in steady fashion throughout the Americas hours even as the BRL fell to 3.41 and hovered around that level for much of the day. Dollar strength was likewise shrugged off, however sugar, crude and the BCOM all accompanied Arabica higher. Brazilian selling was present but modest from our vantage, while middling roaster paper was centered in London. To that point, Robusta may as well have been closed for the day, as the 1 minute bar chart looked more like a scatter plot than a coherent path of trading. Prices fell $8 to 1759, remaining ever so slightly above the recent moving averages while structure was steady. CSO’s were the trade of the day in Arabica, as risk was exchanged in the March 19 / May 19 -235 and -230 puts 1250 and 1000x respectively. COT to follow.
The BRL served as a weight on KC (116.60, -.55) throughout the day, as gains in both the currency and coffee market achieved yesterday were wiped out in slow and steady trading. Roaster bids kept a floor under Arabica for part of the morning, well after the BRL has begun its most significant decline of the trading day, and once that need was filled KC fell 65 points on better than 700 lots of selling. Beyond the programmed selling the day was centered on cleanup of KCK18 positions. K based AA’s (as well as N) clocked in at better that 7500 lots, and KN traded 13k times to make up the bulk of the volume. Robusta remained above the bulk of the moving averages at 1767, -5, as the ARB closed 36.4, near the tightest levels since September.