KC posted a fairly wide 220 point range for how quiet it seemed, the calm interrupted by several discrete and notable injections of trading. In the end the buyers had the greatest influence, pushing prices 40 points higher to 97.55 during settlement, while 8am buying generated the day’s high. Roaster buying was apparent late in the session, however the similar yet staggered rises in Sugar, then Coffee, and finally Cocoa suggest spec buying as well. The BRL was quiet, aided by BCB intervention, yet weakened around ½% to 4.15 at the time of KC close. The intraday FX driven weakness in Arabica seems to have reached a point of declining returns at current levels. The rolling 10 day KCxBRL correlation has slid from .71 on Aug 16 to .36 today. Robusta gained $12 to close 1351, $44 above than Friday’s low. Spreads tightened again, with the prompt X/F closing -20.
Arabica lost 10 points on the day, settling 97.30 basis September. The U 97.50 P entered the day with 2160 lots of OI, while the 97.50 C had 2429. Volume in each was light on the day and there would not be much surprise if there was abandonment or contra execution of either. From here we will refer to December as the OI rolled over last night. U/Z tightened a tick to -3.40 as the trend of Day 3 strength continues. Spreads accounted for 88.5% of total volume, slightly above the index roll timing average, while estimated outright trading fell below 10k lots for a 3rd consecutive session. ATM vol was pinned around 29 for the week ahead of option expiration, in itself an interesting data point with regards to the fairly quiet directional trading going on (1800+ Oct 107.50 C notwithstanding). Also interesting was the late session selloff in Robusta as prices fell $16 to 1296. As traditional lunch time struck NY, roughly 1350 lots of selling hit the market across U and X, sending futures $9 lower. Another dip showed up on the settlement period as intraday lows were posted and a lower high lower low was realized.
Arabica gained 50 points, 97.40, while posting a higher high, higher low after consecutive inside days. Day 2 of the index roll saw another tick higher in U/Z, reaching -3.35, yet ultimately settled a tick wider at -3.45 in a slightly abnormal second day weakening. Total spreads were light for a roll period, though the prompt U/Z was fairly good size at 21,708. It appears that a fair number of spreads were prepositioned, as yesterday’s OI drop of 8863 lots was larger than the implied outright volume indicating chunky structure plays were in place. 1560 U EFS were posted, along with 60 in H and 1500 in K, possibly signaling a roll of financed positions out 2 to 3 positions on the board. London gained $10 to settle 1312, even as Robusta traded a sub cent range again (1300 / 1318). U/X closed unchanged at -26 on 6015 lots.
Arabica capped a surprising session up 360 points at 110.25. The market was under pressure early, falling into negative territory under the weight of broad based Ag selling. Sugar saw a 4500 lot sell at 6:30, Corn saw 7k lots around 9:30, and KC was hit with 1000 lots at 7:45. A stronger dollar and weaker BRL should have been problematic by all typical standards. The COT revealed the funds at their least short since September 2017. Nevertheless, while the all these factors persisted, coffee turned upward around 10am and never looked back. Intraday lows came in right around the 26dma. The source of the rally remains a mystery, but at an estimated 20k lots of outright volume, it was real buying. Option volumes were strong, led by 3500 U 100P on the nose, or 68% of the total OI. Around ½ of those came via the U 105 / 100 1x2. Robusta closed $10 higher at 1434, waiting until minutes before settlement to rally into positive territory.
While temperatures were colder than advertised, cracking the freezing level in areas of the coffee belt, most traders (and meteorologists) dismissed the likelihood of meaningful crop damage, setting the stage for a 470 point loss (106.40 KCU settlement). Initial returns would not have suggested the day in store; prices gapped up from Friday’s close on the opening, posting a 114.65 high (+415 from last week’s final print) in the first two minutes. Two waves of prominent selling would arrive between 7:30 and 7:40am EDT however, fully altering the complexion of the market. The second, larger, sell order came in just shy of 1800 lots in KCU, sending prices plunging over 400 points and instigating a 30 second Ice trading halt that went unnoticed by many. Prices snapped back after trading resumed and futures were quiet and orderly for most of the balance of the day, with occasional bouts of selling interrupting the calm. Interestingly, outright volume for the day was fairly small by any standard, but particularly given the magnitude of the move, coming in at an estimated 16,412 lots in Arabica, backing up our perception of thin liquidity. London fell $18 to 1426, and interestingly saw a similar sell order to KC at the same 7:40am EDT time. Far less volume was needed to send prices spiraling lower, 280 lots, though the degree of travel was also less – below 1c equivalent.
Coffee extended its rally closing 445 points higher at 107.45. Weather concerns seem to have sparked the recent rally to a large extent – a lack of imminent threat notwithstanding the excitement – driving Q Vol and futures with it. However, the push has developed into a technical spike, with plenty of volume on both sides as skeptical discretionary shorts have been active sellers. A lack of MOC buying may have been a positive for the bulls in the end – a lack of aggressive buying kept coffee short of the key technical resistance levels between 108 and 109. Had prices reached, and been capped, at 10820, 10840, 10880, etc, it could have been considered a failure. Post settlement bids evaporated as James Bullard (St Louis Fed President) stated on Bloomberg TV that a 50 point cut in July would be overdone, sending the DXY flying and adding to pressure on the BRL. No notices were issued on FND in Robusta. 3k+ AA’s were posted in July, along with 450+ N/U, against 5562 lots of OI. Futures rose $33 to 1455 in Sept, reluctant to keep pace with Arabica. The arb is now 41.45.
Arabica closed the week in typically ridiculous fashion, falling 110 points to 100.95 under near constant pressure. KCN posted a higher high, higher low, negative close on all of the daily, weekly and monthly charts (although at this point the weekly is the monthly, so treat that as you will). Trading desks were a bit thin in coffee with the Berlin event sucking away some of the commercial contingent, Monday’s Swiss holiday extending into some bridged weekends, and summer Friday absences ramping up. Some have argued that the weakness in coffee and other ags could have been a function of pre-COT positioning with anticipation of a bearish report across those markets. Also possible was the impact of index fund rebalancing. With the ag rallies / energy selloffs shifting notional exposure to various markets (including coffee), entries into and exits from those respective commodities were expected. The outlier nature of certain Ag products that are not in the prominent indexes (CC +1.4%) could add weight to that argument. The prompt spread (N/U) weakened on day one of the combined index roll for the second consecutive time after having never done so in the prior 23 roll periods, settling 10 points weaker at -2.65. London closed $1 weaker at 1430 in tight trading. N/U also closed on its low, -25 after tightening in to -22 intraday. The arb closed 37.6.
Arabica started the shortened trading week with a technically inspired spark, to settle with a 275 point gain at 96.05 basis July. Basis the second month chart the intraday high of 98.70 was the best since April 4th’s 99.40 pinnacle, and the 98.30 settlement was the highest since 98.50 on the 8th of March. It was the first time the market traded above the 100 day moving average (98.53) since the 1st of February, as systems funds proved the best buyers on the day, and prices rallied despite a BRL trading softer than where it was when we closed on Friday. The assumption that buying was short covering will be a curiosity that is hopefully satisfied on this Friday’s COT, especially since last week as the market rallied, the gross non-commercial long increased by 3,324 lots, while the short actually also increased but only by 452 lots. London settled plus $4 at 1372 and while it did not keep up with NY managed to close at its highest level since the 15th of the month. It’s refreshing to have some superlatives to mention.
Arabica rose 300 points to settle 92.90 in one way trading with nary a downtick after the Western side of the Atlantic got down to business. The European session was a slow and steady grind lower, succumbing to 140 points of weakness at the bottom shortly after the traditional NY open. A spicy Somar headline gathered interest around 8am, yet reaction was limited; initial response was a metaphorical shoulder shrug. Trade sellers rushed in on the short side, yet the markets ascent had already quietly begun. A second day of heavy Brazilian Central Bank intervention supported the BRL as it fell out to 3.11, and from there it was difficult to determine how much of the KC x BRL performance was causation vs correlation. It appeared that short spec covering was at play as prices traded through the 26dma, though even that leaves something to be desired as an explanation. Today was the first time KC closed above the UBB since January 25th, and the first time above the 100dma in BRL terms since Nov 30th, albeit with a rollover boost. Opening selling was more dramatic on the London side of the equation, digging a deeper hole to climb out of. Prices ultimately closed 1364, +30 in perfect harmony with KC from the 8am magic hour on. The arb rose from 28.65 to 31 on the day.
A tranquillo day in the Arabica market, which traded an inside 115 point session, and settled at 91.30, plus 35 points. London consolidated yesterday’s $46 gains and also traded an inside range ending the day down 17 at 1375 basis the July contract. Activity in outrights found paper short term spec focused while the trade, especially in N.Y, were largely sidelined. Total volume of 27,123 lots with 8,659 spreads was true to recent form. The BRL weakened to its lowest level since the 1st of October ($/R 4.02) before stabilizing as the day grew longer, yet the correlation to coffee prices was relatively loosey goosey. The BCOM saw 18 of its 22 member products trading higher so for the day KC was trading directionally at least with the pack.