Morgan Stanley Coffee Report - August 5th, 2020

Arabica posted another standout day, rising 295 points to 123.45 in the active December contract.  While OI has flipped to the 2nd contract ahead of Friday’s index roll commencement, outright volume remains nearly 3x in the front KCU, reflecting the remaining cleanup that needs to be managed nearby.  The 123.25 / 123.70 gap basis KC2 was nearly closed, with today’s high of 123.60 leaving 2 ticks to be retraced.  Combined oscillators, while still extremely overbought, backed off slightly from their max reading, and on the KC2 or KCZ chart coffee now has a 10th consecutive day of higher highs, higher lows, with only 3 negative final prints mixed in.  Settle to settle from the night prior to the break out futures have gained 1995 points over those 2 full trading weeks.  Spreads were the story again, as U/Z gained 20 points to close -2.40, while Z/H and H/K weakened 10 and 5 respectively.  The Z/Z settled 60 points stronger at -4.60.  Certs fell a precipitous 49,949 bags, the largest 1 day draw since Feb 17, 2012 and the 13th largest going back to 1995.  Two day cert draws for August are nearly equal  to the entirety of July’s reductions. If these remain out of the stock rather than being regraded it should help further the debate between cert relevance vs total balance sheet for the market in the coming days and weeks.  Meanwhile, Robusta served as a catalyst for the day as U/X traded as high as +23 before closing +18, a second consecutive day of backwardation.  Unlike yesterday both the spot and 2nd months gained,  RCU closing 1404, +53 and RCX 1386, +36.  The destiny of Brazilian coffee in both markets that has traded at tenderable equivalent to the exchange remains at a position of prominence in trader debates.