Executive Summary “The coffee junket took a rest yesterday despite Arabica’s previous session generating a technical “morning star”, a bullish reversal pattern. The New York market lingered in the upper third of the previous day’s session producing the smallest range seen since February during the first round of consolidation following the leg higher from 115 to 142 – a “short day” for candlesticks followers. Chatter continued to center around Brazil weather, on which there are now appears to be a glut of “recent reports” producing a myriad of results – take your pick. Ultimately though I think the knee-jerk reactions of late have been turned down from boiling point to a slow simmer, and that we are now entering a new phase of price discovery- albeit still very much cautionary. As one trader said to us “there’s never been such a wide disparity between the high and low of crop estimates – the fact is we still don’t know the true outcome.”
At this stage we still feel one the main drivers will continue to derive from the options space with the current options open interest exceeding futures by some 49,723 lots, 224,451 vs. 174,728. A considerable turnaround from early January whereby futures OI exceed options by 29,704. A reversal of 79,427 lots over the rally, albeit somewhat expected with recent moves in volatility - it is still a large shift. The second key focal point will be Brazils approach to hedge flows and price fixations into the end of April and early May. Whilst the market has expected Brazil to maintain steady selling into the recent rally (having faced prospects of lower prices) the sentiment into the early harvest will certainly be key.
Robusta continued to languish around within the middle of the recent range giving little real solace for bulls of bears. Origin fixing appears somewhat removed from the market following good bouts of fixations from the recent highs to current levels after good volumes of Vietnams traded internally ahead of the Indonesia crop which will start to ratchet up. Support on a pullback back towards the 40 day Ma and lower bolly at 1985/1998.”