SAO PAULO - Brazil's largest coffee cooperative Cooxupe expects exports of the commodity to rise 12.5 percent to 4.6 million bags from the crop that will begin harvesting in May, the co-op's commercial director, Lucio Dias, told Reuters. The cooperative that is centered in Brazil's richest arabica growing region of southern Minas Gerais expects to export 4.09 million 60-kg bags from the drought-hit crop harvested in 2015. The new crop should start harvest in May. Dias said Cooxupe expects to move a total of 6 million bags this coming season, with 4.89 million coming from cooperative members and 1.1 million bags that it plans to buy from non-members. The co-op expects to trade 5.19 million bags of the current crop. Some of the increased volume and exports that Cooxupe expects will come from new offices that it opened over the past year as well as new members it accepted as it shored up its origination of coffee following two years of drought. Excluding new members, existing members' movement of coffee through the co-op should grow to 4.3 million bags, up from 3.7 million bags from the same members expected during the current season, Dias said. "We expect roughly the same amount of coffee from our members in South Minas this year, with even some contributing less," Dias said about the region that accounts for as much as 25 percent of all of Brazil's coffee output. "The real gains this year are expected from the Cerrado region. It was extremely affected by the drought last year," he said. Brazil's Cerrado region of western Minas Gerais produces some of the state's best quality arabica but farms in the region rely predominantly on irrigation. Even so, the drought and high temperatures took their toll on the previous harvest. Weather has improved across most of the coffee belt with early spring rains in recent months contributing to a good flowering period. Earlier on Wednesday, Brazilian export Terra Forte forecast the new crop at 54.17 million bags, up from 47.28 million last year. Dias said producer stocks held by its members are at their lowest in 10 years following two years of drought, and although the cooperative has stocks on hand, most of them are already committed to deliveries scheduled for the coming months.
A commodity friendly day included coffee in the performance, opening with a modicum of buying that would keep the market in an extremely tight band for most of the early hours. A generalized 15 minute selloff that coincided with similar action in cocoa and to a lesser extent sugar took the market to its low around 8am EST, but ultimately proved to be a short term buying opportunity. Volume overall was notable as the roll remains on target ahead of FND on the 19 th . Weather has been trending in conversation, something that is likely to gain momentum following the FNC’s late day estimate of 1mio bags lost due to drought. Certified stocks drew 13k bags, taking the outright number to 1.59mio, continuing a trend that has caught the attention of the discretionary traders in the market. Spreads continue to tighten, with KC H/K reaching a peak of -1.85 intraday. The BRL rallied back inside 4.00 as January inflows reached 1.5bln per a Brazilian Central Bank report this morning, while embattled Senator Eduardo Cunha stated that formal independence is likely to be granted to the BCB. Meanwhile the BCB reportedly is seeking a 4.5% inflation rate before reducing interest rates, while warning of the potential for increased rates should inflation rise. A suddenly interesting environment has the makings of a two sided trade, however more work needsto be done before the cautiously friendly react in more than a tepid manner.
A positive performance in the coffee market which managed to rally to a new high for the run, settle at its firmest level in 4 weeks, and alleviated some of the concerns that Friday’s sell off was much more than month end related. Not much new in the way of a catalyst to trigger the buying as short term systems remain engaged covering shorts whilst the market flirts with the 40 and 50 day moving averages of 119.45 and 120.11 respectively. Bullish option paper gave some pause to natural sellers today, the most notable trade being 2200+ May 135 calls bought live between 260-270 points. With a 27ish delta attached to the strike, delta hedge buying aided the market in trading to a 4 week high of 12050 basis March. The trend in cert draw down and reflective tightening of the curve is being closely monitored as having the potential to be the “smoking gun” that could lead that market higher. To wit, the Mar6-Mar8 spread which started the year trading at a discount of 1695 points closed today at 1465 under, encouraging to those who believe the structure must lead the market higher. A constructive spin on the day for a market well accustomed to seeing the glass half empty.
On the penultimate trading day of January both the New York and London coffee
markets traded within the previous day's range, New York mostly in its upper half,
London more evenly distributed around its middle. Despite support from a weaker
U.S. dollar, New York had trouble sustaining a rally above where it was trading at
London's previous close, but we were above to close higher than where we opened
for the sixth straight session. The London market was in negative territory all day
playing catchup to New York's late selloff on Wednesday.
New York enters the month's last day down 7.55¢, London $128 lower. Over the
past twelve months, New York has been between 3.05¢ higher and 1.55¢ lower on
the last day of the month. The average change has been a gain of 61.6 points.
The 5-day average of settlement prices in Mar16 NY will cross above the 20- on
tomorrow's close provided we close above 117.15¢. The cross over the 10- over the
40- is still seven days away at current levels.
March New York (KCEH6) settled 60% to its high, up ninety-five points. Volume
was fourteen percent above average at an estimated 33,937 lots including an
estimated 913 EFP's, 6 EFS's, 465 TAS and 11,782 spreads. 2,002 calls and 1,910
puts also traded. The KCEH6-LRCH6 arbitrage: 54.88¢. Ratio: 1.8630. €:
$1.0946+½%. BRL: 40706/$+0.9%. CRB: +0.6%. Crude oil: +4.9%. Open interest:
201,554-2,034 (50-day stochastic: 90%; 125-day: 90%).
March London (LRCH6) settled in its bottom half (37%), down fourteen dollars.
Volume was twenty percent below average at an estimated 11,516 lots including
3,881 spreads and 375 EFP's. 989 calls traded, no puts. Open interest: 137,871-674
(50-day stochastic: 94%; 125-day: 93%). No tenders were posted.
The coffee market perked up today to stage the best intraday rally (360 points at the high), we have seen since the 3rd of December. Once again we opened up on the lows, then, in a sign of things to come, traded through the highs of the previous 3 sessions ahead of the traditional NY opening. The pace of systems and algo related buying accelerated once the 11805-25 gap was filled which carried the market to 11980 by 9 am EST before the rally took a pause . Short term specs sold ahead of 120, a level we have struggled to get through ever since the sell-off following the rally of New Year’s eve. Prices quickly pulled back to 11855 before reverting higher to take out the 120 level (high of 12030), as well as the 40 and 50 day moving averages. With the systems engaged as buyers, the market held steady, that is until sellers came in on the close and sold the market down to settle at 11820 for a less impressive gain of 150 points but the highest close since the 8th of January. Rallies in the coffee market lately tend to breed distrust, and while the action today was constructive, the proof will be in the pudding . Open interest should confirm tomorrow that the tenor of the buying was all short covering. The next level of resistance comes in around 12250 which corresponds with the 100 day moving average and the downtrend line drawn from the 14090 high of the 16th of October and the 12680 high of the 31st of December.
John J. Kelly
London coffee fell on the opening to trigger sell stops at three-day lows, took out those
lows shorty after the New York market's opening. New York, however, did not get closer
than one-half cent to yesterday's low then bounced back to near unchanged toward the start
of active trading. We took out yesterday's high by one tick towards the end of the first hour
of active trading but fell thirty points shy of last Friday's - and the last two weeks' - high of
117.50¢ in Mar16. Shanghai stocks fell to their lowest level since the first week of December, 2014. U.S.
equities have currently recovered most of yesterday's losses. March New York (KCEH6) settled near its high (80%), up one-quarter cent. Volume was twenty percent above average at an estimated 35,116 lots including an estimated 897 EFP's, 105 EFS's, 400 TAS and 12,969 spreads. 2,448 calls and 3,292 puts also traded.
The KCEH6-LRCH6 arbitrage: 53.28¢. Ratio: 1.8450. €: $1.0843-0.1%. BRL: 4.0634/$+0.7%. CRB: +1.8%. Crude oil: +6.3%. Open interest: 204,628-254 (50-day stochastic: 97%; 125-day: 97%). March London (LRCH6) settled in its upper half (64%), up one dollar. Volume was thirty-
five percent below average at an estimated 9,399 lots including 2,302 spreads and 722
EFP's. 1,449 calls and 434 puts also traded. Open interest: 138,464-226 (50-day stochastic:
97%; 125-day: 95%). 19 retenders were posted. (2,354 original tenders, 500 retenders this
Nicaragua exported 58,370 60-kg bags of coffee in December, export center Cetrex
estimates, 22.2% higher than in December 2014. The brings the total shipped in the first
quarter of the crop year to 125,135 bags, 29.7% less than in the Oct14-Dec14 quarter.
2014-2015 exports fell 0.2% to 1,766,161 bags from 1,770,043 bags in 2013/2014.
The Ministry of Agriculture and Rural Development estimates that Vietnam will export
149,000 tonnes of coffee in January. 2015 exports totaled 1.34 million tonnes, they added.
New York coffee rallied irregularly off of yesterday's lows, retracing much of the
previous day's range while not breaking either of its extremes. We closed near the
day's highs after opening near its lows - positive action technically. The London
market took out yesterday's life-of-contract low by twenty dollars then reversed
direction, finding resistance midway between yesterday's opening and closing levels.
We closed four dollars higher, postponing an RSI buy signal until tomorrow,
presuming we don't close two or more dollars lower. U.S. equities stabilized, crude oil
prices are sharply higher. NY's open interest rose 5,753 lots and is now just 1,484 lots away from the all-time
high of 207,524 lots set last April. The U.S. dollar was mixed except against the Brazilian real, against which if rallied to 3½-month high after an expected interest-rate hike did not materialize.
March New York (KCEH6) settled near its high (92%), up 2.80¢. Volume was
fourteen percent above average at an estimated 32,888 lots including an estimated
663 EFP's, 125 EFS's, 271 TAS and 10,145 spreads. 3,132 calls and 3,551 puts also
traded. The KCEH6-LRCH6 arbitrage: 51.36¢. Ratio: 1.8265. €: $1.0881-0.1%. BRL:
4.1575/$-1½%. CRB: +1.8%. Crude oil: +5.0%. Open interest: 205,770+5,753 (50-day
stochastic: 100%; 125-day: 100%). March London (LRCH6) settled near its low (18%). Volume was fifty-two percent above average at an estimated 22,037 lots including 7,454 spreads and 382 EFP's.
1,200 calls and 3,336 puts also traded. Open interest: 136,510+1,860 (50-daystochastic: 100%; 125-day: 79%). No tenders were posted. Coffee “C” certified stocks fell 26,640 bags to 1,635,139 and are now 1,168,246 bags off the 30-Aug-13 high of 2,803,385 bags.
A greener day in the macro environment following Wednesday’s session which sent equities and commodities tumbling alike. Coffee opened up unchanged and captured a 3 cent tailwind finding willing buyers at 2 years low, especially after the open interest was released which showed an increase of 5,753 lots on yesterday’s 4 cent sell off. The real proceeded to sink to a four month low after a surprise decision to keep interest rates unchanged fueled concerns about central bank independence and the perception of bowing to political pressures while prioritizing economic growth over taming inflation. Despite the real trading to a 4 month low, coffee was able to maintain its gains ultimately recouping 280 points of Wednesday’s 405 point sell off by settlement. A decent performance on the day, but an inside session one day after posting 2 year lows places the bar for performance rather low. Certified stocks fell by another 26,640 bags to 1,635,139 bags a drop
of 200,000 bags since the beginning of December which is duly noted but to date not proving price sensitive to the outrights or spreads. NY volume 31,829 with 10,145 spreads. London 21,655 with 7,454 spreads.
Early morning buying established a 300 point range on the day in the pre-Americas session, bookends that would allow for no new addition to the collection. A low of 113.60 was set in the opening moments, yet held what is becoming quite an important support level before rallying away in a macro risk-on type of day. Fund selling reemerged near the highs, while industry continued to exhibit their appetite for cover, compounding the action that was brought to attention on the COT. Cecafe released its final December export numbers, coming in at 2.89mio bags of green, a slight decrease of less than 12k bags yoy. An interest rate increase is expected tomorrow from Brazil, with the government pointing to a 25 basis point hike, as opposed to the 50 bps the market had been expecting. With the economy contracting and the IMF lowering expectations overnight, it is not a sure thing that raising rates to combat inflation will be a universally approved of direction. With chances of Dilma being removed from office waning, perhaps tomorrow will be a day when the
BRL takes precedence on economic matters.
Good Morning!! The market stayed within a fairly tight trading range over the last few sessions. Bearish supply news is clashing with the oversold condition of the market and a shift to improving outside market forces this morning to spark some short covering support. March coffee closed 100 lower on Friday and this left the market down 410 points for the week (or 3.4% lower). Outside market forces were bearish as the market tested last week's contract lows but managed to hold. Vietnamese coffee exports last month were over 50% above November's levels and well above market forecasts, which indicates that nation's producers are starting to let go of their near-term supplies before a recovery in prices can occur. While the upcoming 2016/17 Brazilian crop is still five months away from the start of harvest and understandably has a fairly wide range of estimates, continued rainfall over key growing regions in the state of Minas Gerais have increased the chances for a sizable increase over this year's crop. Selling resistance is at 118.55 and 120.15. Close-in support is at 114.30 and 113.50. New lows count to 110.35 as next target.