The COT report came in on low end of expectations with non-commercials net long 36,489 lots.
A rough day for the longs in the coffee market as a strengthening dollar and resolution of the truckers strike in Colombia caused a dash for the exit, with little support provided from industry who have attracted considerable attention for haven lost cover. The greenback steadied today on signs of improvement in the U.S. economy and while the Fed meets next week and there is little chance of a rate hike, the prospect of a September hike is gaining traction. The Brazilian real fell the most amongst all LATAM currencies as the central bank extended its intervention to weaken the currency. KC opened up at the high of 14695 (+10 on day) drifted sideways and was followed by fresh selling pressure as word spread of the resolution of the truckers strike, although it is interesting to note that while the truckers strike resolution was cited as a motive to sell, memory does not recall it being mentioned as a compelling reason to buy. The gap from July 8-11 was filled (14135-14485), yet rather than finding support into the gap, the market continued to trade lower as systems related selling became more aggressive and the recent sense of buying urgency was absent. As far as the week's trading rhythm goes, see below the CRB chart overlaid with KCU. Every picture tells a story don't it?
The COT report came in on low end of expectations with non-commercials net long 36,489 lots.
New York coffee traded quietly lower in its first four hours today, light sell stops triggered below
yesterday's lows before all the market's participants were paying attention. A Bloomberg article
announcing the end of the 45-day Colombian truckers' strike then sent prices sharply lower, 6½¢
lower three hours hence, fueled by stops below the chart gap that had been holding up the
The government and the truckers' union reached an agreement on cargo prices and the gradual
removal of old vehicles but failed to agree on toll road and fuel costs.
September finished in its bottom quarter (23%), down 4.95¢. Volume was twelve percent above
average at an estimated 43,582 lots including an estimated 682 EFP's, 46 EFS's, 420 TAS and
12,833 spreads. 6,513 calls and 7,311 puts also traded. The KCEU6-LRCU6 arbitrage: 60.25¢-
4.36¢. Ratio: 1.7429-0.0407 €: $1.0957-0.6%. BRL: 3.2794/$-¼%. CRB: -½%. Crude oil: -½%.
S&P500: +0.4%. Open interest: 186,248-266 (50-day stochastic: 58%; 125-day: 47%).
September London (LRCU6) settled in its bottom quarter as well (24%), down thirty dollars.
Volume was thirty percent below average at an estimated 11,050 lots including 3,179 spreads
and 499 EFP's. 385 calls and 775 puts also traded. Open interest: 104,651+1,436 (50-day
stochastic: 46%; 125-day: 17%).
Brazil's national supply agency, Conab, estimates that privately-held stocks of coffee in Brazil
totaled 13.6 mln 60-kg bags at the end of March, down from 14.4 mln bags at the end of March
2015. Arábicas totaled 12.5 mln bags, conillons 1.12 mln.
Mild to cool conditions will prevail this weekend over Brazil's coffee belt, but conditions will be
warmer over the following week to ten days. World Weather, Inc.
According to the CFTC CIT Supplemental Report non-commercials were net buyers of 1,174
lots from July 13th to the 19th, holding a net long position of 36,489 lots. Commercials bought a
net 907 contracts during the same period totalling a net short or 75,995 lots. Index Traders sold
822 contracts being net long 33,011 lots.
Dear FNC customers:
We are pleased to announce that after 46 days of strike in the transport sector, the Colombian government reached an agreement with cargo carriers to end the current strike. As a result, ground transportation activity is expected to return to normal during this weekend.
The FNC will continue taking measures to move as much coffee as possible to Colombian ports according to reallocations and reprograming performed during the strike.
Some short-term delays are likely until there is complete availability of trucks and all operation activities in threshing facilities, roads and ports are normalized.
We will appreciate your understanding and cooperation during the process of overcoming the congestion of shipments generated during this long event. On our part, we will work hardly to speed up shipments and production in order to mitigate the strike effects.
Please feel free to contact the FNC on any additional questions that you may have.
KC trading could easily be broken into three tight ranges today, with early commodity friendly performances in other assets lending a hand through a quiet European session, a strong early day Americas’ environment, and finally late session weakness, all of which featured poor volume. The notable uptick in participation surrounded the 11:50am EDT time was an anomaly, as a determined seller(s) found substantial resistance materialize before a battle for a positive close came up a couple ticks short. While commercials from both origin and roasting sides seem willing to wait out current levels, interest on both sides of the market appears to be deepening should a definitive break one way or the other materialize. Until then, it appears the CRB will continue to hold serve.
After trading in positive territory in early action, New York coffee ran stops above yesterday's highs in the first half hour of active trading. We stayed mostly above yesterday's highs for the next three hours then fell sharply, three-and-one-half cents off the highs, finding support in the neighborhood of yesterday's opening levels. We closed lower on the day after taking out the previous day's high, negative action technically. A trade below today's low (146.25¢ in Sep16) would confirm the break of a daily uptrend (using a normal scale), dating back to June 1st. Key support remains in the form of a chart gap between 145.05¢ and 144.35¢
September settled near its low (17%), down five points, Volume was thirty-nine percent below average at an estimated 23,596 lots including an estimated 800 EFP's, 2 EFS's, 125 TAS and 6,459 spreads. 2,461 calls and 2,536 puts also traded. The KCEU6-LRCU6 arbitrage: 64.61¢-0.37¢. Ratio: 1.7835+0.0053 €: $1.1018+0%. BRL: 3.2875/-0.8$%. CRB: -0.8%. Crude oil: -2.2%. S&P500: -0.7%. Open interest: 186,514-429 (50-day stochastic: 59%; 125-day: 47%).
September London (LRCU6) settled in its bottom quarter (23%), up two dollars. Volume was fifty percent below average at an estimated 7,961 lots including 2,362 spreads and 370 EFP's. 1,480 calls and 1,000 puts also traded. Open interest: 103,215+300 (50-day stochastic: 37%; 125-day: 14%).
Cool temperatures will continue into Saturday in southern coffee production areas of Brazil. Temperatures will stop short of the damage threshold, but extreme lows in the traditionally coolest areas of southern Sul de Minas may slip to three of four degrees centigrade (World Weather, Inc.). In the period between July 26th and 30th, a high pressure area will cover main coffee areas, bringing cold nights (without risk of freezing), and low levels of air humidity at afternoons.
New York coffee ran light sell stops below the June 1st daily uptrend line but found support just above the underlying chart gap left on the morning of June 11th. We rallied nearly 3½¢ off the low towards the end of the second hour of active trading, finding selling midway between yesterday's opening and its close, then sold off to close midrange, ninety points above the opening level.
Market remains supported by the truckers' strike in Colombia and on fears of further cold weather headed for Brazil's coffee areas at the end of the week. Brazilian roasters are asking for the release of government-owned coffee stocks to ease internal tightness. Exporter Terra Forte estimates those stocks at 1,38 mln bags.
September New York (KCEU6) settled near its low (12%), down 1.90¢. Volume was twenty-five percent below average at an estimated 30,758 lots including an estimated 1,065 EFP's, 112 EFS's, 785 TAS and 6,381 spreads. 4,467 calls and 5,819 puts also traded. The KCEU6-LRCU6 arbitrage: 65.12-1.29¢. Ratio: 1.7936-0.0069. €: $1.1065+0.1%. BRL: 3.2906/$+0.6%. CRB: +1.9%. Crude oil: +4.8%. S&P500:+0.8%. Open interest: 178,270+2,889 (50-day stochastic: 29%; 125-day: 22%).
September London (LRCU6) settled near its low as well (19%), down twenty dollars. Volume was thirty-eight percent above average at an estimated 23,724 lots including 7,896 spreads and 715 EFP's. 305 calls and 475 puts also traded. Open interest: 101,445+1,356 (50-day stochastic: 27%; 125-day: 10%).
Brazilian weather outlooks - World Weather, Inc -...the next coldest morning expected Friday. Some patchy frost will be possible once again in the traditionally coldest areas in southern Sul de Minas and a few other locations, but the impact on most trees is not likely to be very great. Somar Meteorologia - In the period between July 25th and 29th, a high pressure area will cover main coffee areas, bringing cold nights (without risk of freezing).
Coffee again traded parallel to the CRB absent much influence from either origin or roaster, before finally and decisively moving lower in the last 100 minutes. A higher high and higher low, yet negative close, was posted for the third time in less than 2 weeks as whatever small weather premium was built in yesterday midmorning seemed to wash out, ignoring fresh yet uninspiring reports of caution going into the coming weekend. The day began with relatively surprising strength in opposition to recent indicators as coffee seemed content to join the dollar during its retreat from the lows, and crude’s climb off the intraday lows, rather than trade against the net change on the day. Commodity based companies struggled in overseas equities markets, while the IMF lowered global growth forecasts for the balance of the year. With the majority of the flow coming from outside the core coffee contingent amidst spotty volume, and most of the industry sentiment leaning negative, it seems most are content to wait and see.
New York coffee gapped up today as the market's opening is earlier than morning low temperatures in Brazil are usually available. We broke back below yesterday's highs at the beginning of active trading, never to trade back above the previous peak the rest of the session. With no recurrence of yesterday's unexpected, moderate frost, we traded steadily lower the rest of the day, falling just over five cents from the high in the first minute of the settlement period.
Cooler weather will be seen Friday across southern coffee areas of Brazil. A little patchy frost like that seen on Monday is possible, but most areas will not be cool enough for such conditions. - World Weather, Inc.
September New York (KCEU6) settled near its low (6%), down 2.90¢. Volume was forty-four percent below average at an estimated 21,959 lots including an estimated 550 EFP's, 52 EFS's, 329 TAS and 4,425 spreads. 7,638 calls and 4,084 puts also traded. The KCEU6-LRCU6 arbitrage: 65.31¢. Ratio: 1.8101. €: $1.1017-½%. BRL: 3.2606/$-0.2%. CRB: -1.1%. Crude oil: -0.9%. S&P500-¼%. Open interest: 178,270+2,889 (50-day stochastic: 29%; 125-day: 22%).
A bearish engulfing day in Candlestick jargon. Daily uptrend dating back to June 1st is at 146.04¢ in Sep16 tomorrow. Key support at July 8-11 chart gap: 145.05¢@ 144.35¢.
September London (LRCU6) settled in its lower quarter (15%), down two dollars. Volume was forty-one percent below average at an estimated 9,693 lots including 2,675 spreads, 225 EFP's and 303 EFS's. 1,365 calls and 643 puts also traded. Open interest: 102,729+239 (50-day stochastic: 35%; 125-day: 13%).
ICE Europe reports that commercial traders were net sellers of 8,006 10-tonne lots of robusta coffee in the week ending July 12th increasing their net short position to 30,064 lots - the biggest short position that they have held since the end of 2014.
Managed money was the biggest buyer, at 4,124 lots, increasing their net long position to 20,833 lots. Swap dealers bought 2,359 lots (short 3,369). Non-reportable traders bought 862 lots (long 4,151). Other reportables bought 661 lots (long 8,448).
A strange start to the week for the coffee market. New York opened unchanged, within 5 minutes was trading 2 cents higher then reverted back to unchanged followed by another run higher to 14940 before US traders manned their desks. Once currency markets opened the dollar initially strengthened on economic optimism which overshadowed angst after a failed coup attempt in Turkey and the commodity complex started to come under pressure. KC fell to 14485 (-270) and it appeared as if we were going to fill the 14435-14505 gap but that was not to be as the CRB started to bounce off the lows. Headlines about frost causing minimal damages in southern Sul de Minas were released coincident to the bounce in the commodity complex which caused coffee centric traders to ponder if we were trading higher in a delayed reaction to cold weather. A new intraday high was posted (14975) in the final 20 minutes of trading which happened to coincide with the new intraday high in the CRB. Paper flows were again concentrated amongst the specs and while trade keep an eye out for industry buying especially as we probed the gap they were not participants of note.
Weekly Coffee Perspective – Jul 18th to Jul 22nd of 2016 – Week 29
FRESH FUNDAMENTAL NEWS OR MORE FUND BUYING
The low yields of bonds, in fact negative for several sovereign ones in the developed World, made analysts and investors to jump on the stock markets with the argument that equities are relatively “cheap” considering the fixed-income returns. The indicator is not the most reliable one as Central Banks have “artificially” inflated the price of bonds, but those who are seating in cash for a long time waiting for an opportunity to buy equities apparently lost patience and jumped in to vest part of their money. The S&P500 and the Down Jones kept drifting higher testing new highs in four out of the last five sessions, at the same time that most European indices kept gains above 2% in one week. Commodity indices are trading virtually at the same levels from our last weekly comment with the best performers being cotton, copper and corn, and the worst ones led by raw sugar, heating oil and lean hogs. Coffee in both New York and London rallied to trade at the highest levels since 20-Feb-2015 and 9-Mar-2015, respectively, helping buyers to attract farmers and intermediaries to sell their coffees at the cheapest differentials seeing in quite some time. The key-reversal pictures drawn on the charts last Friday had initial follow through this morning, but the market found support on news and pictures of cold weather in Brazil – no significant damages were reported though.
News about the trucker’s strike in Colombia and lower world production of robustas were among the reasons given to justify the rally of the coffee markets recently. The first is taking much longer to be solved, it is true, delaying the shipments and strengthening the differentials on the spot, which is a good opportunity for those carrying coffee at consuming countries. Apparently now that the strike is making food-stuff scarce in some areas the Colombian government is acting to make sure the stall ends. The robusta story is really not a fresh one and in fact the London market has legged, as usual, the steep move up of the arabica market, with the arbitrage widening to almost US$ 69 cents/lb. If anything the strength of the BRL, which traded at 3.2171 last Thursday, would probably be the more reasonable explanation of the continuous support that coffee has enjoyed lately. Even so the “C” was able to allow a good flow of business to take place on the internal market in Brazil as well as cheaper offers in the FOB. Buyers at the end are being able to put some coverage on their books at more discounted diffs, and just when some were wondering about all the stories mentioning the stiff replacement in the largest origin the terminal helped them to remain with their same feeling that they had before – meaning no-tightness being “transferred” to their side. One can argue that exporters are suffering with their short-book, but that is exactly the reason why importers/roasters do not feel it, as the pain is being absorbed at the exporter’s levels not on the final users (bulls say: “not yet”). CECAFE released its June exports figure at 2,382 mln bags, making the 15/16 crop year shipments the second largest in history, 35,42 mln bags. Vietnam exported more in June, a total of 2,641,517 bags, 44% more than June last year and so far 45% in the first half of 2016 – the strategy of holding coffee waiting for better prices worked out. Inventories at destination countries are healthy, as the Japanese and the GCA numbers showed. In Japan there were 3.44 mln bags at the end of May (comparing to 3.03 mln bags the same month last year). In the US there were 6,210,612 bags stored in warehouses at the end of June, the highest level since August 2003! ICE arabica certs had stopped falling with the number of bags pending to be graded edging up. The first two lots of Brazils of the current season passed grading last week, making some wonder of how much more will show up. If we accept the general feeling that production of non-naturals Brazil will be much smaller than it could potentially be, the number will be limited. Fund appetite to buy commodities, and in our case more importantly coffee, will determine if the market has the ability to sustain and re-test the highs from last week. Today’s performance was better than expected as the key-reversal of Friday did have follow-through initially, but Monday cold night helped to attract some buying – again on a light volume environment. The pictures that circulated did not show much; in fact no one early in the morning was worried about it until algorithm buying apparently was triggered “fishing” words on the newswires. Everyone that I had spoken with in Brazil was surprised about the frost-talk and just in case many sent their agronomists to the field just to confirm what local buying offices were saying (that only isolated very low areas (900 meters or so) were caught and only superficially – at the tip of the branches – which would allow the tree to recover). Other says that the cold front that hit the coffee areas at the beginning of June provoked a colder night and nothing happened. Some pictures showed some “white” powder in trees and over the coffee drying in the patio, but again there wasn’t a lot of pictures and could be not representative (one reader mentioned that pictures from other years were sent in the middle – go figure). By tomorrow morning everyone will have a better idea of the situation. The COT report on Friday came with funds holding a net-long position of 35K lots, likely to be as high as 40K as of today. From May 31st to the last report specs bought 56,205 lots and the market gained US$ 23.95 cents per pound. They can always buy more, of course, but the commercials will participate more actively from now on as Brazil shall have more coffee available. While funds are only 16k lots away from their all-time record long, the commercials are probably around 50K lots less short than their record of 130,507 contracts. If one is betting on squeezing the commercial short, it seems that we will need much stronger fundamental reasons behind and we should bear in mind that money being cheap allow the players to use several financial tools to free-up cash-flow, if needed.
A key reversal on NY and London had a follow-through of the later, not the first, as news of “frost” scared the shorts in the middle of the morning in the east-coast. The “C” started to fill the gap between 144.35 and 145.05, doing it partially before it triggered fund buying that came along with the newswires mentioning the “frost” word on their stories. So far the move is only a correction of Friday’s down day, which could turn positive if September16 contract is able to move and hold above 150.90 tomorrow, making the next upside targets 154.80, 155.40, 157.60 and 158.75 (the last two points on the weekly chart). First support is at 146.50, then 144.35, 143.25, 140 and 137.85. London needs to move above 1839 to regain traction and test the upside levels of 1866, 1885 and 1909. Support areas are at 1793, 1768, 1738 and 1701.
Have a good week and good trades,