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Arabica Coffee futures for May delivery fell 3.52% on Monday, following Fridays tumble. Prices began the session lower, losing 1.25 cents within the first hour of trading. With limited volume, prices consolidated near the lows, hit lower by consecutive waves of selling, breaking nearby support of 144.00 basis May. Volume reached 31,255 lots, including 4,488 switches. Open interest increased 1,812 lots, suggesting additional shorts entering the market during. Spread activity was noted in the options realm, specifically in the 145, 155, and 165 strike range. Some traders sold anticipating Brazilian selling coming after Carnival. The soft commodity complex saw losses, adding to the bearish sentiment, with sugar losing 3.33 percent and cocoa losing 0.6%.
London maintained its recent downward trajectory amid weakness in the nearby structure, as front month management gathered pace ahead of Wednesday’s first notice day. The March/May spread operated under immediate pressure throughout much of the morning, a theme which continued through the session as values weakened to $37 discount trading 6000 lots. Flat prices moved aggressively lower in response, firstly driving through the 2017 low at $2116 before breaching the psychological $2100 barrier. Around these levels, roaster buying emerged in good volumes, halting the negative price action in London despite the ‘C’ contract continuing to unfold lower. For much of the rest of the session, values held around $2100 with industry buyers content to soak up the pressure. Additional support emerged through the May/May arbitrage as values narrowed under 47 cents. Further good volumes were generated via the options market, with heavy participation in the Sep 2500/1900 fence the main feature. A further 500 lots of the May 2100/2000 put spread traded at $44 as participants sought additional downside cover.
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Downright lethargic trading on both sides of the pond with London trading a $20 inside session and New York lacking the momentum to trade a 5th day of higher high’s. New York traded its lowest volume of the year, as traders struggle to find a reason to believe in a midrange market, while consensus appears divided over whether the next 5 cent move is higher or lower. The most logical catalysts for the discretionary trader to take action go wanting, as uncertainty and confusion swirls about the Robusta re-importation saga, precipitation is slated to return to Brazil’s coffee belt and the real holds steady in a firmer range. Technically New York flirts with the 15315, 100 day moving average, and while the MACD crossed positive 2 days ago, it has failed to attract upside momentum. For those interested in statistics a footnote…. the 2 year average gross commercial long position is 82,673 lots vs. last week’s position of 60,581 lots. The gross commercial short 2 year average is 117,862 vs last week’s position of 116,930 lots while the 4 year averages are 69,116 and 112,443 lots respectively. Here’s hoping for a break from the tedium!
For the fourth consecutive session, Arabica coffee futures ended higher, as producers selling eased after the beginning of delivery period for the March contract. May-delivery futures settled 230 points higher at 151.85 cents per pound. Prices consolidated higher in the morning, finding resistance near the 200-day moving average at 151.10. Breakage of the resistance point accelerated the movement higher on buy-stop orders, reaching a high of 152.50 cents per pound for the day. Volume was limited, trading 24,226 lots, including 3,354 switches. Dry and warm weather forecasted for the next six days in the Brazilian coffee belt began worrying participants. One lonely delivery notice was submitted, bringing the total to date to 130 delivery notices for the March contract, adding to the bullish feeling. From Brazil, the announcement of Vietnam Robusta had caused discontent amid producers. In Rondoñia, a highway was blocked by protesters this morning, following similar protests in other cities on Friday. In the state of Espritu Santo, a Senator filled a bill to stop the agriculture ministry from allowing green Robusta coffee imports. In related news, COOXUPE said coffee import will hurt producers in Brazil. US FED meeting minutes will be released tomorrow at 2:00 pm, which might add volatility to currency and commodity markets.
London Market- Robusta failed to follow U.S. driven gains as arbitrage levels widened 2 cents, encouraging a layer of short covering capping the upside potential in the London market. Asian selling was once again present through the early parts of the day although remained light in volume. An early test and breach of the 20 day moving average at $2190 failed to trigger sufficient technical buy stops to initiate a move toward $2200 as arbitrage pressure into London began to apply a lid to further moves higher. With the May/May arbitrage having held around 50 cents through recent sessions, a fresh wave of arbitrage buying saw values widen through 52.5 cents, limiting London to a narrow trading range for the remainder of the session. Much of the volume was generated through nearby spreads, with the March/May trading 5000 lots, holding at $30 discount as the spec long continues to roll into the hands of the commercial short. First notice day came and went with 129 lots tendered effectively within the same clearing house. Overall futures were quiet as KC managed to backfill yesterday’s gap during its early slide to the lows during the European session. A lack of enthusiasm was palpable even during the slow ascent from 8am EST onwards, until a spike of buying at 9:33am arrived, coincident to a similar move in crude. It appeared as if an allocation of some sort came in, with spikes in sugar & other markets shortly thereafter. The BRL widened back to 310, and in what could best be termed strange happenstance, KC and the currency tracked each other closely throughout the day with a positive correlation (as opposed to the normal – and more logical – inverse one).
The COT is one of the more interesting ones in recent times, as non-commercial longs added 3199 gross longs and 5569 fresh shorts … arriving at a near consensus +17,511 net long but in a manner far from expectations. Meanwhile commercial longs fell 11,551 while shorts also covered 13,765 ahead of first notice day. Positions look to be well cleaned up heading into first notice day, as KCH OI entered the day at 6426 (2206 H AA’s, 98 EFS, and 7495 combined H based spreads). The session began in an encouraging manner as KC gapped higher on the opening, and with volatility relatively low posting a mere 160 point range. That gap was left open from 14745 to 14765 basis K. Early strength may have been best attributed to the BRL, which closed at 3.0574 last night after trading to the strongest level since June 18, 2015. While the BRL would ultimately succumb to relative weakness as the Brazilian Central Bank appeared effective in their continued swap based assault on the currency, it seemed to matter little to KC on a fairly quiet day. Anecdotally, it seemed many traders were focused on getting FND out of the way before the next move materializes. The question to be answered tomorrow is whether the First Notice Day Bounce of lore awaits coffee, or rather is Yeti-like in authenticity.
Arabica coffee futures consolidated higher Wednesday on a spread-dominated session. The benchmark contract for March delivery settled 85 points higher at 144.50 cents a pound. Volume reached 47,333 lots including 15,430 switches. The nearby Mar-May switch weakened 15 points to end at -2.45 cents. As we approach the delivery period, less producer selling has been present. The dollar traded between positive and negative territory, adding volatility to the commodity complex. Better than expected US economic data helped the currency early, however comments from Mrs. Janet Yellen, Chairwoman of the Federal Reserve, acknowledging the economic grow has been “quite disappointing“, pushed the currency down later on the session. Colombia exporters expressed concern about a possible trucker strike in Colombia. The National Crusade, a trucker union, denied today that they have given an ultimatum date for the government to reach an agreement to their petitions. Last year, a trucker strike during June-July caused disruptions of the coffee exports. The fly crop which begin in April could be affected as well.
GCA green coffee stocks increased by 66,627 bags during Jan to 6,322,767 60-kg bags. Last year Jan’s green stocks increased 907 bags. The average change of the last five years has been an increment of 4,754 bags London Market-Weakness in the nearby structure saw flat price values fall through the early stages of the session before a mid-afternoon recovery resulted in London closing in positive territory for the first time this week. The opening bell saw the March/May spread immediately replicate yesterday’s action, weakening to $33 discount through good volumes, driving outright prices lower through the 100 day moving average at $2124. Roasters once again returned to halt additional moves lower, providing a solid base for the market to move higher later in the session. Strength in the Brazilian Real drew intra-day buying back into the ‘C’ contract which also acted to pull London higher, accentuated by the May/July strengthening into $9 discount through 2800 lots. Technically, the market maintains its uptrend, twice rebounding from consecutive breaches of the 100 day moving average at $2124 basis May. March options expired with an anchor price of $2091, while further options turnover was generated with 1100 lots of the July 2100 puts bought alongside the selling of 1100 May 2200 calls. Dollar rose after Fed chair Janet Yellen commented about the economic outlook and the possibility of more interest-rate increases. The statements made today have increased the odds for a rate hike in the next FOMC meeting from 30 to 34 percent amongst investors. The move pushed commodity indices lower, they bounced back towards the middle of the day. Real traded to 3.0925/$.
The London market traded sideways for most of the day until the move down in Arabica uncovered a void in Robusta, which dropped to the low of the day. That move below yesterday’s low was rapidly met by speculative buying jumping into the market, once again showing interest to hold the market around the 2100 area. Volume was healthy but most of it was done via the spreads with about 9,500 executed against the front month. New York market seemed to be moving quietly north as the Real crossed the 3.09 level, but took a turn once the currency came back to 3.10. The market eroded for the rest of the session. Speculative positions were liquidated pushing the flat price lower for the day yet it was able to come back in the last half hour to settle above yesterday’s low. With only 2 days before FND, the activity was concentrated again on the spread transactions, showing almost 13,000 lots against the March position. KCEH7 settled -0.60 cents lower with volume estimated at 49,923 lots, including 19,281 spreads, 3,650 EFP's, 125 EFS's and 957 TAS. 2,465 calls, 1,633 puts also traded. €=$1.0574. BRL: 3.11/$. CRB: 1.9205. Crude oil 52.87. S&P500 2333.5. Open interest 177,679-3,359. LRCH7 settled $11 lower with volume estimated at 29,543 lots, including 13,543 spreads, and 116 EFP's. 948 calls and 1,101 puts also traded. Open interest: 152,788+205. Coffee posted a predictably choppy performance as March options rolled off the board. OI for the serial was most pronounced chiefly in strikes far from relevance (2nd most OI was the 200C with 3572, 3rd was the 135P with 3250). Meanwhile the heaviest ownership was in the nearby H 150 P with 4155 coming into the day. Paper is thought to be the primary short, which perhaps could indicate a freshly materialized underwater position for some naked grantors – limiting buying possibilities in the short term. Interestingly, the most active minute of trading came in the form of aggressive selling, which returned during the settlement period. However, last minute action outpaced that of the 1:23 time, and the dying moment’s buying erasing the MOC losses. With KCK settling in the middle of a 200 point day, and volume being aided by heavy spread activity ahead of FND (around 11k HK, 2300 HN), it is difficult to get terribly excited about this particular Friday reversal, particularly as we trade a second consecutive weekly lower low and lower high following four weeks to the contrary. Robusta trading was even less inspired, chopping its way generally lower before end of day buying forced a positive close. Spreads settled weak, with HK going out -31
A corrective bounce perhaps out of shear downside exhaustion, or more cynically related to the release of some lower end crop estimates, along with lingering concerns over net drying throughout Brazil’s coffee belt. For the first time since the 23rd of January New York was able to generate a higher high and low while London managed to accrete $20 at settlement, yet still traded a sixth day of lower highs and a fourth of lower lows. On the third day of the official index roll, volume in New York was highly concentrated in March/May which traded 15,459 times in a range of 245 to 225 under, while another 4,381 May/July changed hands between 230 and 220 under. The dollar index has strengthened every day of the last six, but the effect of a firmer green back on coffee prices has a dubious correlation as the Real trades sideways, yet teeters on the cusp of a 3 ½ month high. Tomorrow brings us March option expiration with open interest in the 145 strike balanced at around 1300 lots each, while the 150 call had 3,079 lots open and the 140 put 3,070 lots open entering the day.
Rains are now a given in Espirito Santo, although the effects of the recent lack of precipitation are yet to be determined. Headlines about re-importation of Conillons garner attention, although clarity is lacking. London traded lower, yet managed to put up an inside session holding Friday’s low by all of a dollar. Resting bids from industry were accommodated, as funds and trade were the day’s most active sellers. The London COT report indicated the sideways market action over the reporting week was nothing more than met the eye, as funds whittled their record long position down by a mere 659 lots. New York started the week under pressure aided in part by the COT report which showed that funds reduced long exposure by net of 238 lots despite the market losing 10 cents in value over the reporting period. A new low for the move in Arabica found managed money on both sides of the market, while origin and industry were largely in absencia, with the former reluctant to sell weakness, and the latter comfortably covered in March and finding no urgency to add down the curve.
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October 2020
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