KC closed the week in painful fashion, settling +.10, 121.00. While the plus sign was welcome to many, the win was marginal at best, having traded up to 122.80 shortly after the traditional NY opening hour. Sentiment was buoyant at that time, with traders seemingly happy to head into the weekend. However, as prices ground lower with very little commercial activity those moods grew gradually evermore sour, with the market being described as “dead,” defined by “attrition,” and termed simply by one as “yuck.” Spreads waffled in both markets with low volume. Robusta settled down $8 at 1751, a mere dollar off the low as end of day sellers mounted a final attack on the close. The 1751 settlement matches the 40DMA, and the 5 and 100 have a mere $48 discrepancy.
The net non-commercial position came in at short 58,554 lots…just shy of the record short of 58,960 and higher than most expectations.
A fourth consecutive close in the red for KC, settling down .80 points at a fresh contract settlement low of 118.90, just .15 points above the 118.75 contract low in May. Open interest over the COT reporting week has decreased by 8,941 lots as the market fell 535 points into yesterday’s FND. While the open interest decrease can likely be attributed to FND clean up, price action alone suggests a good chunk of those fund shorts have been piled back on. The most notable option trade of the day was paper selling 1225 of the Dec 140 calls laid up with 128.10 carrying a 37 delta at 555 points. Origin noted stopping themselves out again while industry nibble lightly as a matter of course. Sentiment continues to worsen, yet it is reported that the darkest hour is just before the dawn!
KC spent the day in a 150 point range settling KCK 20 points off the low at 119.70, down .75 points. The opening minute alone saw the low print for the day and a one cent 119.50-120.50 range, posting a second consecutive contract low. Brazil was noted selling in what appeared a case of throwing in the towel in a market that has struggled to maintain any rallies. There were 1,018 notices issued on First Notice day, all through one clearing house while the main stopper received 848 lots through the same fcm. The arb widened by a cent as London outperformed, bouncing off of a fourth session of lower lows as technical buying emerged and short term specs attempted some bottom picking.
KC settled a cent lower at 124.10 basis May while activity in the outrights was downright mundane. A 190 point range on the day was within the 385 point band we have traded in over the past 7 days and the 690 point range we have been stuck in for the last 27 trading days. Total volume of 59,583 lots included 24,291 spreads of which 14,986 were HK’s between 240 and 220 under as positions are rolled and/or squared up ahead of Tuesday’s first notice day. Robusta attracted renewed focus as CSO’s started trading and for the first day of a launch trading was rather active. The first trade posted was the KN -30 put trading 110 times between 5-9 points, followed by 850 KN 0(flat) calls trading at 3 points and 1210 KN 5 under calls at 6 points. While KN traded between a $23 and $26 discount, HK traded to a $35 premium and has doubled over the past 2 weeks as certified stocks have fallen 25% over the past 2 months and GCA/ECF stocks have seen a steady decline.
Coffee was again a mere leaf blowing in the macro winds, settling up 5 points at 125.10 after trading tick to tick with the Dollar index from 8:20 EST onwards. The CPI number set the tone for the trading day as intense focus hones in on inflation risk and the theoretical responses of central banks. Brazil was a noted seller on the day, irrespective of a 2% gain in the BRL, as shippers are forced to fix ahead of FND. In BRL terms, the recent spate of Brazil selling has coincided with the best price in KC/BRL terms since January 9th, and with intraday prices between 402 and 415. Spread volumes were good post-index roll, yet the bid / ask never moved, spending the entirety of the day -230 / -225. Robusta continues to ascend in tiny increments, posting a 5th positive day and 9 of the last 12, settling up $4 at 1782. The K 1800 strike was the object of desire on both the put and call front. Around 1500 K 1800 C traded 53, delta neutral, and 1000 K 1800 P traded 67, laid up as well.
Both markets enjoyed MOC upside price action yesterday, Robusta rallied from 1770 to 1781 in the final 30 minutes of the session, whilst Arabica launched from 124 to 125.30 in the final 30. Structure volume in both markets was significant, although H/K London saw bigger price swings. The market will understandably be keeping a close eye on the London stocks, after yesterday’s 410 lot drawdown. Given the aggressive MOC buying seen on both terminals, this morning the pre-open is showing 1783 (+$5) for May Robusta, and 124.80 (+0.75) for May Arabica.
There was little in the way of direct fundamental news for Coffee, but in macro news, the US CPI report is due out today. Every economist surveyed predicts a slowing in headline, with consensus at 1.9 to 2.1%. . US & UK equity indexes rallied as Asian stocks followed. Treasury yields slipped as the Yen led most currencies higher against the dollar.
KC started the week trading in a 240 point, 120.80-123.20 range and settled .45 points lower at 121.40 basis the March contract. Volume was a monster 102,312 lots, 90% of which was spread related. H/K traded 31,216 times into its tightest level to date of -1.75 under as shorts picked up the pace of rolling before widening out to settle at 2.10 under. Friday’s March Option expiration saw 9,193 puts between the 130 and 122.50 strike and 1,266 calls between the 105 and 120 strikes exercised. Activity in the outrights was rather mundane as traders found little incentive to initiate new positions within a well tread upon 125-119ish range. Open interest has fallen by 13,505 lots over the past 4 sessions, 1,000 lots more than it rose over the previous 4 sessions….and with the market closing essentially where we started 8 days ago, let’s just state the obvious …we remain range-bound.
KCH posted a strong performance shaking off early weakness to settle 122.85, +3.05. A pre-8am EST dip took futures as low as 119.10, violating the 119.50 double bottom and replacing it with a new approximation of the Dec 13 lows at 119.00. Roasters were modestly engaged while origin showed up on our books in small clips. Global volatility was the story of the day as covering was underway early amongst the global short vol / short risk community. This appeared to provide an impetus for some of the short covering among several factors; while positioning alone – particularly after today’s OI report – was flagged by many as a reason for the rally, a spark was still required. Interestingly, the past couple days of losses in the equity markets – as well as this morning’s dreary call, followed by turnabout midmorning – may have provided a more reliable trading indicator for coffee. The BRL is traditionally one of the most sensitive global currencies to US equity weakness – quite possibly an extenuating factor in the blowout to 3.27, and later the retracement back in to 3.23. The BCB will announce an update to their Selic rate tomorrow, with expectations for a 25 bps cut, however much is up in the air with respect to the currency as concerns over pension reform mount. London closed $24 higher at 1804 basis RCH, while spreads tightened sending HK $6 higher to +34. Vietnamese selling was noted.
Good morning, Happy Monday.
Friday night's respective COT releases revealed that in London, the funds added 1721 lots of new shorts, leaving us with a net short of 17,678, whilst in NY, the funds cut their net short by 5005 lots, leaving us 53,965 short as of last Tuesday . We believe there has been a further sell off on Arabica since last Tuesdays’ cut off on a weaker macro backdrop, whilst Robusta will be more or less unchanged.
In fundamental news over the weekend, Tristao were quoted in a Bloomberg article saying that Brazil may export 2-2.5m bags of Conillon in 2018. “Robusta from Brazils 2018 crop to be delivered to the U.S West Coast is trading at similar levels to beans from Vietnam”, the full report can be found below.
In macro news, Jerome Powell takes control at the Fed in the midst of stock market fears and rising bond yields. Non Farms on Friday reinforced the notion that the Fed could hike rates four times this year. German Chancellor Angel Merkel is allowing extra time for talks on renewing her government alliance with the Social Democrats. Party negotiators are meeting at 10am in Berlin after breaching a Sunday deadline.
At time of writing, Mar-18 Robusta is being shown at 1764 (unchanged) on the preopen, whilst Mar-18 Arabica is also being shown unchanged at 120.40.
GBP – 1.4105
EUR – 1.2444
BRL – 3.2191
Crude Oil -0.84%
KC started out the month of February trading lower, as it has every day thus far this week, settling at 121.40 down .45 points, the same loss as yesterday. The range was all of 195 points, with today’s bottom at 120.35 being the lowest since the 19th of January and .75 points off of the low for the year.. The lower end of the range since mid- December failed to encourage much fresh activity, and the new low was greeted with a yawn by traders well accustomed to the insatiable propensity for algo funds to short coffee. The dollar weakened and BRL strengthened yet KC has proven to all but ignore rallies in the Brazilian currency yet trades elastically when the real is under pressure. At the money option vol in March hovers around 20% as sideways action has encouraged selling premium at either end of the range. March 120 put was the most active option on the day, changing hands 1,037 times in a .64-1.27 range.
Volume at 47,857 included 17,277 spreads included 10,905 March spreads traded down the board.
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