Arabica closed up 215 points at 98.95, wiping out 2/3 of yesterday’s losses as follow up selling failed to materialize. Roasters again were happy buyers sub $1, adding to their already impressive length. K/N tightened a tick to -2.75 on good volume (6k+ lots), while N/U went out flat, -2.80, on 3k+ lots. Certs fell 6000 bags and remain a key focus for those looking for a turnaround spark. Substantial work on that front remains. Robusta continues to be quiet, trading a $13 range, settling up $10 as the chart again looked like a scatter plot for what seems like the infinitieth straight time. K/N creeps ever closer to level money (-4 settle, $3 tighter) with Vietnam kicking the can as prices fail to stimulate interest and Brazil remains over yonder.
Arabica succumbed to unrelenting pressure, wavering between sideways and down for nearly the entirety of the day while settling 96.80, -305. The anguish engulfing the market finds many measures; a fresh KCK9 contract low (96.35), closure of the 98.20 - 98.60 gap many had presumed would exist for a generation, and the lowest 2nd month continuation price since Sept 18th at 95.10 when the non-commercials posted their record short position on the CIT, 151k gross / 113k net. Fairly massive option volumes traded on the day, with 1600+ K 115 C leading the charge (paper buy ½ of them laid up around the NY lunch hour), 1500+ K 100 C, ~1200 J 95 P, and ~1200 M 120 C (paper again a buyer delta neutral). Origin was nonexistent from our perspective, both in direct paper and in posting, leaving a consensus sentiment of astonishment amongst traders at the one sided flow. Robusta continues to want for interest, falling $12 to 1538. By most accounts Vietnam is undersold and Brazil has yet to begin marketing Conilons in any real volume. Price action remains choppy across the pond, though structure tightening on the day was a source of interest as KN closed -7, +3 and NU -11, also 3 ticks up.
KC ended the week at $1 on the nose, a gain of 55 points, while trading in all of a 95 point range. Pardon the redundancy, but its bears mentioning that Arabica traded a 14th consecutive lower high in a chart pattern that resembles a ski slope. The weekly charts show the lowest settle since the week ended July 21st, 2006 , but not to be totally negative, on the day we did manage to hold yesterday’s 4 month lows. Robusta went into Monday’s FND with a $6 gain settling at $1539 MT. There were 9,419 AA’s in March and another 10,848 in May of which the lions share were likely financing related, while open interest stood at 11,691 lots in the March contract entering the day.
May Arabica fell 85 points to settle 101.45, a fresh contract low (100.60), closing the December 19th KC2 rollover gap in the process. H/K blew out to contract lows as well, widening as far as -3.70 intraday before closing -3.60 as volume slipped sub 13k as the index rebalance passed. Few have expectations of a motivated stopper due to the RCA implementation in May unless significant further weakness materializes. The Brazilian government announced a pension bill proposal raising minimum retirements ages to 65 for men and 62 for women which now needs to be approved by congress. Initial BRL response was positive as the currency posted an intraday move from 3.79 to 3.71. Robusta boasted surprising strength, buoyed by heavy industry buying down the board, closing $3 higher to 1537. The final 45 minutes of London trading was spotty yet strong, with few motivated sellers noted.
More of the mundane for the coffee markets as Arabica settled at 103.55 +25 points. Robusta traded in all of a $7 range, its smallest range since 2008, and managed to accrete $7 for a 1535 settlement. The dollar index posted an 8th higher high and low, as stocks soared encouraged by a potential deal to stave off another government shutdown before Friday’s deadline. March/May traded 22,194 times between 315 on 305 under in what proved to be another spread centric session, with 42,786 spreads and total volume of 93,497 lots. An inside session saw yesterday’s lowest low since the 3rd of January hold unconvincingly by 10 points, while reports of more origin selling dampened enthusiasm for the up side. Open interest fell by 4,373 lots and while the expectation is fresh fund shorts were added on the 230 points sell off, the mix of heavy spread action, and the possibility of catch up from Friday’s option expiration, muddied waters that are already downright sludgy given the lack of COT position clarity, courtesy of the government shutdown that ended the 25th of January. For the record, a rollover gap from 101.95 to 100.85 appears destined to be filled, and the closest unfilled gap to the upside 117.20-117.40, was formed 3 months, and what seems like a lifetime ago.
A rough start to the week for coffee prices as N.Y. settled down 2.40 at 100.20 and Robusta dropped $26 to close at 1504, both basis March. Arabica traded to its lowest level since the 3rd of January and worst settlement since the first trading day of the year. The day’s trajectory closely mirrored that of the weaker Brazilian currency and while some reports noted weakness due to rains in producing regions, from our vantage point, the activity was more suggestive of a reaction to the currency. Some smaller origins were noted throwing in the towel as prices revisited trading sub $1 for the first time since day one of 2019, Open interest jumped by 6,258 lots on Friday’s weaker action, and, similar to today, the bulk of volume was weighted towards spreads in the midst of the traditional roll period.
Coffee closed -170 points, 102.60, settling on fresh lows for the week. Most of the session was spent tracking the BRL, although a rebound in the currency just before the NY lunch hour was ignored by coffee. The divergence really picked up around settlement time – notable as volumes have consistently fizzled in the final hour since the KC / RC timing recalibration. It is reasonable to assume the systems that would have bid up prices against the Brazilian currency had been turned off. Volume was driven by spreads as one might anticipate on Day 2 of the Index roll. H/K traded 26k+ times between -305/-290, settling on the even -300 line. Chunky EFS’s were also noted, totaling over 3000 on the day with 2525 in March. London continues slow, posting rare action while hewing closely to the Arabica chart. Robusta closed 1530, -17 as H/K slipped a dollar to -20 on 4k+ lots.
Coffee closed down 120 points, settling at 104.30 in spread dominated trading. Assets across the board were under pressure for the bulk of the day, although a midday respite was notable for most commodities. Day 1 of the index roll saw 27k+ H/K in a fairly tight -305/-290 range. Given the presumed size of the spec short and anticipated utilization of the liquidity period to roll into K, the relative tightening came as a surprise to few. Options were also active, with surprising intrigue accompanying size trades. Two separate in the money H/M diagonal put spreads totaled 1500 lots (M 115 / H 11250 1000x and M 11750 / H 115 500x) and 900 K 120 C were blocked to great mystery; the print time was 10:18EST, yet the trade didn’t seem to appear on the ticker until after the close. London closed $9 lower at $1547 in extremely choppy trading. The swing of the roll is under the way in Robusta as well, with 5400 H/K trading between -20 and -14.
KC traded within the range of the previous 3 sessions ultimately relinquishing 75 points to settle at 104.85 in quiet dealings. Open interest grew by 2,178 lots during Monday’s 190 point rally, and while it is safe to assume there were new spreads initiated, given yesterday’s collusion with Sugar and Cocoa, it is reasonable to assume there were also fresh longs thrown into the mix. CSOs attracted some interest as 1500 Jul/Sep -2.70 puts traded at 20 points and another 700 May/Sep -5.00 calls changing hands at 15 points. London backed off yesterday’s 2 month high to settle down $21 at 1557 while most of the day’s 14,181 volume was skewed to 6,268 spreads.
Softs led the charge higher today, with Coffee, Sugar, and Cocoa three of the top four commodity performers on the day. Arabica closed 105.60, +1.90, with a strong underlying bid throughout the session. Spreads were firm down the board, with H/K rising a tick, K/N 10 points, and N/U unch. One could ascribe credit for the move to any number of things – the overlay with the BRL from 8am onwards is impossible to overlook after a difficult KC/FX start to the day (strong dollar / weak BRL pre-Americas trading). The bid in structure was given broad attention, and allocations to the softs basket were a persuasive explanation. Upside options suffered heavy paper selling; the top 3 strikes by volume were all offered, (J 120 C, H 110 C, J 125 C), yet 50d vol held relatively steady with much of the weakness coming on the slide (J 50D vol closed 29.06, consistent with Friday’s 29.10, though futures moved 190 points higher). London closed up 9 at 1556. Volume was patchy leading to an unusually disconnected layover vs KC. Spread volumes slipped vs Friday, coming in just short of 3k lots in the spot H/K (75% of the end of week action).
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