Arabica, 118.95 +.80, stumbled out the gate, suffering an early European session in quiet trading. The dollar appeared to be a weight on the market, however fortunes changed at 8:15am EDT as the DXY turned lower providing support. Origin and speculative commercial selling was attracted as prices moved higher, most notably featuring an explosion of 1000+ lots of buying around 10:45am. The BRL slipped behind technical selling, yet with KC ignoring the indicator the Brazilians were the beneficiary of the best prices in BRLxKC2 terms seen in 28 trading days. Options seemed primed for an eventful day, yet in the end the N 130 Call was the story, with paper buying 900 delta neutral. Robusta gained $47 to close 1735, settling a mere $2 off the high. Prices closely tracked KC on the day, and K/N continued to gain steam, $5 firmer at -22 while trading nearly 4000x.
KC, 118.85, -.10, traded a macro day for the bulk of the session, highly correlated to the DXY most obviously, but also the bulk of the commodity board. Roasters bought into strength, yet origin stayed at bay for the bulk of the trading day. Options were again uninspiring, led by less than 700 K 130 C while structure cracked a tick (KN -215)or two (NU -225) nearby. Better than 1000 lots traded on the day’s most dramatic move at 9:27edt, taking price through 120, yet follow up was lacking and prices closely followed the dollar until 11:48. A steady BRL appeared to ward off weakness for the following hour, yet in the end the dollar’s rally turned out to be too much for Arabica, punctuated as what could be kindly referred to as an “investment” in the settlement period. Robusta, for all its chatter, settled down $2 at 1752 at the midpoint of a $17 range on just over 5k lots total down the board.
Coffee fell 40 points on disinterest, settling 119.95 basis K. A 100 point rollover gap now exists basis KC2 as KCH rolls off the board. Roaster buying provided key support throughout the session, though by 10am EDT a familiar currency centric pattern settled in for the day. Spreads were unchanged as KN remains firm, closing -210 on <1700 lots of volume. Options too were muted, led by 500ish K 135 Calls. Of greater intrigue was the 85 point investment in 200 Z 200 Calls. London slipped 3$ to 1754, fairly in line with many of the recent moving averages. Spreads were quiet on that front as well as K/N fell a dollar to -29. Good luck to everyone in the Northeast USA – looks like you have another fun snow event on your hands.
The week commenced on a negative note with KC trading all of a 120 point range, its tightest in 5 weeks, settling at 119.45 for a seepage of 70 points. London traded in a $20, 1757-1777 range settling $11 lower at 1767 basis May. New York opened down 5 points at 12010, which proved to be the high for the day with the 120 level not to see the light of day again by 6 a.m. under the first day of trading in U.S. daylight savings time. Prices gravitated to trade the 118.90 low for the by 9 a.m. and wandered about in a one cent range for the remainder of the session. Friday’s COT report showed the net fund short position to have been pared back by 2,628 lots, which was on the low end of the range of expectations. The gross commercial position increased by 5,982 lots on the long side and 8,314 on the short side which confirmed our perspective on origin flows, and when coupled with the fund position for the most part kept bullish sentiment at bay. Apropos of nothing, a 120 point range with little to get excited about.
KC traded in a 2.20 point range which, while it was tight, proved to be an outside session accompanied by a fresh 2 week low and settled at 120.30 for a loss of .45 points. The algo selling continued unabated and was absorbed by a sizeable dose of industry buying. Origin were quiet and the sidebar comments revolved around the market being stuck between a rock and a hard place are getting long in the tooth. London in the meantime traded a triple top at 1788 and formed a double bottom with Wednesday’s 1754 low settling down $25 at 1760 basis May. Tomorrow brings with it KC April option expiry. The April 120 put traded 916 times and with open interest entering the day standing at 2,978 lots it could be another rational for the market finding buyers as we approach the strike. Another chunky gain of 12,309 lots over the COT reporting week will make tomorrow’s release closely watched, especially since the market had a net increase of only .15 points basis May.
Arabica lacked direction on the day, at times trading with the currencies, commodity complex, and even on its own(!!) ultimately posting a final print 15 points lower at 120.95. Volume was better than the energy in the market, which was lacking in positivity with irritable feedback from numerous directions – most notably but unsurprisingly origin & spec. Options were relatively quiet with what appeared to be the initiation of the familiar 110 / 100 PS, this time in KCU to the tune of 500 lots. One would imagine that trade will become familiar, likely paired with a CS in due time. Robusta had a clear sponsor, closing 1777 +22 as an undercurrent of buying fought off Brazilian offers throughout the session. Spreads again tightened, taking KN into a -23 settlement from a recent low of -30 only 4 days ago as London certs dropped 77 lots.
A fourth gap lower since September 25th of last year started the week on a negative note as KC settled at 121.10 for a loss of 1.10 points. Prices fell to a low of 11995 before industry, and short term specs attracted by the bottom of the range, stepped in to provide cushion. Recapping the gaps, a September 25th gap remains void and sits from 137.45-137.70, followed by October 11th’s from 133.55-133.75, January 8th’s 130.00 to 130.30, and today’s opening of 121.65 to Friday’s low of 121.75 basis May. All of those gaps were formed on the opening print. The previous gap, and the last time a gap lower in KC2 was filled, was the gap from 157.90-158.00 formed on September 23, 2016 and was filled 3 weeks later. The most logical impetus for today’s sell off appeared to be Friday’s COT report which saw the net non-commercial short pared back by 5,199 lots with 3,147 new longs and a reduction of 2,052 gross shorts. Equally if not more interesting was the increase in the gross commercial shorts by 7,689 lots, which if viewed as a proxy for origin indicates there has been active hedging at current levels. If there is a silver lining to today’s performance it might be found in settling .65 points below the high of the gap, while the previous 4 gaps settled between 2.55 and 3.40 points lower.
Tomorrow’s o.i. will be watched closely as will the COT on a reporting week when total open interest increased by 8,091 lots and the market had a net gain of 140 points.
In light of recent performances, March came in like a lion, as New York kept pace with Robusta to settle at 123.95 for a gain of 1.95 points, while London accreted $44 settling at 1768 basis May. London saw 159 lots issues on First Notice Day as open interest in March decreased by 3,668 to stand at 3,348 lots. HK weakened by $7 yet remained inverted closing at 39 over while KN traded $4 dearer to settle at 26 under. KC rallied at a steady pace on what appeared to be some risk parity unwind along with short term systems buying as the market crescendoed to trade an 8 day high and settle 10 points off the pinnacle of the day. Open interest increased by 2,595 lots on yesterday’s .90 point pop and curiously also increased by 2,756 lots on Monday’s .80 point gain while most expected a decrease due to some short covering. Inquiring minds wonder whether there have been new outright or spread longs or a combo of both. Tomorrow’s o.i. will be watched closely as will the COT on a reporting week when total open interest increased by 8,091 lots and the market had a net gain of 140 points.
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