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Arabica ignored the early FX weights of the DXY and BRL to gain 190 points by mid-morning US time, yet was greeted by additional Brazil & speculative selling that capped the move for an eventual 95.35, +1.10 settlement. The intraday pattern clearly mirrored sugar – while ignoring the BRL after yesterday’s heavy correlation – and volume was a decent 48k+, albeit with roughly 18k spreads boosting the total. 12k+ of those were in the front month (led by nearly 10k K/N) as structure tightened down much of the board. K/N went out -260, matching the strongest settlements in the last month and a half (March 6 and Feb 14) since closing -255 back on Feb 7th. Robusta tracked the KC pattern as it typically does, yet couldn’t keep pace closing 1510, +11. The arb remains historically tight at 26.85, and the front month spread is ostensibly suggesting a near term demand story in London. K/N traded 2k+ times between -4 and -1, ultimately settling -2. Conilon trading seems quiet in origin based on trade house comments, while in-country stocks in Vietnam are fairly consolidated in a few strong hands.
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Opportunity wasted, the story of the coffee market. Arabica futures closed a single tick higher at 94.80, +.05, ignoring the FOMC driven FX inputs overnight. Late buying ultimately arrived around the traditional US arrival time, driving intraday gains to +1.75 before news hit the wire that former Brazilian President Temer had been arrested. Reactions to the news were mixed, yet the currency suffered an emotional response widening to 3.83 from 3.77, ultimately taking coffee from intraday highs to intraday lows over the following 90 minutes. Option volumes were decent, led by paper buying 1500+ N 85p vs 97.75, 8d, 1000+ K 100 C, and 1000 K/N -275 C CSOs at 15 points. Structure went out trading unchanged, with all the KN volume again in a stable -275 / - 270 range. London tracked KC closely, gaining $8 to settle 1503. A strong bout of MOC buying lifted the market back through the 1500 strike after weakening off the highs post BRL move. K/N briefly inverted just after 8am EDT, driven in to par by around 750 lots of buying, adding an extra tick to +1 on small volume shortly thereafter.
Arabica was buoyed by spec buying, settling 99.65, +230, holding on even as the DXY strengthened late in the day. At the time of the close KC stands at the top of the BCOM leaderboard, where it was joined for much of the day by Sugar – 2 of the worst commodity performers yesterday. Media reports gave fair credit to a prominent bank report which raised price forecast from $1.10 to $1.20, a reasonable 11c premium to the back end of the curve. While it couldn’t have hurt, it is an open question how much risk allocation is driven by 3rd party opinions in today’s world. London continues to do ever so little, closing $6 higher at 1527 while trading in a sub 1c ($18) range. Volume in robusta fell short of 10k lots (inclusive of spreads), yet futures managed to close in the green on little volatility even while trading to the lowest levels intraday since Jan 23.
Arabica settled down 285 points at 97.35 amidst the background of a weaker softs complex as Sugar, Cocoa and Coffee, in that order, fell to the bottom the CRB index. Chart wise KC traded an outside reversal lower with a settlement below the lows of Thursday and Friday, setting a negative undertone to the start of Carnaval week. Open interest increased by 4,177 lots during Friday’s 175 point rally and while short covering was the logical expectation, 28,411 spreads traded could have muddied the waters of interpretation. London relinquished $13 to settle at 1521, its weakest close since the 22nd of January.
Arabica began March on a high note, closing above the dollar mark for the first time in a week at 100.20, +175. Early Americas hours gave no indication of what was ahead, with a familiar arrival of selling at 8am EST, and for much of the morning KC tracked its commodity complex cousins. A blast of buying showed up at 12:12, right around intraday highs, and convincingly drove prices to their highest levels in a week, ignoring deepening BRL softness. Little willingness to counter the flows materialized, and with Brazil off for Carnaval to start next week, one wonders if this is an opportunity for longs to breathe. Spreads were heavy, eclipsing 28k lots, with both K/N and N/U clocking in at over 8k lots a piece, and U/Z around 4500. Robusta remains a drag, marooned in a $40 (sub 2c!!!!) range since the Feb 11 selloff, and having set the high and the low of the that range on Feb 14/15. RCK closed 1534, -3 on what amounts to utter disinterest. For those surprised by London’s “strength” as KC withered away, we now have countervailing “weakness” that in the end amounts to a whole lot of nothing.
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October 2020
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