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Arabica coffee futures closed firm Monday helped by the currencies and a weaker dollar. The benchmark contract for May delivery settled 220 points higher at 141.10 cents per pound, while the most active for July delivery gained 225 points higher to 143.50 cents a pound. With the London market closed in observance of the Easter Monday, the activity was mainly driven by spread trading. Total volume reached 41,794 lots, including 13,803 switches. The dollar fell following the comments from President Trump last week that the dollar was too strong. Meanwhile, the real rallied helped by the economic data from China that came stronger than expected. The Colombian peso also gained ground after survey showed inflation lower than expectations. After the close, US March GCA stocks were published. Inventories went up 279,083 bags to 6,724,857 bags. Last year in March, stocks increased 159,000 bags. The five-year average change, is an increase of 6,200 bags.
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Arabica Coffee Futures ended the session slightly higher on Tuesday, on high switch volume. The active contract for July delivery settled 25 points higher at 142.40 cents per pound, while the nearby May settled 35 points higher at 140.20. Prices consolidated higher as participants focused on managing their May positions, as we approach first notice day on April 20th. Volume reached a significant 89,886 lots, including 34,610 switches. The nearby May/July traded in a 20-point range, from -230 to -210, settling at -220. Prices continue trading rangebound, as technical oscillators neutralize. The Brazilian real weakened 0.56% to USDBRL3.14, with little impact on coffee prices, as the short-term correlation decays. In related news, the IBGE increased their the 2017-18 Brazil Coffee Crop estimate by 1.5% at 45.6 million 60 kg bags, consisting of 9.4 million bags of Conillon and 36.2 million bags of Arabica.
With flat price action remaining operational within its recent range, focus turned to front month management in London with the bulk of the sessions volume generated through nearby structure.Values initially looked to test lower through the early stages of trading, soon breaching yesterday’s low and the 100 day moving average at $2147, triggering light technical selling stops. Further negative momentum failed to ensue as prices continued to hover around the May 2150 options strikes which expire on April 19th. Much of the rest of the session played out around the May/July spread, which traded over 7000 lots whilst weakening to $29 discount as spec longs rolled exposure down the board and into the hands of the commercial short. Flat prices rallied heading into the close, with the May/July reversing its previous action, strengthening into $21 discount and triggering buy stops as outright values moved through mid-term averages and last week’s highs. Scatterings of origin selling were eroded as the market moved higher en route to settling around the psychological $2200 barrier basis July. Good option volume saw 1100 lots of the July 2050 puts trade at $34 alongside a 25% delta hedge. The market will monitor the open interest surrounding this strike observing if further positions have been established or existing positions have been neutralised. ICE Coffee Futures followed its recent pattern of slight change, edging higher on Thursday. The active contract for May delivery settled 45 points higher at 137.75 cents per pound. Prices remained in positive territory throughout most of the session, reaching an early high and finding support near unchanged levels. Short term speculators have played both sides of the market as switch activity dominates volume, with 44531 lots traded including 14141 switches. Lack of fundamental news have also contributed to the sideways price action. Little futures price activity parallels a relatively slow physical market. In options, volume was noted in the July 150/175 Call spread trading 500 times.
A subdued session in Robusta as values continue to operate in a narrowing range straddled by May17 option exposure and a tight arbitrage. Focusing on the May17 options expiring on the 19th April, accumulated open exposure of the ATM money calls through to the $2300 strike stands at 15,728 while ATM money puts through to the $2000 strike stands at 10,982 lots. This straddling exposure has prevented may17 futures contract posting any notable action through the course of this week, operating within a $31 range. The May/May arbitrage remains a weight on Robusta as participants are reluctant to sell values sub 40 cents sighting a near record fund long resting in London with NY holding a small short. We used the word equilibrium yesterday to describe the current stance of the London market, this will not change unless values start to increase option delta management through either $2100 or $2200 basis May17 Following Friday’s surprisingly bullish COT report, the market reacted almost logically with a 350 point rally, and then, as has been the case with recent pops, gave the whole thing back…and then some. The bounce ended with prices bucking up against the 14280 downtrend line of resistance, off of the November 8th election day high of 18165 basis the May contract. Momentum faded as short term specs and jobbers took advantage of the best intraday rally since the 23rd of January, with little else to nourish it than a bullish read on the COT report. The week over week change in the net non-commercial position was the biggest swing (-4.73%), since the week of December 6th , while funds carry their smallest net non- commercial position (long 3,488) since the week of June 7,2016. The gross short fund position stands at 42,876 lots, and is the shortest it has been since last May and more interestingly, a record gross short while holding a net long position. That mentioned, a lot hinged upon a reaction to the COT report, which ultimately proved burdensome, if only to be underscored with the low print for the day at 13750, violating Friday’s low and printed on the close.
Arabica Coffee Futures for May delivery settled unchanged for the second consecutive day on Friday, at 139.30 cents per pound. Activity was dominated by the switch, with 8,577 switches traded and 29,913 outright lots. Prices traded in a relative tight range, following the pattern of the past few sessions. Levels began under pressure, edging higher throughout the session and even trading slightly above the 140.00 level (May), nevertheless, lack of follow-through prompted short term speculative liquidation, erasing most of the day’s gains towards the close. The Brazilian saw some volatility today, trading between USDBRL3.17 and 3.13, after unemployment figures matched consensus at 13.2% for February.
During the week, prices increased 1.7 cents, trading sideways on lack of fundamental news. Short term speculators dominated the trading, playing both buy and sell sides. COT figures showed the managed money sector flattening out their position to a mere 307 lots long, liquidating 8367 net longs, while commercials covered a net of 10,586 shorts to a net short position of 39,204 lots. During the month, prices traded in a 10.3 cent range, failing to break the intramonth high and posting new lows at 136.20 for the May contract. Overall prices decreased 3.3 cents, or 2.3%, as the participants await fundamental developments to give clear price direction. With flat price action following a similar pattern to how much of the week unfolded, focus turned to the structure which accounted for the bulk of the session’s volume. Having tightened into $17 discount throughout the week, the May/July switch weakened to $23 discount through 2000 lots, as the spec long looked to roll down the board, further into the hands of the commercial short. Additional good volumes were present in the July/Sep spread, trading a $5 range whilst weakening to $10 discount. Outright price action lacked direction of its own accord, instead tracking New York with the May/May arbitrage continuing to hold above 40 cents. Good turnover was visible in the options arena, with 2000 lots of the May 1950 put trading at $3. Participants will closely observe the open interest surround these strikes heading into next week. The March 2017 contract month went off the board with 79 lots re-tendered for the session. Total tenders for the month showed 4531 lots with 241 lots re-tendered. |
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January 2019
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