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Coffee garnered a first notice day bounce, settling 117.70 +1.45 and posting a higher high, higher low in mostly quiet trading. Perplexingly after two days of BRL centric trading, coffee ignored the currency and ascended in steady fashion throughout the Americas hours even as the BRL fell to 3.41 and hovered around that level for much of the day. Dollar strength was likewise shrugged off, however sugar, crude and the BCOM all accompanied Arabica higher. Brazilian selling was present but modest from our vantage, while middling roaster paper was centered in London. To that point, Robusta may as well have been closed for the day, as the 1 minute bar chart looked more like a scatter plot than a coherent path of trading. Prices fell $8 to 1759, remaining ever so slightly above the recent moving averages while structure was steady. CSO’s were the trade of the day in Arabica, as risk was exchanged in the March 19 / May 19 -235 and -230 puts 1250 and 1000x respectively. COT to follow.
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The BRL served as a weight on KC (116.60, -.55) throughout the day, as gains in both the currency and coffee market achieved yesterday were wiped out in slow and steady trading. Roaster bids kept a floor under Arabica for part of the morning, well after the BRL has begun its most significant decline of the trading day, and once that need was filled KC fell 65 points on better than 700 lots of selling. Beyond the programmed selling the day was centered on cleanup of KCK18 positions. K based AA’s (as well as N) clocked in at better that 7500 lots, and KN traded 13k times to make up the bulk of the volume. Robusta remained above the bulk of the moving averages at 1767, -5, as the ARB closed 36.4, near the tightest levels since September.
Coffee settled 115.85 -.70 in choppy trading as FND sits a mere 3 sessions yonder. The Euro hours featured consistent pressure, though a short lived macro bounce provided early US support. While option activity was on the uptick, there is little new to say about the futures as origin kicks the can forward on hedging if possible and roasters slowly scale in cover at attractive prices. Having pierced the 115.50 low of June 2017, the 113.35/113.40 double bottom of 1Q16 now looms as a reasonable target. Robusta was in its own universe today, settling $25 higher at 1754 supported by a burst of buying that carried prices $19 higher on less than 300 lots of interest. Meanwhile spreads went took divergent paths as KN fell $11 to -39, while forward structure tightened (NU 14 over +3. UX at level +3 as well). Coffee posted a historically futile session, settling down 25 points at 120.00. The 95 point range on the day was only the 4th time in the last 10 years that KC traded a sub 1c range, only a tick better than the 90 point low water mark for volatility. Action centered on the roll as the 5th day of the index roll came and went with the smallest KN volume of the period. 4410 K EFS also posted, yet OI in May remains impressive. N/U weakened a tick while changing hands better than 4k times. Robusta featured uninspiring volume, 1736 +2, yet spreads were active yet steady.
Arabica lost steam after the BRL opened in the 340s, ultimately settling 117.60, -1.05. Early morning trading was nondescript, sliding slightly over the European session, yet the renewed weakness of the dominant producer’s currency was too much to ignore. The selloff was restricted to 3 distinct moments, each bookended by consolidation, and the day was largely uneventful outside of those times. From 8:45edt through the close KCK existed entirely within a 65 point range. While the moves that brought KC to its intraday triple bottom were abrupt, Robusta, 1709 -34, contented itself with a slow and steady wander to a steady arb at the time of London closing. The 100MA appeared to provide resistance basis RC2, yet by and large the market seemed to trade in sympathy with KC. Perhaps most notable on the day was the MOC K/N selling in Arabica, as the bid/ask went out -200/-195 after trading into -180 earlier in the day.
KC managed a COT inspired pop and closed at 118.65 plus 120 points, its biggest gain at settlement in 3 weeks. The day was spent within a 175 point range fully in the green as a record net and gross short fund position encouraged industry and short term spec participation on the buy side. Higher prices were sustained despite the BRL trading to the lowest level since the 26th of December 2016. Uncertainty following ex –President Lula’s imprisonment over the weekend and concern the impact potential trade wars could have on the Chinese Yuan weighed on the currency. KN actively traded 25,263 times in a -195 to -180 range on day 2 of the index roll. For the first time since March 2nd the market took out and closed above both the mid bollinger band and 26 day moving average. Charts look constructive, and skeptics, at this juncture, might be more willing to be proven wrong.
KC traded a 150 point outside day today, not a huge accomplishment considering we had a 115 point range yesterday, and settled with a 10 point gain at 116.90 basis May. Spreads accounted for the lion’s share of the volume with 38,387 traded of which 22,772 were in KN trading between 2.10 and 1.90 under. Open interest increased by 551 lots and over the CIT reporting week has increased by 4,149 lots whilst the market fell net 115 points A new May contract low of 115.95 was posted, a mere tick lower than yesterday’s, as the prices grind lower while the pace of selling dries up. The enthusiasm for jumping in with gusto on the long side goes lacking and calls for a low being in place get paid attention to as much as the boy who cried wolf….and we all knows how that story ends. Every dog has its day.
Easter Monday found KCK settling at new low of 116.40, a loss of 1.75 points. KC started the 2nd quarter under pressure as May traded to a new low of 116.15, posted just before settlement, as the market followed the trajectory of an ever softening macro. The dollar strengthened and equities come under pressure as China escalated the trade war with the U.S. by imposing retaliatory tariffs. The S and P 500 Index slumped for the 6th time in 8 days. The commodity sector was a mixed bag with energy the worst performing sector and coffee followed closely at the bottom of the pack as systems funds remain in sell mode. While the front month contract settled on its low, every cloud has its silver lining, as KC2 held the 116.90 low of last month by 1.60 points. Whether today’s sell off was especially influenced by quarter commencement paper flows is left to be seen, but for coffee at least, new quarter or not, the pattern was quite familiar.
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October 2018
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