Macro correlations give and macro correlations take – that was the theme (see below chart) for today’s price action as KCN closed 143.00, -2.85 and RCN fell $16 to 1452. After the DXY drove prices tick to tick last Friday, and the BRL / BCOM did the same yesterday, the Softs basket was the featured trade for today as the Sugar, Cotton, and Coffee markets found precious little separation. With all three markets (as well as the Ag complex in general) well overbought entering the day a correction was due and the market received it; Cotton was the worst performer on the day, Coffee 4th, and Sugar 6th, with only modest gains in a triumvirate of grains saving Ags from uniform losses. Volume was similar to yesterdays – above recent averages but well off immediate extremes – and volatility was high intraday. Spreads were effectively unchanged, gaining a tick in the spot, losing one in the 1 year, yet the aftermarket pendings print raised eyebrows as an additional 40,736 bags were put up for grading, bringing the current total to 116,586. The increase was the largest one day change since Jan 2, 2020 (nearly 17 months), and the total is the largest since Feb 4th. With so much fluidity in markets and liquidity looking for homes, a roughly 12% gain for Ags in April (14% for coffee), and a sense amongst many coffee traders that the moves has been too much, too fast, tomorrow’s month end trading should be interesting.
Another day of heavy volume as KC extended its rally to 145.90, +2.55 and RC gained another $21 to 1461 as the active arb settled on the doorstep of 80 cents. KC has now gained 19.4% in April, reversing the 2nd half March losses and then some. If prices can extend from here, and with oscillators peaking overbought it is a good question, the chart looks to have clean room to the upside. The 61.8% retracement of the major 2016 high / 2019 lows (144.43) was eclipsed today, and trendline resistance (144.65) from the March and Sept 2020 highs (and just above March 2021s) was knocked out as well. However, this seems above all to be a spec driven rally and should it fail to continue, these measures will likely reemerge as stronger points of resistance on the next attempt. While outright volume in the fronts was slightly below the past 2 sessions, it still came in roughly 5000 lots above the 10 day average, a sign of heavy participation on this move higher. Spread volumes were also their heftiest in 10 days, unusually elevated for a non-roll period, and the 1 year NN gained 25 points to -6.60 as the roll yield hit -4.5%, the smallest penalty since late February. FND in London gave little in terms of excitement as no notices were reported. OI stands at a modest 383 lots in May leaving little room for excitement ahead.
Arabica prices rose 255 points to 134.45 while Robusta gained $13 to 1398 as activity picked up overnight. With 11,444 lots of OI entering the day in KCK, and now a single session left to close down unwanted positions ahead of Thursday’s delivery notices, K/N saw resurgent interest after 4 days of declining volumes. The prompt spread has been remarkably orderly, settling -2.00 on the day while trading a -2.05 / -1.90 range, all but 10 points of the month to date -2.05 / -1.80 range. Outright volume in KC was about average, yet Robusta saw an increase in interest with a clear battle for the 1400 line emerging. Around 3200 lots of outright trading in RCN was noted in a 1395 / 1404 band, with the sizeable majority of it trading on the ask, suggesting that while buyers were the aggressor (logically so considering KC’s path and the widening arb beyond 71), a wall of stubborn selling was there to greet them. The disagreements between the destiny of the certs only grow, yet both structure and flat price in London remain unable to break the bands of volatility.
Arabica lost 350 points, settling 131.20, while Robusta fared better, shedding $9 to 1380. With KCK fnd now 4 days away, volume has moved emphatically into the July contract. Trading was choppy & somewhat dull overall, yet 2 distinct selloffs were the story of the day. With futures peaking around 8am (135.30, just off the opening high prints of 135.45), a slow atrophy began as coffee failed for a 3rd day at the upper Bollinger band. Motivated buyers were hard to find and for a 20 minute span from 8:45 to 9:05 KC lost 250 points, ensuring an outside day with what was rapidly appearing to be a bearish reversal. While KC recovered from there, chopping about for the next 3 ½ hours as the BRL and DXY both gave increasingly positive signals, a lack of follow through gave free reign for sellers to reengage. Around 1000 lots were sold at 11:52-11:53, pushing KC back into Tuesday’s breakout zone and piercing the KCN 50 DMA in the process (yet not the KC2 continuation). Things appear a bit mixed going into next week, with the outside reversal on the daily uninspiring yet oscillators mostly neutral, MACD positive, a higher low, higher high, positive close on the weekly chart, and Arabica holding above that breakout area on the chart. Bloomberg notes that “since August 2018, arabica coffee crossed below this level 20 times and fell an average 0.6% in the next five days,” hardly an inspiring trade, and recent crosses and re-crosses both directions (3/16 to 3/30 and 4/6 to 4/13 most recently) exhibit the difficulty in relying on such single indicators, particularly in a ranging market. An out of consensus GCA draw (111,409 bags MoM, 344,406 YoY) did little to boost bullish sentiment, even with prevailing expectations for a build. Brazilian certified coffees approaching 1mm bags (930,330, up 10,240, 49.4% of the entire inventory) are providing a psychological and empirical counterweight overseas to the otherwise strong US data. The Robusta COT showed little net change (+778 lots to -7442, the least short positioning since February) on the commercial side as Managed Money liquidated 3190 longs and added 348 shorts for a net 3538 lots of selling, with Other Reportables taking on 2547 lots of that with a net buy.
May Arabica closed 127.85, +1.10, while May Robusta was unable to keep pace en route to a positive 1345, +16 close. Day 1 of the index roll saw the expected focus on spreads as outright trading in the front two months came in 4100 lots (27%) below the 2 week average, yet total volume shined thanks to 29k spreads, the second most since Feb 11th, slightly behind Tuesday’s activity. OI & trading activity both remains focused in the May contract for the moment, though this should change in the next couple days. KC didn’t quite manage a 2c range, spending the early hours in quiet ascent, bottoming out with the BRL at its weakest point of the day around 10:20am EDT, while chopping its way higher. Traders seemed fairly disinterested overall, focused on the roll and lacking motivation with prices off the lows but still just off the lower end of the core range. On the option front the structure (N -1.90 C 2000x, 1850 of them via the -1.90 C/ -2.10 P fence) and K 130 C (1378x, settled 47) were the focus of the day, the latter boosted by tomorrow’s May option expiration. OI entered the day at 4528 lots in the strike. Brazil certs declined 1300 bags of a total 5897 bag dip, the first decline since March 18th’s 325 bags and more than doubling the 570 bags that had made up the 3 prior days of net Brazil draws going back to the beginning of this year’s grading campaign.
Coffee recorded a lackluster session, falling 10 points to 126.75 in KCK and $5 to 1329 in RCK. Volumes were below averages on the outright front, though total participation driven by spreads ahead of tomorrow’s traditional commencement of the index roll boosted the nominal volumes. Markets in general seemed to lack conviction (DXY +0.01%, BRL -0.16%, S&P +0.02%, BCOM +0.20% around the time of Arabica’s close) and KC was not immune to that. Most of the trading day was spent yoyo’ing on either side of unchanged, with a midsession pop 1c in the green holding for a short time, aided by a peak in the BRL and a low in the DXY intraday. With technicals now mixed, traders seemed content to add around the margins and focus on the roll. K/N widened 10 points to -1.95, while the VWAP was a stronger -1.88, and the N/U lost a tick as well to -1.90. K/K remained bound by the weaker end of the recent range as it slid 30 points to -9.35. Structure in London performed better, gaining $3 in K/N, settling -20, and $1 in N/U to -17s. Feb ICO shipments released after yesterday’s close came in at 10,477,000 bags, down 173k MoM and 569k YoY, breaking a string of YoY increases going back to September, though container backlogs may have had some role to play.
KCK closed 121.60, -1.90 while taking a large step back in trading ahead of the holiday weekend. As a reminder both Arabica and Robusta are closed tomorrow for Good Friday. Robusta will remain shuttered Monday while KC has a delayed 7:30am NY time open. Prices gapped higher on the open on the continuation of yesterday’s late trading and mostly held on through 8am while picking up very little volume. An early blow to the BRL seemed to weigh on KC and a quick reversal of positive opening prints in the FX market brought 400 lots of selling in coffee, or at a minimum was remarkably well timed to it. Some industry buying helped cushion the blow and short term specs bought it back over the next hour but that proved to be the last hurrah as coffee bled lower for the balance of the day, ultimately printing the low of 120.75 on the final trade. Basis the 2nd month continuation, the 50% retracement of the Nov low / Feb high (122.65) was supportive, holding for a second day 2 ticks below the 122.75 KCN low. Spreads saw less volume than the past two sessions yet were still elevated vs recent sessions, roughly 6k lots more than the 2 week average. KN widened a tick to -1.95s, NU gained one to -1.85s, and the KK 1 year settled -9.30, 5 points weaker. London meanwhile continues to slip, 1325, -17, well below relevant moving averages. The COT will be released tomorrow even with the market closed for those keen to get a look.
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