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A fourth consecutive month of lower closes in KC , a record string of monthly losses since the 7 month slide from August 2014’s close of 20120 to the March 2015 close of 13610 basis the 2nd month chart. The day started off mundane enough with prices trading mildly higher to 7 day double top at 13340 but lacked follow through after a 625 point rally off of last Thursday’s 12 week low. Momentum accelerated to the downside coincident, yet enigmatic to, the release of open interest, which showed an increase of 390 lots on yesterday’s action. Prices fell to new lows in New York after London closed with a $15 loss in an inside session for a net gain of $49 MT on the month. Month end considerations were the most likely facilitator for the 510 point hi to low sell- off as systems funds remain entrenched on the short side, while the smaller shorter term spec bottom picks and industry extends cover down the board.
ICO shipments for April tallied 9.536 mm bags in April, the first year over year slowdown since July of last year.
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Arabica Coffee Futures settled lower for the third consecutive session, pressured by a bearish commodity sector outlook and pressure from currencies. The active contract for July delivery settled 170 points lower at 128.55 cents per pound, after breaking through recent lows to 128.00. Volume was limited, trading 24,640 lots. Prices consolidated near the recent lows finding some support. However, bearish pressure from the softs commodity complex prompted additional speculative selling. Additionally, the Brazilian real reversed early gains, and began weakening towards the end of the session. The sum of these factors was enough to push levels to new yearly lows. In macroeconomic news, Moody downgraded China’s credit rating, pushing commodities lower on expectations of lower global aggregate demand. In addition, the Brazilian real was pressured, since China is Brazil’s largest trading partner. US Fed minutes were published after the close, noting plans to reduce the balance sheet. In related news, the latest data from the Colombian Coffee Federation (FNC) showed that coffee production in April was 20% lower than the same month last year, to total 834,000 60-kg bags. The country has also been dealing with transport challenges due to landslides and a recent strike at Colombia’s Pacific port, Buenaventura.
Flat prices in London ticked down throughout the session to breach the nearby low at $1916, although failed to generate sufficient follow through selling to test $1900 basis July. With the market having observed a downward trajectory through relatively low volumes in recent times, it seems many participants await a breakout below $1900 before a test of the recent lows at $1871 in order for volatility to return to London. Scatterings of commercial buying continue to chip away as the board moves lower, although lacking in volume with good levels of coverage having been extended from the original move lower. Good volumes of options traded further down the board, with 1000 lots of Sep 2000/1900 fence (to the put) trading between $12 and $13 with an 83% delta at $1933 . A further 1050 lots of Sep 21501850 fences, also to the put, traded at $25 alongside a 54% delta hedge at $1942. With recent flat price action yielding little open interest changes in the futures market, participants will closely monitor the release of tomorrow’s numbers in order to discover if these were new positions being established. Arabica coffee futures suffered a sharp fall on Thursday amid a new political scandal that shocked Brazil. The most active contract for July delivery settled 475 points lower to 129.65 cents a pound. Volume increased to 46,005 lots, including 8,819 switches. The active nearby switch July-Sep ended at -2.40 cents. In Brazil, a local newspaper reported that President Temer was recorded encouraging a business man to continue to bribe a corrupt politician in exchange for silence. Analysts anticipate that the Brazil government’s reform agenda could now fail. The forex situation was chaotic. The real crashed against the dollar, with bids at USDBRL3.4100. Authorities had to expand the daily limit for the real to 9% from 6% to ease the trading. The strike affecting the main port of Colombia continues for the third consecutive day. The Colombian peso devaluated to USDCOP2,932 impacted by the real. CONAB published the second official survey of the Brazilian 2017-18 crop at 45.5 million 60-kg bags. The USDA updated their estimate of the Colombian 2016/17 crop from 14 to 14.5 million bags.
London played out the entirety of the session within yesterday’s range, performing the role of the secondary market to a more volatile ‘C’ contract which was dominated by severe weakness in the Brazilian Real. Overnight reports circulated that President Termer had been caught up in a bribery scandal, a justifiable cause for impeachment, which immediately placed London under pressure as spec shorts responded to the news. A lack of resting buying did little to stem the move, support instead arriving via the arbitrage as the July/July narrowed into 39.5 cents. A failure to move through yesterday’s low at $1953 prevented a test of the $1950 option strike, with London remaining content to hold in the middle of recent trading ranges. Much of the traded volume was a result of the structure, with 1700 lots of July/Sep trading as values narrowed into $19 discount, whilst the Sep/Nov also saw 1700 lots of turnover. There was activity regarding the May delivery month for the first time since May 5th, with 18 lots re-tendered. Monthly totals now stand at 573 originals and 110 re-tenders. Amid a bearish fundamental outlook, coffee prices declined Tuesday on speculative selling. The contract with most of the activity lost 200 points to settle at 131.45 cents a pound. Activity increased accompanying the action, with the volume reaching 25,639 lots, including 4,645 switches. The nearby switch, July-Sep, widened 5 points to end at -2.40 cents. Last night, the April US GCA stocks report, showing the inventories at 6,890,354 bags, reaching the highest level since 1994, added to the negative outlook of coffee prices. Recent estimates for the 2017-18 Brazilian crop above 50.0 million bags hint of a smaller than expected global deficit for this season. The weak technical performance was another factor in today’s speculative selling. The breaking of the last two weeks’ lows, and the lack of positive momentum are suggesting a possible testing of the 128.75 level, for the July position. On other factors, the dollar declined 0.9 % on political news. The short-term correlation between coffee prices and the Brazilian real continues deteriorating, with coffee prices down 3.5%and the Brazilian real strengthening 1.9% in the last 10 days. The crude oil lost 0.3%.
Robusta finally filled the downside gap through $1965 basis July, although a lack of technical follow through selling resulted in a further session of limited flat price action. Having partially plugged the gap coming into yesterday’s close, an early move lower gave additional hope to short term bears looking for further advances to the downside. Support emerged around the 50% Fibonacci retracement of London’s recent consolidation at $1958 to quash further thoughts of a test back towards $2100, which remains a short term target heading through the week. London tracked weakness in New York to breach intra-day support as the session moved into the final hour, although continued to operate a narrow trading range, with the majority of the volume generated via the structure. The July/Sep discount continues to widen, moving into $21 discount through 2000 lots representing decent turnover for the session. Reasonable volumes traded through the structure further down the board with 1000 lots of Sep/Nov trading into $9 discount and 1100 lots of Sep/Jan into $12 discount. Arabica coffee futures declined Monday on speculative liquidation induced by the weak technical performance. The active contract for July delivery settled 150 points lower at 133.45 cents a pound. Activity was light with the volume reaching 14,131 lots, including 1,972 switches. The coffee market appeared to be isolated from the emerging currencies that were helped by the raise of the crude oil. Crude oil rallied 2.0% after two largest producer countries currently participating in the cutback production scheme announced that they will support extending to Q1 2018 the program. The real recovered 0.5% to USDBRL3.1025 and the Colombian peso 0.25 % to USDCOP2,914.0. After the close, USA April GCA stocks were reported at 6,890,354 bags, up 165,497 bags. This level is the highest since March 1994. Last year the GCA stocks went down 5,978 bags during the month of April. The average for the last five year is an increment of 139,000 bags.
From the technical point of view, the July chart shows the prices breaking a recent consolidation area and tending to test the low at 128.65. Volume and volatility in London remain thin for the time being, with outright values content to hold a narrow trading range. Flat price action was limited through much of the session as a brief move above Friday’s high at $2000 basis July failed to yield additional upside traction. With New York also struggling to generate a move higher, early longs scrambled for cover to move prices into negative territory, from which they held thereafter. Initial support emerged at Friday’s low of $1981, before final hour weakness pushed London through last week’s low at $1974, to test the much maligned gap between $1965 and $1974. Support emerged once more around these levels to only partially fill the gap, something which remains a target for technicians over to coming sessions. Much of the traded volume was once again generated through nearby structure, as the July/Sep held at $20 discount through 1400 lots, as speculative longs rolled into the hands of the commercial short. This week’s COT numbers, based on the disaggregated futures and options section showed only minor changes, with 200 lots added to the managed money net long position with 1128 fresh longs and 928 shorts almost balancing one another. The Merchants sector reduced its net short by 865 lots, with 2152 new longs reflecting extended roaster coverage at recent lower price levels. The battle against the 20-day moving average continues, as coffee futures erase nearly all of yesterday’s losses, helped by a recovery in the Brazilian real. The active contract for July delivery settled 150 points higher at 136.65 cents per pound. Volume reached 26294 lots, including 6944 switches. Inflation figures in Brazil beat estimates, decreasing for the 8th consecutive month at 4.08%. The Brazilian real strengthened 0.77% at 3.1682, limiting origin selling. June option expiration on Friday might add volatility to prices. Open interest is concentrated near the 135.00 Puts and 145.00 Calls. In related news, Brazil’s Trade and Industry Ministry has authorized four drawback requests to import Robusta coffee from Vietnam into the country. Japanese warehouse coffee stocks rose 0.3% in March to 202,558 tons.
London seems to have found short-term equilibrium for now, with today’s session once again unfolding within the recent trading range. The lack of turnover reflects a considerable drop in physical activity following the recent move lower, with many participants content to take stock and re-assess positions while the market absorbs the sharp change in price level. Much of the current action seems to be being driven by intra-day traders, a theory backed up by the low turnover and minor changes in open interest of late. Structurally the market remains under pressure (July/Sep ended the session out at -19 discount) and option activity continues to grow in out-the-money strikes further down the board, on both sides of the market. Today’s highlight was 750 lots of the Sep 2100/2350 (1x2) call spread trading at $31, alongside a 9% delta at $2035. Arabica Coffee futures extended Friday’s positive action, reaching 120 points higher with the active contract for July delivery settling at 136.90 cents per pound, the 20-day moving average. The technical indicator has provided resistance over the past four sessions, and breakage to the upside could prompt further speculative buying. Coffee followed a similar pattern as that of Friday’s trading within positive and negative territory throughout the session, and rallying towards the close. Activity was dominated by switch volume, reaching 5597 lots, while total volume reached 26,713 lots. Macroeconomic news added some volatility to the Brazilian real, with the Euro weakening after the French presidential election results, and the dollar gaining ground. Friday’s COT report showed the commercial sector covering 3,592 net shorts to a net 25,121 short position. The managed money increased their short position by a net 4,710 lots, to 10,387 net shorts.
Flat price continues to hold within recent short term parameters, with much of the volume derived through nearby structure. Values operated in positive territory throughout, aided by a void of selling in the market as origin maintained its recent absence. Participants will look for a break above the recent high at $2039 basis July if the market is to move higher whilst $1974 remains a target for short term Bears.Much of the traded volume was through the July/Sep spread, which weakened to $18 discount through 2800 lots and further into the hands of the commercial short. September based options activity continued apace, largely through a three way strategy: selling 800 Sep 2100 calls, buying 1600 Sep 2300 calls and buying 800 2450 calls. The market will closely observe open interest surrounding these strikes through the coming sessions.This week’s COT data, based on the disaggregated futures and options sector showed the managed money net long position reduced by a further 4047 lots, to 24,264 lots long. The bulk of this move was absorbed by the merchants, which reduced the net short position by 5169 lots to 14,841 lots short. This was primarily a result of 4574 lots of short covering. Arabica Coffee Futures extended the recent rally by 120 points on Wednesday, with the active contract for July delivery settling at 137.45 cents per pound. Prices consolidated between positive and negative territory throughout the session, helped by a late rally in the London market. Lack of fundamental news left the market to be driven by technical and macroeconomic factors. Prices broke through the weekly highs and the 20-day moving average, running into buy-stop orders. The next technical resistance level aside from the psychological 140 level is the 50-day moving average at 141.60. On the macro front, the US FED decided to not change interest rates (1%). In fundamental news, Colombia’s export data will be published on Friday.
The frantic nature of the market over the last couple of weeks appears to have subsided for now, as flat prices continued to consolidate higher throughout the session. A void of resting selling orders in the market contributed to the move, with origin pressure absent once more. The $2050 option strike and the 20 day moving average at $2088 basis July look to be short term targets for further moves higher if the market is to continue its corrective action. Much of the volume revolved around the July contract, with the July/July arbitrage narrowing to 44 cents as New York held stagnant. The July/Sep spread traded 2000 lots, weakening into $16 discount. Further volume down the board was visible via the options market, with 2265 lots of Sep 2000 calls trading alongside a 55% delta hedge at $2025. The May delivery contract saw 47 tenders and 91 re-tenders for the session, with 767 lots of front month open interest carried into the day. Arabica coffee futures extended the gains Monday on continued spec short covering. The most active contract for July delivery settled 255 points at 135.85 cents a pound. Volume was 20,000 lots, including 1,894 switches. Markets in many countries were closed today, contributing to the light activity. The short covering was induced by the last COT report published Friday, that showed funds holding a net short position of more than 27,000 lots, after adding more than 11,000 short positions until last Tuesday. Commodity markets were mixed with crude oil down $0.54 to $49.08 per barrel. Cocoa drop as news short players remained entering in the market, Raw sugar rose 0.3 % to end at 16.18 cents. The FED will announce decision on interest rates Wednesday. Some analysts are anticipating no changes.
Arabica coffee futures rallied Friday on fund buying after good support was noted against the recent lows. The most active contract for July delivery settled 390 points higher at 133.40 cents. Book squaring and profit-taking ahead of the end of the month encouraged the speculative short covering, after the market showed support at the 128.75 level. The oversold condition of the market helped the spec’s action. Since April 20th, when prices broke the 138 level, the open interest expended by more than 11,000 lots, evidencing the new short players added under this level. Today’s rally was also fueled by stop orders above 131 level. The real was highly volatile today among concerns generated by a general strike that semi-paralyze Brazil. The real traded between USD3.2141 and 3.1728, trading with little change USDBRL3.1825 at 2:00 pm EST. During the week, Arabica prices traded in small range, ending with little gains. With no fundamentals, the market was driven by technical and macro-economic factors. Depreciation of the real added put some pressure on the coffee prices.
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December 2018
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