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Arabica started the shortened trading week with a technically inspired spark, to settle with a 275 point gain at 96.05 basis July. Basis the second month chart the intraday high of 98.70 was the best since April 4th’s 99.40 pinnacle, and the 98.30 settlement was the highest since 98.50 on the 8th of March. It was the first time the market traded above the 100 day moving average (98.53) since the 1st of February, as systems funds proved the best buyers on the day, and prices rallied despite a BRL trading softer than where it was when we closed on Friday. The assumption that buying was short covering will be a curiosity that is hopefully satisfied on this Friday’s COT, especially since last week as the market rallied, the gross non-commercial long increased by 3,324 lots, while the short actually also increased but only by 452 lots. London settled plus $4 at 1372 and while it did not keep up with NY managed to close at its highest level since the 15th of the month. It’s refreshing to have some superlatives to mention.
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Arabica rose 300 points to settle 92.90 in one way trading with nary a downtick after the Western side of the Atlantic got down to business. The European session was a slow and steady grind lower, succumbing to 140 points of weakness at the bottom shortly after the traditional NY open. A spicy Somar headline gathered interest around 8am, yet reaction was limited; initial response was a metaphorical shoulder shrug. Trade sellers rushed in on the short side, yet the markets ascent had already quietly begun. A second day of heavy Brazilian Central Bank intervention supported the BRL as it fell out to 3.11, and from there it was difficult to determine how much of the KC x BRL performance was causation vs correlation. It appeared that short spec covering was at play as prices traded through the 26dma, though even that leaves something to be desired as an explanation. Today was the first time KC closed above the UBB since January 25th, and the first time above the 100dma in BRL terms since Nov 30th, albeit with a rollover boost. Opening selling was more dramatic on the London side of the equation, digging a deeper hole to climb out of. Prices ultimately closed 1364, +30 in perfect harmony with KC from the 8am magic hour on. The arb rose from 28.65 to 31 on the day.
A tranquillo day in the Arabica market, which traded an inside 115 point session, and settled at 91.30, plus 35 points. London consolidated yesterday’s $46 gains and also traded an inside range ending the day down 17 at 1375 basis the July contract. Activity in outrights found paper short term spec focused while the trade, especially in N.Y, were largely sidelined. Total volume of 27,123 lots with 8,659 spreads was true to recent form. The BRL weakened to its lowest level since the 1st of October ($/R 4.02) before stabilizing as the day grew longer, yet the correlation to coffee prices was relatively loosey goosey. The BCOM saw 18 of its 22 member products trading higher so for the day KC was trading directionally at least with the pack.
Robusta, 1392, +46, remains the story, having gained $143 top to bottom in a mere 4 sessions. Speculative short covering is finding little origin resistance as the Vietnamese producer holds out for profitable levels and conilon is reportedly most actively sought by the domestic industry. A flush of new global green interest came to market and while this doesn’t bring at the market futures buying, it has been credited by some for helping demand based sentiment. With no follow up fund sellers after posting a record position, London has found something of a vacuum to the upside. Arabica, 90.95, +1.35, did its best to ignore her sister market, yet ultimately was dragged higher midday, snapping through the 26dma before giving up peak gains as London found its top. Origin was quiet in NY as were roasters. The NN arb closed 27.80.
Risk off. Arabica brought its string of starting the week off with losses to 16 out of the past 20 this year, settling at 89.60 down 120 points. Demand for riskier assets faded, as negotiations between the U.S. and China came to a standstill, while investor concern intensified waiting for China to retaliate after the U.S. hiked tariff’s on $200 bln of Chinese good last Friday. Emerging market currencies took it on the chin, and Brazil was no exception, as their currency fell for the third day running, which did little to assuage an already battered coffee market. Implied outright volume in futures ran about a third of the spreads as short term specs dominated the flows with prices trading within the band of the past week. Robusta traded an inside session ultimately losing $18 in value to settle at 1346 basis July.
Coffee and Sugar sprinted to the top of the Bloomberg Commodity Index today as KC gained 2.3% to settle plus 230 points at 90.85 and Sugar landing at number 2 in the pack with a gain of 1.12% in value. Both markets ran counter to the currency correlative trade as the BRL and emerging market currencies in general weakened to a 4 month low, as demand for riskier assets dampened amidst on again, off again trade tensions with China. Robusta staged an impressive reversal, opening unchanged at 9 year lows, before rallying $63 to a high of 1351 and filling the Tuesday-Wednesday 1340-41 gap in the process, ultimately settling plus 55 at 1345 MT. While Arabica saw its best performance in 3 weeks, Robusta stole the show, with its strongest one day gain since the $59 rally of May 1, 2018.
Arabica posted a modest recovery rally, gaining 55 points to settle 88.55. Volume was about average, and the best buying was seen around 8am EDT as small stops appeared to be triggered through the 89 level. The June 90p leads relevant OI ahead of Friday’s option expiration, 3k+ entering the day and is seen by some as a short term cap on the market. Ultimately the plus sign will be welcomed by many, but there is little to take from such a day. Robusta meanwhile fell $5 to close 1290 while posting yet another contract low (1267), unable to find any support of substance. Roasters were noted buyers into new lows as they have been all along. Vietnamese selling was noted not long after the open, while multiple reports of improving conilon business in Brazil is not helping sentiment.
Coffee continues to succumb to gravity, pulled 215 points lower to 88.00, the lowest settlement since May 28, 2004. The dollar was a key driver of the weakness as global uncertainty drove risk markets lower. The KC x DXY was persuasive, and while systematic funds would be the logical conclusion, sentiment grows worse by the day and commercials have been the instigator of much of the recent weakness. Outright Arabica volumes were approximately 19k lots, a bit above recent average yet nothing that would suggest the drama that price would. Even as KC ground down to prices never seen by many in the market today, Robusta was the clear focus of attention. July futures fell to 1295, -50, with a low of 1282. The settlement was the lowest since a 1287 double bottom on March 23 & 24th 2010, from which London bounced to 1342 the following day and has never returned (until now). Pressure came both via the arbitrage and reportedly by origin as the Vietnamese hit stop loss levels on shipped / unfixed and deposit coffee. An 8:30am washout saw roaster buying arrive, yet few expect a white night anytime soon. May open interest remains above 2k lots. Interestingly, and admittedly a simple factor of math, Arabica is down the equivalent of $57/mt over the past 2 sessions, with robusta -$50/mt today (which would include any catch up from yesterday’s closed session; KC fell 45 points while London rested). However in terms of percentage moves which may catch the eye of investors, the smaller Robusta pullback in terms of value was also the larger move in terms of ratio; KC is down 2.87% to start the week while RC has fallen 3.72%.
Arabica closed out the week in poor fashion, settling 90.60, -95, having traded into a fresh low for the week on the settlement period on what was far and away the best volume of the day. A familiar arb was present, with Coffee and Sugar trading the Americas session in tandem (and in opposition to a strengthening BRL) as Crude and the BCOM at large ascended. Discretionary buyers were in short order, seemingly dissuaded in part by the admittedly modest arrival of yet more Hondurans at the exchange. Robusta continues to find new ways to depress, falling $19 to 1345. Yet another contract low was posted, taking out the Feb 2016 level by $1, and finding “support” a mere $2 above the 19 year lows of Jan 2016 (1339).
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October 2020
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