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Arabica coffee futures extended losses Tuesday influenced by a general drop of the commodity complex. Crude oil prices collapsed to their lowest levels in seven months, as large specs are now aggressive playing the short side of the market. This action contributed to add pressure on the currencies of emerging market economies. The active contract for September delivery closed 200 points lower at 124.60 cents, while the benchmark July contract settled 225 lower at 121.95 cents a pound. The volume was 53,104 lots. The spread activity was reduced as we approach the first notice day for the July position. Last minute price fixing selling and a weak technical performance encouraged the non-commercial selling. In Brazil, the currency fell to 1-month low as the Senate rejects the labor reform bill in a political blow to President Temer. The real fell 1.6% to USDBRL3.3374. The Colombian peso declined 1.8% to end at USDCOP 3,032.0. In weather news, temperatures remained in the 40s and 50s in Brazil coffee areas. Similar conditions are expected during the 6-10 days period, with little threat of frost. The Australian Bureau of Meteorology cancelled El Nino watch, after climate models began to show the lessening of the pattern.
Speculative profit taking in the forward spreads and further weakness in New York pushed London lower, with the move accentuated by a void of resting commercial buying. Early weakness in the Sep/Nov spread attracted initial selling pressure to the flat prices with London going on to observe a negative trajectory thereafter. The Sep/Nov went on to trade 2700 lots, whilst weakening to $14 premium as speculative players unwound recent trading positions. The move lower dragged the July contract month away from $2100 where much of the recent trading action has looked to hold ahead of tomorrow’s option expiration. Scatterings of origin selling were visible around the top end of the sessions range although did not look to chase the market lower following good levels of recent activity. July book management continued a pace, with 2200 lots of EFPs posted basis November represented forward financing. The July/Sep switch remains operational within a narrow recent range for now, trading 3500 around $16 discount.
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Arabica Coffee Futures settled slightly higher on Monday, on a switch-heavy session. Volume reached 50,844 lots, including 17,022 switches. The active contract for September delivery settled 65 points higher at 126.60 cents per pound. Ahead of first notice day for the July contract, June 22nd, the active N/U switch settled at -2.40, after reaching a high of -2.35 and a low of -2.50. Open interest in the July contract has diminished significantly, with a reduction of 5,337 lots on Friday, and entering today with 17,565 lots. Lack of fresh fundamental news and focus on the switch kept the trading range relatively tight. Friday’s COT figures showed the managed money net short position increasing by nearly 9,000 lots to 33,433 net short lots as of June 13th. The commercial net short position decreased by nearly 5,000 lots to 9,783 net shorts. Colombia was closed on holiday today and will be closed the following two weekends on holidays.
Flat price action looks to hold around $2100 basis July ahead of Wednesday’s July option expiration with 5800 lots of open interest at the $2100 call. Though lighter in volume, regular origin selling throughout the morning prevented a test of last week’s highs with much of the rest of the session playing out around the option strike. Having reached historical lows since the Robusta contract changed in 2008, a small correction maintained a lid to London with the Sep/Sep widening back through 30 cents. Having strengthened for four consecutive sessions due to lingering supply concerns for the second half of the year, the Sep/Now switch weakened back into $21 premium through 2000 lots. Certified stocks have edged lower over the last month, falling form 17,215 lots on May 10th to 16,693 lots today. Despite ongoing concerns it is worth noting current stocks remain higher than a year ago, with 15,054 lots of certified stocks held as of July 01 2016. With the bulk of last week’s action happening after this week’s COT reporting period, today’s numbers showed little change. A small increase of 331 lots to the managed money long position takes its overall net long to 18,956 lots. Arabica coffee futures fell Friday on indications that inventories in US continued to increase. The most active contract for September delivery lost 210 points to settle at 125.95 cents, a new low for the last year. Volume decreased to 52,668 lots including 16,145 switches. The nearby July-Sep switch widened 10 points to end at -2.35. With the July OI estimated under 15k, the lagging long liquidations could add more pressure on the switch before the first notice day, next June 22nd. Last night GCA stock report showing inventories in US increasing 224,000 bags during May and reaching a new high of 7.1 million bags, contributed to the bearish sentiment in today’s session. Another bearish factor was the depreciation of the real that again approached USDBRL3.30 level. Uncertainty about the economic reforms affected the Brazilian currency. After the close the USDA released the Coffee: World Markets and Trade, report. Output for 2017/18 is pegged at 159 million 60-kg bags, unchanged from the previous year, and global consumption at 158 million 60-kg bags. The lower output for Brazil is offset by higher productions in Vietnam, Mexico and other countries. During the week , Arabica price fell 3.0 % or 4.00 cents. Funds continued to add short positions. As of June 13, the COT showed that non-commercials are holding a net short position of 30,665 lots, vs 27,011 net shorts they were holding the previous report.
Robusta maintained its upward trajectory for a third session in a row as speculative buying returned following yesterday’s dynamic settlement. Early buying absorbed overhead origin selling as values quickly moved through the nearby high at $2110, attracting additional technical buying as the pace of the move picked up, breaching the 61.8% Fibonacci retracement at $2132. Having remained content to hold around the highs of the day for much of the session, technical selling in New York dragged London lower inside the final hour as the Sep/Sep arbitrage narrowed to 30 cents. A brief dip below $2100 basis July uncovered delta hedge buying from the 5893 lots of option open interest which stand at this strike ahead of Wednesday’s open expiration. The structure in London remains closely observed with the Sep/Nov attracting good turnover once more to move to $29 premium while the July/Sep traded a $3 range through 5500 lots. Good morning and Happy Friday!!
Overnight, the GCA released their latest numbers, which revealed a sizable increase of 224,169 bags, leaving us with 7,114,52 bags warehoused. The configuration of the US market means that most of these stocks are Arabica, however a bit of guess work is required. The likelihood is that this news will be considered mildly bearish for Arabica, a market that was pegged back yesterday by sizable (presumed) unwinding of Arbitrage (selling NY buying Ldn), and with the roll out of the way we may see Sep look towards 125 in today’s session on the back of this. Robusta continues its uptrend, perhaps being led by the strong back month structure, and we continued to be fairly active in the those as a result. Personally, I think we’ll see a continuation of the recent strength until the Sep expiry at the earliest, when it’ll become clear whether the rumour is just that, or indeed fact. July options go off the board next Wednesday, so keep an eye on the July/Sep structure, as players begin to react to their presumed resulting positions as a result of the expiry. In Macro news, Brexit talks are believed to begin on Monday, and the FT are saying that the UK won’t be required to stay in the EU Single market as part of that deal. There’s an interesting opinion piece on Bloomberg this morning on FX Vols – with the author saying that “It seems no matter what major currency pair you look at, 3 months option implied vols are near or at their year to date lows, indicating options investors expect no summer fireworks for currencies”. At time of writing, Sep-17 Robusta is being shown at 2106 (+1) on the preopen. Currencies (Bloomberg) GBP – 1.2769 EUR – 1.1155 BRL – 3.2752 DJI -0.07% DAX +0.48 Arabica coffee futures closed higher Monday helped by speculative short-covering. The most active contract for July delivery settled 95 points higher at 127.50 cents a pound. The volume was boosted by 33,414 switches, reaching 87,872 lots. The active July-Sep switch narrowed 15 points to end at -2.15 cents and continued to attract a considerable spec participation. Today’s short-covering was caused in part by the last COT report published Friday, that showed the non-commercials short position at 27,011 lots, as Tuesday June 6. This is the largest spec net short position since January 2016. In Brazil weather news, temps were reported lows 1 to 2 C. but above the frost levels in Minas and areas that were expecting cold. There is no forecast of damaging for the next ten days. From Colombia, according to a report from Wolthers Douque, the fly (mitaca) crop is at least one month delayed . Other markets declined due to continued political uncertainty in UK. The fall of technology shares around the world added weight. The real declined to USDBRL3.3212.
A third consecutive session of positive price action propelled London towards the top end of its recent trading range, eroding clips of origin selling en route. An upward trajectory was maintained throughout the session with a greater pace generated once values moved through last week’s high at $2011 basis July. Origin selling picked up in volume as values moved higher, maintaining a firm lid on prices towards the higher realms of the sessions range. Many participants still await a breakout through the nearby high at $2042 in order to confirm a move away from the recent range and to attract volatility back into London. A small reduction of 1899 lots in the managed money net long position in this week’s COT report suggests a comfort for the speculative community at current levels, with minor changes to the net position over recent reporting periods. July book management gathers pace as we move towards first notice day – 4,500 lots of July/Sep trading a $4 range with $20 discount remaining a short-term low, for now. Arabica coffee futures for July delivery finished 20 points higher Friday at 126.55 cents a pound. Volume reached 71,459 lots boosted by 23,018 switches. Weather reports forecasting cold temps for some areas south of Minas in Brazil, encouraged some speculative buying early on the session. However, later the possibility of frost was decreased. The nearby July-Sep switch gained 5 points to end at -2.25 cents. The approach to the delivery period usually attracts a large participation of program and algorism traders. In related news, Brazil coffee exports fell in May 3.6 % to 2.4 million 60-kg bags from May 2016, they were 2.5 million, according with CECAFE. Arabica exports increased to 1.3%, while Robusta and processed coffee declined 71% and 23% respectively. During the week, Arabica prices consolidated ending 1.00 cent higher. The main activity was generated by spreads trading as index and spec funds began to roll the positions ahead of the first notice day for the July position. The real devaluated 1.1% affected by the political situation. COT figures showed non-commercials increasing their net short position to 27,000 net shorts.
Lingering fundamental concerns supported London heading into the weekend as values bounced away from nearby lows to settle above the psychological $2000 barrier. Overnight volatility in the currency markets following the UK election failed to feed into Coffee as values ticked higher despite Dollar strength. With much of the market maintaining a close eye on Brazilian weather reports over the weekend, London responded to moderate short covering in New York as the States emerged online, although never threatened to break away from recent range bound action. With flat prices looking to have found a short term base for now, reasonable upside protection traded via the options market, although many participants await a breakout through recent highs in order for volume and volatility to return in earnest. July book management begins to pick up pace; 4700 lots trading though a $4 range whilst values remain firm further down the board, with the Sep/Nov strengthening to $11 premium having held resiliently in premium all week. Arabica coffee futures ended higher at then of a session dominated by spreads trading. The benchmark contract for July delivery settled 60 points higher at 126.35. Volume reached 56,719 lots including 18,667 switches. The July-Sep switch narrowed to -2.25 cents. The market hovered for second consecutive day around the 126 level (July position), which could be the development in the short term of a bottom formation. The rolling period is evidenced with open interest decreasing by 4,584 lots in the July contract, and a corresponding increase in forward months, with a net decrease of only 381 lots. July option expiration tomorrow might add volatility to the market, as open interest concentrates in the 125P and 140 C. In related news, the IBGE increased their estimate for Brazil’s 2017-18 coffee crop by 0.3% to 46.4 million kg bags. In currency news, the Brazilian real saw a volatile session, bouncing off session lows into positive territory against the dollar on developments on the presidential corruption scandal. The European Central Bank decided to keep their monetary policy unchanged.
A brief test through the weekly lows fails to provide a spark in London with values content to hold around the mid-term averages for now. A flattening out in open interest since Robusta’s breakdown towards the end of April supports the notion of recent range bound price action; something which most participants are looking for a breakout from in order to establish new positions. With current arbitrage levels maintaining a lid to the upside, a test back to $1900 basis July would be a key area in the market for many, a level which would pose fresh questions to the 20,000 lot net long position which is held by the managed money sector. Short term attention now turns towards the macro, with results of the UK election due overnight and currency markets looking to be a key driver of direction as the week draws to a close. Arabica coffee futures for July delivery closed 20 higher at 125.75 cents a pound. The session was dominated by spreads trading. Volatility decreased substantially as the market traded inside a very small range. Volume reached 52,131 lots including 17,778 switches. The beginning of the Index fund roll put some pressure on the nearby July-Sep switch that ended at -2.30 cents. In the options, good volume of in-the-money puts calendar rolls was noted from July to August or Sep. Commodity markets in general were affected by a sharp drop of the crude oil. The crude oil fell 4.7 % on unexpected jump in US stockpiles. The dollar was mostly unchanged after posting the lowest level since Trump election yesterday. Concerns about the future path of the interest rate kept investors on attentive. The UK will hold a general election tomorrow and the European Central Bank will deliver the policy statement. Lack of Call volume suggests diminishing worries to the upside.
While New York is buffeted by the funds, the arbitrage and debates over the accuracy of weather reports, London has been left somewhat to its own devices. So far the results are less than spectacular, the board seemingly unable to breakout of the nearby 1985-2025 range which has been in place all week. Despite the lack of price action, we are beginning to note a pick up in the pace of the turnover, driven partly by the recent activity in the front spread but also by origin’s increased willingness to sell at these levels. 17,652 lots is the largest volume of the week so far. Tonight’s settlement around mid-term moving averages simply highlights that we have found short-term equilibrium. The first full trading week in June started with a reminder that winter is approaching in Brazil and forecasts for cooler temperatures in southern regions of Brazil’s coffee belt for this coming weekend, with one weather service calling for the chance of isolated frost in low lying areas. Couple that with a net non-commercial fund position standing at 18,852 lots, the shortest we have seen since February of last year on a net basis, and the largest gross short (59,538) since November of 2015 and it was reason enough to ignore the 1% weaker real and probe the long side especially after trading to a 364 day low on Friday. Prices held Friday’s low by 45 points and proceeded to trade 375 points higher with momentum to the up side building once open interest revealed an increase of 3,154 lots on Friday’s sell off. Skeptics turned sellers as the market traded above 129 and while prices backed off a cent from the high’s KC still managed to settle with a net gain of 290 points, its best performance since of the past 12 sessions.
Arabica coffee futures fell Friday to the lowest price of the last 12 months. The most active contract for July delivery settled 215 points lower at 125.55 cents a pound. Volume expanded to 48,669 lots, including 11,660 switches. The active July-Sep attracted most of the activity ahead of the roll period next week. The weak technical performance encouraged the speculative selling. Breaking of the recent low at 127.15 , basis the July position, signaled a new objective to the 12500-12450 area, confirming the market is still in a bearish trend. During the week, Arabica prices lost 4.2 %. Specs took advantage of the rise at the beginning of the week to add positions. The real remained weak on political concerns. The commodity markets in general fell in fears of slowing growth in China and global surpluses . The Bloomberg commodity index has fallen constantly since February.
- COT as of 05/30/2017 shows non-commercials increased net short position by 2,866 lots to 18,852. Commercials reduced net short position by 2,878 lots to 18,216 lots Robusta offers further resilience today, initially eroding light resting origin offers above $1985/$1990 forcing arbitrage values basis July/July to test sub 36.5 cents. Structure dominated focus and turnover in London, with spot July/Sep trading over 3,000 lots as values operated for much of the session at $21 discount in anticipation of the index roll, due to commence Monday 5th June. Forward spreads continued to operate through an increasing premium driven by the speculative community responding to quality issues and firm Asian differentials. The recent arbitrage movement calms even the most bearish participants in Arabica, as a majority of the market believes Robusta in comparison to Arabica sub 37 cents is unsustainable in terms of value, which would lead to a fundamental shift. We do not believe this will result in a mass sell- off in the Robusta market but more a slow reaction to any potential upside gains in Arabica. Technically Robusta continues to show marginal upside potential as near term averages provide support, helped by the slow stochastics driving higher in neutral territory. Short term price targets would stand at $2042 basis July17. |
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