The week thus far has been spent trading in a 4 cent (13905-14305) range with low summertime trading volume. Today, for a second day the market gapped higher on the opening then drifted lower only to reveal more spec buying interest along with bits and pieces of industry. The initial high of 14220 was printed on the opening, however it wasn’t until the close that the market was able to trade through and post a new high of 14250, as the pace of buying accelerated during the final minutes of trading. Conab announced that starting this week, and until the end of the year, they will be offering 693,000 bags of coffee in bi weekly auctions to help ease a domestic supply shortage caused by the slump in Robusta production. New York traded to the low for the day following the news, but it didn’t appear a game changer. London found keen buying interest from industry yet spec interests were disengaged in a $13 range sideways trading pattern. A decent close for the Arabica market on the intraday chart however how much can be read beyond that given the narrow bandwidth of the week’s range is questionable Tomorrow is the last trading day in July and we enter the day with the Sep contract today trading within the 14200-14790 range of the last trading day in June. Hopefully the day will prove more inspirational than the past four.
Stock markets in Europe fell after investors digested the FOMC “less dovish” statement and investors await for bank stress-test results this Friday. In the US equity indices were able to hold on mixed earnings also waiting for second quarter GDP data to be released tomorrow.
The Dollar Index remained under pressure a day after the FED repeated most of its words making investors bet on a single hike this year probably after elections, or more precisely a the December meeting.
Coffee markets are trading very low volumes, with the spread activity picking up, especially on the widening U6/Z6 that traded at -3.20 cts today. September16 contract in New York broke yesterday’s low recovering in the last three hours of the session to close near the high of the day. Robusta traded in a tight 18 dollar range settling exactly at the middle of it.
September New York (KCEU6) settled US$ 0.95 cents up. Volume was below average at 20,396 lots including an estimated 769 EFP's, 0 EFS's, 614 TAS and 5,036 spreads. 2,295 calls and 2,261 puts also traded. The KCEU6-LRCU6 arbitrage: 58.41cts +0.19cts Ratio: 1.7103-0.0012. €: 1.1077+0.17%. BRL: 3.2960/$-1.03%. CRB: -0.22%. Crude oil: -2.00%. Open interest: 184,240-373.
September London (LRCU6) settled up 9 dollars today. Volume was below average at an estimated 7,915 lots including 1,985 spreads, 608 EFP's and no EFS's. 4,100 calls and 960 puts also traded. Open interest: 104,284-433.
WTI continued falling after yesterday DOE data and is now at shooting distance of the 40.00 a barrel. Commodity indices slid led by the 5.27% drop of the Orange Juice contract followed by Lean Hogs and energy raw materials.
On coffee, Safras and Mercados says that 70% of the 54.9 mln bags Brazilian crop has been harvested, a little less than the five year average of 71% but higher than last year’s 66%.
The European Coffee Federation informed that inventories at in European ports stood at 12,078 mln bags at the end of May, or 298,200 bags more than the month before. In May 2015 there were 12,050 mln bags of stocks in the region.
The “C” is drawing a head-and-shoulders formation, so far consolidating on the right shoulder of the pattern. A downtrend line from the highs of July 15th and the 21st has a resistance at 142.20 tomorrow, which if broken will make 143.65 and 145.45 as the next upside objectives. Support levels are at 140.40, 139.05 and 137.15
Have a good night and good trades tomorrow,
Sideways action at best as the market spent the session treading water about the 140 level as funds have turned off the signal to buy, but are not exactly jumping ship. Volume was the lightest we have seen since December 30th (17,740) as traders expressed reluctance in taking on fresh positions in front of today’s post close Fed announcement. The CRB traded to its lowest level since May 10th, chalking up a 9th day of lower lows, with energy products bearing the brunt of the downside, as an unexpected climb in crude inventories halted the longest streak of declines on record. The Fed kept rates steady as expected, announcing that near term risks to the economic outlook have diminished underscoring a gradual pace of rate hikes.
The FOMC has acknowledged that risks have diminished for the US economy and mentioned a tight labor market on the statement of its two-day meeting. Initial reaction of the markets implied a hawkish view until a more careful reading of the officials’ assessment apparently has drawn the perception that a hike will likely only happen by December. After the announcement the S&P500 tried to rally towards the day’s high just to slide to unchanged levels at the end of the day. The Dollar Index reversed its early strength losing the positive momentum and settling with a key reversal chart pattern. The three major commodity indices had a negative performance led mostly by energy raw materials, which fell after inventories of crude and gasoline rose a lot more than expected (in fact for Oil the forecasts were for a drawdown of inventories).
Coffee in both NY and London traded very poor volumes working at negative territory during a great portion of the most active period (after 8am in NY). Arabica prices were able to hold at the 139.90 support level, closing near unchanged while Robusta quietly closed one dollar from the low.
September New York (KCEU6) settled US$ 0.40 cents down. Volume was below average at 19,580 lots including an estimated 770 EFP's, 2 EFS's, 1,068 TAS and 4,719 spreads. 3,407 calls and 2,270 puts also traded. The KCEU6-LRCU6 arbitrage: 58.22cts -0.88cts Ratio: 1.7115-0.0080. €: 1.1059+0.66%. BRL: 3.2634/$+0.39%. CRB: -0.88%. Crude oil: -2.33%. Open interest: 184,613-48.
September London (LRCU6) settled down 7 dollars today. Volume was below average at an estimated 7,654 lots including 2,154 spreads, 322 EFP's and no EFS's. 1260 calls and 1,097 puts also traded. Open interest: 104,717-1,205.
According to the General Statistics Office of Vietnam 2,17 mln bags were exported in June, 17% higher than a year ago, accumulating shipments during the current crop year to 24.17 mln, or 30.6% more than the same period of the last season.
El Salvador in June exported 47.766 bags of coffee, comparing to last year’s 61,262 bags. On the 15/16 crop year exports are down already 33.5%, or 358,519 bags, comparing to 2014/2015.
Brazil government will conduct bi-weekly auction of half of its total stocks, or 693 thousand bags of coffee, to help ease the domestic demand that has kept internal prices of lower grade beans historically very close to commercial qualities.
Support for Arabica September16 contract is at 140.30 tomorrow, followed by the recent low of 139.05. Resistance levels are at 143.50 and 144.30.
Have a good night and good trades tomorrow,
Yesterday’s late buying in New York spilled over to today’s opening as the market traded to the high of the day of 14305 (+195) by 5:40 a.m., before most traders in the western hemisphere manned their desks. B7y 8:30 had you already sold you weren’t given the chance to sell the market above 14235 for the rest of the session. Nonetheless short term specs took advantage of the bounce off of yesterday’s lows and the market held 140 as the selling dried up and London caught a bid. Yesterday’s Robust COT report showed the commercial position to be at its smallest long since November of 2014 while the pullback to 1765 has inspired them to be more active buyers, certainly more active than we have been seeing in New York. The physical market is reported to be in a summer lull, which, coupled with a sideways real, has kept Brazil hedging activity to a minimum. In a nutshell the day lacked catalysts as news was light, the dollar little changed to slightly weaker, and the CRB a mixed bag, ergo the smallest range in New York Coffee since the 2nd of June and the lightest volume since June 23rd.
During the early hours of trading New York drifted lower and maintained the pattern of trading in sync with intraday rhythm of the CRB index. However, once the noon hour struck there was a disconnect with the commodity index as the Arabica market rallied from the 13905 low of the day to 14150 on the close, while the CRB traded to new lows. Sell stops were triggered once Friday’s 14035 low was breached and the 140 strike was violated with surprising ease as a much anticipated industry was nowhere to be found. After testing the 13905 intraday low for 4 times with no follow through, short term specs stepped back in on the buy side, and, with selling dried up rallied the market over 2 cents into the close. An interesting note on open interest which fell by 2,796 lots on Friday’s 495 point sell off, suggestive of long liquidation, while the previous Friday’s 460 point loss was accompanied by a 2,194 lot increase a sign of either new fund or commercial shorts into weakness. Despite the late price recovery the market settled with a loss of 80 points, the lowest close and lowest intraday low for the month of July. Volume in London was 9,903 while NY trade 25,988 lots.
Weekly Coffee Perspective – Jul 25th to Jul 29th of 2016 – Week 30
DXY, WEATHER AND END OF STRIKE PUSH COFFEE LOWER
The European Central Bank left rates and its bond buying program unchanged, saying that it will consider adding stimulus later this year once it has a clear picture of the economic impact from the UK’s vote to leave the EU. Comments released last week from the director of the Bank of Japan (BoJ) saying “there is no need for helicopter money” was read as the monetary easing appetite might be waning with the prime minister focusing on fiscal incentives from now on. US economic indicators and the strength of the stock market is making some analysts bet that a rate hike can take place as early as on FOMC’s September meeting, helping the Dollar Index to trade at the highest level since last March. After almost 5 trillion dollars had been added to the value of global equities since June 27th (up to last week), investors apparently decided to book profits with major indices stopping the rise – at least for now. The strength of the greenback weighted on commodities driving the CRB to May levels, led by losses of 8.76% on soybeans, 7.5% on cocoa and 6.2% of corn. Coffee in New York lost ground in the last two days, ranking just behind the worst performers, with 4.5% slide – similar to crude oil. Robusta had also slid, but found better support as it has not followed closely the rally of the “C”. The COT report from last Friday showed commercials stepping in to avoid their flat-price coverage decrease further, but the fund position remains sizeable to encourage bulls to jump in after the technical failure of the terminal.
Most of last week was spent on debates and researches among agronomists, farmers and the agents of the coffee industry to assess the extension of the losses provoked by the frost that hit a portion of Minas Gerais, parts of Paraná and São Paulo States. At the end it seems like most agreed that the hit areas were low lands that in the past no one would plant coffee on it, but as there has been no frost for 20 years some farmers decided to take the chances. Of course those who had their farms affected naturally thought the losses were bigger than those that did not suffer. Putting numbers on the impact of the 17/18 crop is a hard task – just as hard as getting anyone to agree with the size of the Brazilian crop – but some suggested that it has not surpassed 1 mln bags, with many considering between 300k to 500k bags lower production potential. The lack of certainty about the damage along with all the newswires spreading frost stories made the internal market in Brazil less active than otherwise it would be. Brazilian players remain bullish in a reflection of the condition of the internal demand by the local industry, who is buying a wide range of qualities given the smaller conilon crop, and by the exporters demand – many went short and rushing to buy and meet their commitments. The price difference between the R$ 430 a bag for conies, R$ 440.00 for Rio cups, R$ 450.00 for low grades and R$ 495.00 for good cup coffees is quite tight, maybe the tightest on record, naturally converting several bears into bulls. Expected lower exports in July due to a slower customs procedures and the cold weather made most look to further gains of the futures markets. External demand though is needed to complete de equation, following a stronger basis – the later likely to have nominally firmed in the last two days due to the fall of New York, but it is too soon to say if it will sustain. In Colombia the trucker’s strike has come to the end after 45 days that has delayed the shipments of almost 800k bags – maybe helping to give a big boost to August figures. In Honduras the coffee institute is expecting the country to ship 5.5 mln bags during the next crop, and some have reported that early picking has started already (no significant volume). In Vietnam the physical flow has calmed after the market has given the opportunity for farmers and middlemen to offload their holdings, a nice bet that worked out fine. Differentials for that origin have recovered from negative double digits, just before the country enters the peak of the off-season – but maybe it will not change much the exports in the next two months after the good amount of business that has taken place recently. Back in Brazil, CONAB said that the country at the end of March had 13.59 mln bags in private warehouses, which plugging the exports and consumption in April, May and June leaves the carry-over virtually at zero (of course during the same period coffees from the current crop were already available to mix in the blends). The carry number varies on the S&D spreadsheets of the players from 1.5 to 5 mln bags. The performance of the DXY and the BRL will be key factors in giving a hint on the next move of the futures markets. Fund position is still sizeable letting long-holders nervous. Not to say that if the macro (and commodities) remains under pressure New York could attract more liquidation that will find a little less buying than it had found in the first US$ 10 cents it lost from the recent highs. Short-holders also might not be comfortable, even though those who were able not to liquidate their position on the run up are breathing a lot better now. Considering the drop of the Open Interest and the recent market move, it would seem that non-commercials are still net-long about 32K lots – as of today. It is true the origins will not be keen sellers in the next days, or even in a couple of weeks, but more than that we need a new wave of buying before the market starts cleaning up its position pre-First Notice Day of the September contract and during the slow month of August, when many traders will take off for the Summer holidays.
NY has filled the gap between 144.35 and 145.05 breaking Friday’s low today to then recover most of the intraday losses (it settled up US$ 2.05 cents from the day’s low). A move above 143.65 is needed to attract some short-covering and eventually renew the appetite of technical buyers. After that resistance areas will be at 146.00, 147.90 and 150.90. Support levels are at 141.30 (tomorrow), 139.05, 137.00, 134.60 and 132.90. London September16 contract remains in an uptrend channel having its first resistance at 1798, followed by 1817 1834 and 1866. Support areas to be observed are at 1783, 1765, 1733 and 1731 (the later on the weekly chart).
Have a good week and good trades,
A rough day for the longs in the coffee market as a strengthening dollar and resolution of the truckers strike in Colombia caused a dash for the exit, with little support provided from industry who have attracted considerable attention for haven lost cover. The greenback steadied today on signs of improvement in the U.S. economy and while the Fed meets next week and there is little chance of a rate hike, the prospect of a September hike is gaining traction. The Brazilian real fell the most amongst all LATAM currencies as the central bank extended its intervention to weaken the currency. KC opened up at the high of 14695 (+10 on day) drifted sideways and was followed by fresh selling pressure as word spread of the resolution of the truckers strike, although it is interesting to note that while the truckers strike resolution was cited as a motive to sell, memory does not recall it being mentioned as a compelling reason to buy. The gap from July 8-11 was filled (14135-14485), yet rather than finding support into the gap, the market continued to trade lower as systems related selling became more aggressive and the recent sense of buying urgency was absent. As far as the week's trading rhythm goes, see below the CRB chart overlaid with KCU. Every picture tells a story don't it?
The COT report came in on low end of expectations with non-commercials net long 36,489 lots.
New York coffee traded quietly lower in its first four hours today, light sell stops triggered below
yesterday's lows before all the market's participants were paying attention. A Bloomberg article
announcing the end of the 45-day Colombian truckers' strike then sent prices sharply lower, 6½¢
lower three hours hence, fueled by stops below the chart gap that had been holding up the
The government and the truckers' union reached an agreement on cargo prices and the gradual
removal of old vehicles but failed to agree on toll road and fuel costs.
September finished in its bottom quarter (23%), down 4.95¢. Volume was twelve percent above
average at an estimated 43,582 lots including an estimated 682 EFP's, 46 EFS's, 420 TAS and
12,833 spreads. 6,513 calls and 7,311 puts also traded. The KCEU6-LRCU6 arbitrage: 60.25¢-
4.36¢. Ratio: 1.7429-0.0407 €: $1.0957-0.6%. BRL: 3.2794/$-¼%. CRB: -½%. Crude oil: -½%.
S&P500: +0.4%. Open interest: 186,248-266 (50-day stochastic: 58%; 125-day: 47%).
September London (LRCU6) settled in its bottom quarter as well (24%), down thirty dollars.
Volume was thirty percent below average at an estimated 11,050 lots including 3,179 spreads
and 499 EFP's. 385 calls and 775 puts also traded. Open interest: 104,651+1,436 (50-day
stochastic: 46%; 125-day: 17%).
Brazil's national supply agency, Conab, estimates that privately-held stocks of coffee in Brazil
totaled 13.6 mln 60-kg bags at the end of March, down from 14.4 mln bags at the end of March
2015. Arábicas totaled 12.5 mln bags, conillons 1.12 mln.
Mild to cool conditions will prevail this weekend over Brazil's coffee belt, but conditions will be
warmer over the following week to ten days. World Weather, Inc.
According to the CFTC CIT Supplemental Report non-commercials were net buyers of 1,174
lots from July 13th to the 19th, holding a net long position of 36,489 lots. Commercials bought a
net 907 contracts during the same period totalling a net short or 75,995 lots. Index Traders sold
822 contracts being net long 33,011 lots.
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