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KC (111.40 +.95) started the week with a bounce after trading to the highest level (113.40) since the 11th of July on the back of a constructive COT report and weaker dollar which proved supportive to the commodity sector. The dollar softened amidst growing expectations that central banks outside the U.S. will be less accommodating as prospects for growth improve and the Commerce Secretary reminded traders that US-China trade issues remain yet to be resolved. The COT report was bullish at face value, as the non- commercial gross and net short for a 4th week running reached another record. Whether today’s bounce was courtesy the COT report or due more to the weaker dollar, the days pattern suggests more credit is due to the greenback, as the market opened up trading lower on the day and captured a more aggressive bid as currency markets traded in earnest. Short term systems stops were triggered through the prior week’s descending highs and Brazil was noted taking advantage of the best intraday bounce since the 6th of July. Robusta traded a virtual triple bottom at 1647-48, and, while it bounced $23, it also backed off to settle plus $7 at 1660 basis the September contract.
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KC fell 145 points to settle at 109.55 while Robusta lost $28MT, settling at 1652 basis the new front month September contract. Funds continue to pressure KC and industry take on additional cover as a matter of course, while discretionary specs largely stood aside. The low for the day (109.25) coincided with London’s close as Robusta traded an intraday bottom of 1647, -$33 during the settlement. The BRL, which rallied yesterday yet failed to inspire upside in coffee prices, fell by 1.2% today and proved true to form in influencing the downside. Open interest grew by another 1,093 lots, its 7th consecutive increase. Much anticipation ahead of tomorrow’s COT if only for little else to get excited about. Let’s hope that changes soon.
A COT induced bounce to start off the week saw KCU settle at 111.65 plus 100 points. The net non-commercial short position at a record 86,413 lots exceeded all but the most ambitious of estimates. The gross long decreased by 8,131 lots and is at 35,545 lots, the smallest it has been since last December, while the week over week decrease was the biggest since April of 2017’s , 13.464 lot drop. Since the week ended June 5th , the net non-commercial position has increased by a staggering 49,041 lots. Sentiment alone brought out discretionary specs, especially early on, as the high of 113.00 ( +235) was in place by 8:06 a.m. before excitement and prices started to fade, with the low of 110.70 a mere tick above Friday’s settle posted at 12:52 time. Origin hedging interest started to emerge as prices climbed to a 7 session high, while greater expectations for the day left quite a few offers unfilled. KC2 has a rollover gap below from Thursday’s 109.45 high to Friday’s low of 111.55 which tempers some of the C.O.T. prompted excitement. There were 752 notices issued in London which brings the interesting July delivery total to 902 lots. DFU settled plus $3 at 1686, while the high of 1689 was the closing print of the day.
Arabica fell just shy of the week’s high yet posted an encouraging close nonetheless, settling 110.65 (+1.85). The day’s trading was very clearly macro influenced, with Presidential considerations on two continents pushing KC higher. The BRL continued yesterday’s late day rally, trading a 3.75 handle in an impressive turnabout as the centrist - and market friendly - candidate Geraldo Alckmin consolidates support for a run. The apparent deal to unite support amongst the five centrist parties will boost an allocation of airtime approaching the election. The USD did its part as well, falling to 94.5 on the index as President Trump granted an interview to CNBC in which he expanded upon yesterday’s disapproval of higher interest rates, following up with tweets to amplify the point and simultaneously signaling support for a weaker dollar. Robusta closed higher as well – albeit in slower trading allowing 1.35c widening of the arb. Sept settled 1683, +11 with structure close to unchanged. July maintains 2000+ lots of OI as last trading day sits a mere 3 trading days hence.
Arabica closed the day 111.55, -.50 in relatively quiet trading with robusta the focus. London finally began the process of reaching a denouement, with 4510 N/U trading mostly at +100. The identity of the short is of keen interest, although mostly from a gossip mongering rather than trading perspective. With expectations of spread strength continuing into the near future 3900 U/X traded, closing +5 at +15. This provided some support to the flat price which settled 1681, +9. An unimpressive futures rally on the surface perhaps, yet when one considers NY’s performance the light in which it is painted brightens a bit. It will be interesting to see at what price the roughly 3000 remaining lots are cleaned up in N, and whether the exchange will allow a bit more upside for the long considering the dearth of stocks and the risk they have borne.
Arabica (114.80, -.25) closed a mixed day lower, yet posted a second higher high, higher low in the process while consolidating the prior two day’s gains. Discretionary buyers seemed emboldened, both speculative and hedgers, as roasters chose to extend already long positioning into shallow dips and trade/managed money/systems all contribute to the cause as well. Origin was noted in drips and drabs throughout – albeit in less than impressive volume from our vantage. Curious trading appeared moments before the settlement period as a 1000 lot sale overran bids ever so briefly. KC proved resilient however, with the final intraminute print a single tick above the initial price for good measure. Whether a statement trade, error, or clumsy execution will be forever unknown. The VWAP for the day matched the settle – both coming in at 114.80, 30 points above the final print. London closed the day up $10 at 1705 with OI remaining robust in the front month / delivery period July contract. Certs have ticked higher by a few lots in recent days and do not appear to be an exit plan. N8 traded a mere 2 lots on the day, both as part of the spread as the standoff continues. N/U settled +85, unch.
Expectations for another record large short positioning in Arabica against a backdrop of cooler temperatures forecast in Brazil allowed for futures prices to ascend on Friday, having made new contract lows in the very same session. Whilst commercially led buy interest had been noted over the last few sessions, the aggressor of Fridays move is likely to have originated from speculative short covering and options gamma trading. Robusta also saw steady buying for Fridays session allowing futures to retrace approximately 50% of Thursdays technical break lower. Despite this recovery futures did manage to achieve a new contract low earlier in the earlier session printing $1610 basis Sep18. Conjecture for both markets observed a broad expectation that shorts were somewhat over extended basis their percentage of exposure to open interest. Robusta spreads continue to command premiums as the market awaits to see how the July tender situation will be resolved, most hold expectations of increased Brazil grading’s, but the window for significant material to come to the board for Jul18 continues to shrink. The July /Sep subsequently broke higher printing +75. Sep/Nov continues to take heed of the nearby delivery month and is perhaps also somewhat steadied by the record short which is concentrated in the front month (assuming that this will have to be rolled or covered). Weekend weather reports on Sunday called for Brazil coffee producing regions to remain dry and warm, but this week’s temperatures should start to trend slightly cooler. Vietnam, Indonesia and Colombia will continue to receive periodic precipitation and thunderstorms. Remnants of Tropical Storm Beryl will yield moderate showers in areas from Puerto Rico to Cuba early to mid-week this week. From a macro perspective UK Brexit risk and trade war rhetoric has reared its head again this morning, following increased stress on British PM Theresa May. Oil prices rose on Monday as investors focused on tight market conditions after data late last week showed U.S. crude inventories fell to their lowest in more than three years. This rally appears to have shaken off worries that China could impose tariffs on US oil exports. The US Dollar was seen marginally weaker in early trade on Monday. The BRL could see increased volatility from trade war tensions and political upheaval after initial reports that former president Lula da Silva was to be released from jail. This decision was however quashed by an appeals court on Sunday. In this Sunday afternoon ruling, Judge Pedro Gebran Neto overturned the shock order to free Lula. Brazil judge blocks order to release of Lula from prison BRASILIA (Reuters) - The chief justice of a Brazilian appeals court blocked another judge’s efforts to release imprisoned former president Luiz Inacio Lula da Silva on Sunday, in a legal battle over the country’s most popular politician ahead of an October election. Polls suggest the leftist icon, who is in prison for bribery, could win a third term if he entered the race, but Brazilian electoral law forbids politicians from running for office within eight years of being found guilty of a crime. Still, an electoral court may not issue a final ruling barring Lula from the presidential contest until next month, creating a cloud of uncertainty hanging over the campaign. Sunday’s legal back-and-forth may encourage supporters holding out hope that he can still return to unite Brazil’s left. Appeals court judge Rogerio Favreto, who served in the Justice Ministry under Lula and was appointed by his handpicked successor, ruled earlier on Sunday that the former president should have the same conditions to campaign as other candidates. However, the chief justice of the TRF-4 appeals court, Carlos Eduardo Thompson Flores, granted a request from prosecutors to keep Lula in prison, blocking Favreto’s ruling. The former president is serving time for taking bribes from an engineering firm in return for help landing contracts with a state firm. He faces another six trials for other corruption allegations. Lula has denied any wrongdoing. In polling scenarios including Lula in the race, he wins more than twice the support of his nearest challenger. When he is left out, a third of respondents say they would spoil their ballots or leave them blank. hat has made it harder for leftist candidates such as former Ceara Governor Ciro Gomes to build momentum in a highly fragmented field. Support for former Sao Paulo Mayor Fernando Haddad would more than triple with Lula’s backing, lifting him to second in the race, according to a survey last month. Reporting by Lisandra Paraguassu and Ricardo Brito in Brasilia; Additional reporting by Eduardo Simoes and Ana Mano in Sao Paulo; Writing by Brad Haynes; Editing by Daniel Wallis and James Dalgleish Our Standards:The Thomson Reuters Trust Principles. Hedge Funds Boost Net-Bearish Robusta Coffee Bets to a Record (Bloomberg) -- Money Managers have increased their bearish robusta coffee bets by 1,137 net-short positions to 35,648, weekly ICE Futures Europe data on futures and options show.
Global Coffee Deficit Est. Raised to 1.4M Bags for 2017-18: ICO (Bloomberg) -- That compares with previous est. for a deficit of 254,000 bags and a surplus of 1.2m bags a year earlier, the International Coffee Organization says in report.
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November 2018
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