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Arabica produced a 4th consecutive day of higher settlements, staging an impressive comeback in volatile trading. Focus remains on interest rates as an early morning Stanley Fischer interview on Bloomberg media dominated the headlines for much of the day. However, while the day was clearly macro driven through roughly noon EDT, KC seemed to separate from everything coincident to an impressive rally on the London close. Good size clips of support were visible on the screen in RC, and it wasn’t long before a determined buyer carried Robusta roughly $10 higher in the dying minutes. Arabica maintained that momentum for the following hour, turning recent shorts into buyers while posting the day’s high in the final 20 minutes. With a vote on Dilma Rousseff’s impeachment expected tomorrow, perhaps expectations of a short term rally in the BRL were a motivating factor, though the late day weakness in the currency would indicate such a motivation would constitute a fairly large risk. Arabica still seems to lack significant hedge flows, while intraday movements appear to be driven by outside factors, some more obvious than others, leaving both origin and industry with decisions to make.
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After rallying one cent in the first ten minutes of active trading, but falling more than a cent short of yesterday's high, New York coffee sold off steadily over the next two-and-one-half hours pressured by continued U.S. dollar strength and on calls for rains in Brazil later on this week. We fell 3½¢ from the high, fueled by stops at 3-day lows then reversed direction, rallying all the way back, actually taking out the early high by one-quarter cent in the last twenty minutes.
December New York (KCEZ6) settled near its high (91%), up ninety-five points. Volume was thirty-three percent below average at an estimated 26,362 lots including an estimated 867 EFP's, 31 EFS's, 242 TAS and 6,172 spreads. 3,095 calls and 2,514 puts also traded. The KCEZ6-LRCF6 arbitrage: 60.93¢+0.05¢. Ratio: 1.7312+0.009. €: $1.1140-0.4%. BRL: 3.2549/$-¾%. CRB: -0.9%. Crude oil: -1.2%. S&P500:-0.3%. Open interest: 163,896+230 (50-day stochastic: 2%; 125-day: 1%). The market has been stuck for the last four days in the range set on August 24th - 147.80¢ to 142.25¢ in the Dec16 contract. Look for movement in the same direction upon breaking either of these levels. November London (LRCX6) settled in its lower half (43%), down three dollars Volume was thirty-seven percent above average at an estimated 20,918 lots including 7,260 spreads and 3,739 EFP's (1,699 Sep16, 2,040 Nov16). 275 calls and 665 puts also traded. Open interest: 112,302+2,335 (50-day stochastic: 89%; 125-day: 34%). ICE Europe reports that commercial traders were net buyers of 2,808 lots of Coffee "C" in the week ending August 23rd cutting their net short position to 27,665 lots. Managed money sold 1,701 lots reducing their net longs to 23,984. Swap dealers sold 804 lots (short 7,014). Other reportables sold 656 lots (long 8,350). Mon-reportables bought 353 lots (long 2,345). Two cold fronts will bring rains to southern and western Brazil over the next seven days. Parana and western São Paulo to get 20-50 mm through Monday. Extended forecasts point to rains continuing at least through first-half September. - Somar Meteorologia John Bernardi KC was on its own today as robusta was closed to celebrate a bank holiday. Early weakness prevailed for the first 90 minutes of trading before the market turned sharply higher, trading +240 and +235 points intraday over roughly a 2.5 hour period. Interestingly coffee seemed to follow sugar more closely than anything else, with the BRL correlating well, yet lagging the commodities themselves. Sugar, Coffee and OJ spent much of the day amongst the best performers in an otherwise bumbling commodity complex, and while the several of storms in the Atlantic basin could provide a theoretical support to OJ, the lack of reaction in crude suggests otherwise. Perhaps more relevant is the status of Brazil as the top producer of all three softs on a day when Dilma Rousseff defends herself on the stand during what should be the final salvo of the seemingly endless impeachment process. The COP fell around 1% as GDP rose 2% YoY in the 2nd Quarter, the slowest rate of growth since 2009 while the central bank balances the attempts to stimulate the economy, while inflation is at a 16 year high.
Weekly Coffee Perspective – Aug 29th to Sep 2nd of 2016 – Week 35
TALKS OF EARLY FLOWERING AND WORRY ABOUT CONILONS The implied chance for a FED interest rate hike in September is now at 42%, up from 22% ten days ago and from 0% the day after the Brexit vote. Last Friday speeches from Janet Yellen and Stanley Fisher paved the way for the normalization of rates on the next FOMC meeting, which will happen on September 21st. While employment and inflation are near the goals of the committee, most analysts doubt on a move to take place before the US elections, but it seems like few are in doubt that until December the rates will go higher. The DXY had a strong trend reversal on the last day of the Jackson Hole event, but today it did not have a follow-through. Risk-assets pared gains with commodity indices suffering the most, as the S&P500, Dow and Nasdaq are up as I write. Coffee in NY remains more volatile comparing to London trading towards the vertex of a tringle formation. The influence of the greenback remains quite significant – as it has been the case for a very long time. Short-term action will depend on the capacity of the market to break above US$ 150.00 cents/lb or below US$ 135.00 cents/lb. Fundamental Focus A strong “C” rally a week ago on apparent fear of a cold night in Brazil waned after no damages were reported. The following day comments from local analysts in Brazil mentioning about a premature flowering that shall take place this week in some producing areas, after recent showers, trimmed the gains and triggered specs to liquidate some long bets placed early in the week. An outside reversal-day was just a bear trap with the performance of the last two sessions being choppy. The CFTC report did not surprise showing non-commercials increasing their long side by 3,711 lots and adding 308 lots to the short column. Commercials reduced longs and shorts, most likely a reflection of spread liquidation. Producers and natural-buyers seem to be closer to selling and buying ideas on the flat price, not the case yet on the FOB markets. Looking (again) at the commercial-gross-long on the COT one would think that coffee-users are not worried about seeing the market being resilient to trade back down to levels seen on the first half of the year – the position is the smallest one in two years. On the bearish side the bets have to be on Brazilian farmers to be more aggressive sellers if the flowering turns to be good, or mild-producers to participate more actively on the sell side of the market once they have coffee available – historically though the later argument tends not to materialize. One other wild-card would be for Dilma not to be impeached, which would take the BRL back to 4.00 – again a very unlikely turn out. I guess next week, when most trading desks will be fully staffed after the summer holidays, everyone will sharp their pencils to adjust their books and get ready with revised future prognostics that will serve as a base for next year budgets. The current perception is that no matter what the 17/18 Brazilian arabica crop will be smaller after a bumper 16/17, the doubt is on the conilons, which has an explosive potential if the North of Espirito Santo suffers with lack of rains. Internally in Brazil the peak of pain from those short-differentials might be already behind us and if farmers keep dosing their number of bags released the basis could get firmer, even more if the BRL goes to 3.00 as some economists are suggesting. The availability of the spot markets at the consuming countries will be the buffer in between, and for that matter the bears argue that there is not only a significant availability of green beans but also of final products. Currencies seem to be where we could see something coming from to take these markets out of past two months’ range. Technical Focus A move above US$ 150.00 cents on the “C” December16 contract shall attract more buying while a break below US$ 135.00 cents will force some long liquidation (the triangle I mentioned on the first long paragraph). If tomorrow the market manages to close above 146.90, sustaining the following day, it might enough to call some speculators to the buy-side, but apparently origins will participate, therefore a good buying appetite will be needed. On the downside a settlement below 144.85 shall trigger some light sell-stops with bigger ones likely to be under 140.00 cents. November16 in London has the first resistance at 1828, followed by 1855 and 1876, while support levels are at 1793, 1768 and 1760. The long awaited Fed Symposium comments from Janet Yellen were largely a confirmation of the previous endorsements of the overall health of the US economy, though as expected little clarity on timing for a hike emerged. Coffee clearly reacted to the news, treading a familiar path alongside the DXY, and BRL specifically, for much of the remainder of the day. While the news was modest and commercial traders seemed altogether disinterested in the intraday fluctuations, the outside influence remains stark as exhibited in the graph below. Late session defense in both markets was apparent, as robusta dropped for 3 minutes before rallying back higher for the final 3. KC meanwhile completely disengaged from the currency trade for the last 15 minutes of the day, working its way out of negative territory and back into a positive close. KC has now ended the rout of 5 consecutive weeks of lower highs and lower lows, posting a reversal on both sides of the weekly chart. With a range of Fed officials’ commentary now behind us, and relatively low expectations for September rate action, perhaps the market can turn focus to other topics. However, with one more week of summer vacations ahead of the ceremonial, if not technical, start of fall in North America, it may yet be another week until focus returns.
New York coffee rallied steadily through the first hour of active trading, trading to within thirty points of a three-week high, then fell sharply under the pressure of a strong U.S. dollar, over four cents from the high. We bounced back a bit at the end, but still closed well off the highs (a bearish long upper shadow) and below yesterday's high.
The U.S. dollar rallied after Fed chair Yellen said that arguments for a second increase in short-term interest rates have strengthened amid firm jobs growth in the U.S. December New York (KCEZ6) settled in its lower half (37%), up forty points. Volume was thirty-one percent below average at an estimated 27,567 lots including an estimated 722 EFP's, 1,739 EFS's (1,733 Dec16), 123 TAS and 3,660 spreads. 3,285 calls and 3,971 puts also traded. The KCEZ6-LRCF6 arbitrage: 60.88¢-0.02¢. Ratio: 1.7302-0.0071. €: $1.1207-0.7%. BRL: 3.2616/$-0.8%. CRB: -0.1%. Crude oil: +½%. S&P500:-0.7%. Open interest: 163,594+168 (50-day stochastic: +0.7%; 125-day: +½%). November London (LRCX6) settled three-quarters to its high (75%), up $22 dollars. Volume was eleven percent above average at an estimated 16,849 lots including 6,134 spreads and 547 EFP's. 225 calls and 385 puts also traded. Open interest: 109,967-465 (50-day stochastic: 76%; 125-day: 29%). Vietnam will export 140,000 tonnes of coffee in August, the General Statistics Office estimates, up 51% from 93,000 tonnes last August. Jan-Aug exports are up 39% year-on-year to 1.26 mln tonnes. El Salvador exported 55,438 60-kg bags of coffee in July, the Salvadoran Coffee Council reports, up 70½% from 32,512 bags in July 2015. Oct-Jul shipments were down 28% from one year earlier to 413,959 bags from 571,803. CFTC reports that large hedgers were net sellers of 3,502 lots of Coffee "C" in the week ending August 23rd increasing their net short position to 69,142 lots. Large speculators increased their net long position by 3,403 lots to 27,832. Index traders bought 1,343 lots (long 36,083). Small traders sold 1,245 lots (long 5,226). The London coffee market will be closed on Monday, August 29th for the Summer Bank Holiday. The New York market will open 3¼ hours later than usual, at 7:30 am ET. Rodrigo and I will in the office. John Bernardi The commodity complex was under pressure from the start as interest rate hike anxieties again drove the dollar higher and emerging markets and other risk assets lower. Coffee managed to follow other softs upward by mid-morning during the Americas session, but the rally was short lived amidst low market participation, and the high was in place at 8:30 EDT. Spread volume was light, and options in particular suffered a particularly cruel fate as Oct vol closed the day offered around 26%. Crude and the CRB fell precipitously in unison at 10:30 am upon the release of DOE statistics which reflected across the board increases in inventories and falling US refinery utilization of -1%. Coffee was insulated from the broad move lower, which afflicted cocoa not long after, and it appeared that an inline decline with the broad CRB was likely. Intriguingly KC collapsed in dramatic fashion as soon as Robusta closed on far and away the best trading volumes of the day. A brief recovery effort was staged, yet a reclaiming of value was not to be, as the market closed below the 5, 26, and 50 day moving averages. Sentiment has bent negative in the past few days, and it seems most discretionary traders are still focused on macro cues that should be forthcoming in Chairwoman Yellen’s comments Friday.
After taking out yesterday's high by a single tick in the first half hour of active
trading, New York coffee was on the defensive the rest of the way. The London market peaked about an hour after New York but fell seven dollars short of yesterday's high. London fell sharply just after its settlement period to trigger stops below yesterday's low. New York than took the baton, increasing the day's loss by over 2½¢, trading 5¢ lower on the day. December New York (KCEZ6) settled near its low (15%), down 4.15¢. Volume was thirty-three percent below average at an estimated 27,236 lots including an estimated 491 EFP's, 106 EFS's, 212 TAS and 5,568 spreads. 2,100 calls and 1,286 puts also traded. The KCEZ6-LRCF6 arbitrage: 63.22¢-1.12¢. Ratio: 1.7701-0.0084. €: $1.1269- 0.4%. BRL: 3.2269/$+0.2%. CRB: -1.4%. Crude oil: -1.7%. S&P500:-0.4%. Open interest: 164,169-637 (50-day stochastic: 0%; 125-day: 0%). November London (LRCX6) settled in its bottom third (31%), down eleven dollars. Volume was fifty percent above average at an estimated 22,498 lots including 6,637 spreads 623 EFP's and 4,500 EFS's - 2,250 Sep16 and 2,250 Jul17. 200 calls and 486 puts also traded. Open interest: 109,928-2,132 (50-day stochastic: 76%; 125-day: 29%). Uganda exported 268,490 60-kg bags of coffee in July, the Uganda Coffee Development Authority reports, down 33% from 403,381 bags last July due to massive flower and berry abortion caused by dryness. That brings the total shipped in the crop year to 2.82 mln bags down from 2.85 mln bags one year earlier. August exports are expected to be down as well, 265,000 bags from 320,289 in 2015. Mild to warm temperatures and minimal rainfall will dominate coffee production areas in Brazil during the next week...There is no threat of frost. - World Weather, Inc. John Bernardi Another First Notice Day in the books with a relatively small number of certs crossing primarily from one hand to another. Thin OI effectively ensures small intrigue going forward in notices. KCZ posted a 4th consecutive day of higher highs & higher lows on pitiful volume that more than one trader termed “boring” over the course of the session. The dollar may have provided some support, while a weak BRL did little to encourage sellers either of the hedge or system variety. Robusta suffered spotty participation as well, however in the absence of flow the market found itself posting an outside day reversal, closing $10 lower. The CRB was firm as expectations for imminent action by the Fed were tempered ahead of comments from Chairwoman Yellen, who is currently attending a global summit in beautiful Jackson Hole, Wyoming. Several market participants released comments of varying substance, yet all were taken in stride and seemed to continue the trend of having little impact on KC prices. It will be interesting to see what, if anything, motivates traders as the larger markets await further insight on interest rates.
New York coffee traded in a range 1.40¢ either side of unchanged, closed near its high, above yesterday's high. London coffee opened above yesterday's high, fell to take out its low, finding support at the middle of last Thursday's active range. The action of the past three days is fully contained in the upper half of Thursday's - $1768 to $1845.
538 notices were issued against Sep16 KC on first notice day. Societe Generale Americas Securities (SGAS) issued them all, Abn Amro stopped 455 lots, SGAS 67. September New York (KCEU6) settled 89% to its high, up 1.20¢. Volume was forty-four percent below average at an estimated 22,817 lots including an estimated 397 EFP's, 8 EFS's, 354 TAS and 3,972 spreads. 5,839 calls and 3,418 puts also traded. The KCEU6-LRCU6 arbitrage: 63.61¢+2.01¢. Ratio: 1.7830+0.0281. €: $1.1310-0.1%. BRL: 3.2238/$-0.7%. CRB: +0.7%. Crude oil: +1½%. S&P500:+¼%. Open interest: 164,806-1,719 (50-day stochastic: 0%; 125-day: 0%). September London (LRCU6) settled in its upper half (60%), down eight dollars . Volume was thirty-seven percent above average at an estimated 20,542 lots including 7,606 spreads and 2,045 EFP's. 1,400 calls and 150 puts also traded. Open interest: 112,060-1,630 (50-day stochastic: 88%; 125-day: 33%). ICE Europe reports that commercial traders were net buyers of 3,827 lots of robusta coffee in the week ending August 16th reducing their net short position to 30,473 lots. Swap dealers increased their net short position by 2,162 lots to 6,210. Non-reportable traders cut their long position by 1,223 lots to 1,992. Other reportables sold 741 lots (long 9,006). Managed money bought 299 lots (long 25,685). Cooxupe commercial superintendent Lucio Dias told Bloomberg News that members of its cooperative did not report any frost in their coffee areas in Minas Gerais on Tuesday. Somar reported that weak frost may have affected some Brazil coffee. John Bernardi |
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