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Arabica coffee futures for December delivery lost 290 points to settle at 150.15 cents a pound. Volume reached 29,311 lots, including 6,173 switches. The nearby December –March switch widened 5 points to end at -3.35 cents. Good activity was noted on the Dec 150 and 140 Puts. The price action discouraged long players after good the initial rally failed, triggering the speculative liquidation during the drop. In realated news, Vietnam’s 2015/16 coffee exports hit a record 1.75 million tons, according to the government. Meanwhile, Guatemala’s coffee exports are expected to hit 3.1 million bags for 2015/16, higher than last year’s 2.926 million bags. From a macro perspective, the uncertainty in the global and political environment seems to keep markets on edge.
London Market- Although subdued in volume and price action for much of the day, a final hour rally in London resulted in a dynamic finish to the session. Light origin selling, though scattered, was present through the day but not at significant enough volumes to push values lower. Buy stops on yesterday’s high at $2004 pushed values to fresh highs for the week and last week’s high at $2028 becomes a new short term target to the upside. Options activity continued to feature with 404 lots of the March 1950/Jan 1800 put spread traded at $60 while a further 404 lots of the Jan 1700 put were bought at $5 as downside protection maintained the attraction of participants. Open interest in the Nov 2000 call remains at 3,970 lots, acting as a magnet on the outright futures market.
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Arabica Coffee futures ended slightly lower, with the December contract losing 60 points and settling at 153.10 cents per pound. Overall it was a calm session in which the “C” contract traded in negative territory for most of the day before finding good support on the 152.15 area, where the 20 day moving average and the Fibonacci retracement build a good base. The volume reached 28,647 lots, including 6,822 switches. On the fundamental side, Honduras is expected to increase their production for the 2016/17 season to 7 million bags with exports around 6.4 million bags for that same season. The US dollar started the session higher after a notable durable goods economic report, however it ended the session lower vs the BRL and the COP after the Energy Information Association showed a withdraw of inventories of 1.9 million barrels for the week in the US and a surprising announcement from the OPEC members during their meeting in Algeria stating that they will cut their daily collective production from 33.24 million barrels to 32.50 million barrels. The oil cartel will set production ceiling per country during their next meeting in November. As a result, oil settled almost 5 percent higher pushing the dollar lower.
London Market-Values in Robusta continued to drift as a lack of turnover failed to generate significant momentum in either direction. An early breach above the psychological the $2000 barrier offered the board the opportunity to test the upside, only for the gains to be undone by weakness in New York. Values proceeded to edge lower for much of the balance of the afternoon, pressured by a stronger dollar. Traders seem to be on the hunt for ‘safe havens’ outside of equity investments right now and the greenback is an obvious choice. With 30 minutes to go it seemed as if the low volume was going to translate into lower prices. Not so. As the selling thinned a rush of short-term trader short-covering in both markets saw London trade back to unchanged by the close. Nov/Jan weakened slight to end the day trading -22 while Jan/March remains firm around -8. Options activity simmered, with out-the-money puts still the focus as funds look to protect long positions. Arabica coffee futures finished higher Monday, recovering from early losses. The most active contract for December delivery settled 215 points higher at 153.55 cents a pound. Prices were under pressure early due to specs liquidations following Friday’s action. The COT (CIT supplemental) report showed non-commercials adding 1,791 longs for a net total of 39,951 appeared to influence the initial selling as well. The non-commercial categories added 5.7 %, and now are holding the largest net long position since March 2008. In related news, COOXUPE, the largest coffee coop in Brazil announced they estimate the 2016-17 Brazil coffee crop at 52 million bags, compared to CONAB’s latest estimate of 49.64 million bags.
London Market- It may be the start of the week but Robusta just could not get going today. A lack of fresh fundamental or macroeconomic news doing little to help. The board did gain a little ground against Friday’s settlement but the lack of volume (the second lowest this month) tells its own story. Support was found via arbitrage traders as Nov/Dec values narrowed a further cent to 61.35. Funds continue to seek downside protection against longs via the Nov 1800 put with another 300 purchased at $4 today. This week’s COT figures showed the funds to have added a further 998 lots over the reporting period. The net managed money position now stands at 37,076 lots long. This is smallest week/week gain in the managed money position over the last month, suggesting the fund’s appetite for Robusta may be on the wane. A brief rally attempt in New York coffee at the start of active trading fell one-half cent shy of unchanged whereupon the market shifted fortunes and fell the rest of the session. We closed 3¼¢ from the day's high, below yesterday's low. The 9-day smoothed slow stochastic slipped back into sell mode confirming a bearish divergence on the recent rally to seventeen-month highs.
Daily uptrend starting on 17-August will be at 150.25¢ in December NY on Monday. 1-June uptrend at 144.57¢. November London 31-August uptrend broken today. 18-August uptrend at $1898. 5-April uptrend at $1834. December New York (KCEZ6) settled near its low (3%), down 3.90¢. Volume was 7½% above average at an estimated 33,849 lots including an estimated 1,326 EFP's, 69 EFS's, 173 TAS and 8,238 spreads. 4,527 calls and 3,972 puts also traded. The KCEZ6-LRCF7 arbitrage: 61.48¢. Ratio: 1.6817. €: $1.1235+¼%. BRL: 3.2368/$-½%. CRB: -1.7%. Crude oil: -3.8%. S&P500:-½%. Open interest: 183,771+4,518 (50-day stochastic: 79%; 125-day: 56%). November London (LRCX6) settled in its bottom quarter (16%), down thirty-six dollars. Volume was ten percent below average at an estimated 12,689 lots including 4,434 spreads and 398 EFP's. 505 calls and 1,245 puts also traded. Open interest: 118,008+2,681 (50-day stochastic: 100%; 125-day: 83%). The Brazilian government sold all 69,670 bags on offer at yesterday's auction of official government coffee stocks. No rain fell in Brazil coffee production areas Thursday and today will be mostly dry. Showers will develop from Rio de Janeiro to Cerrado Mineiro Saturday and shift northward Sunday through Wednesday of next week. Most of the shower will stay light and should not induce any significant flowering. - World Weather, Inc. CFTC reports that large speculators were net buyers of 1,791 lots of Coffee “C” in the week ending September 20th leaving them net long 39,951 lots. Large hedgers sold 1,885 leaving them short 84,240. Index traders sold 363 lots ( long 39,803). Small traders bought 457 lots (long 4,486). John Bernardi Coffee never stood a chance today following a technical breakdown yesterday, a weak global investing environment, and a reinvigorated Bear. Roasters took advantage of the sell-off to add some much needed cover, though it seems that by and large most are willing to wait for a marginal move lower still before stepping in more substantially. Origin was steadily active pricing as reports of good physical activity is related by the trade. Robusta also featured an outside day low as the arb came in a bit in what must be a relief to those who have built a position based on the relative physical balance sheets in each market. The weakness in the London market does however serve as a reminder that it oftentimes has a difficult time separating itself from its sister market. For all the relief some are expressing in the relative weakness of the last two days, KC did nonetheless manage to hold above the uptrend line of support and mid Bollinger bands while still gaining 225 points on the week. There are always two ways to view a market’s performance, and with today’s COT number showing an increase in both longs and shorts, one wonders how much this will shade thinking coming in Monday morning.
A tremendously dull day was marked in Robusta, with Arabica posting dreadful volumes through 12:30 EDT on a small rally as a strong BRL encouraged an already quite long spec community to add. However, with London closed, KC dramatically found its mojo as 3000 or so lots in Dec traded in a 2 minute period as prices rallied 300 points, taking out the 3/8ths retracement in the process. While peak prices would not last through settlement, an impressive +400 day was put in the books as KC2 settled at its highest level since Feb 18th. Tomorrow morning’s Conab report, due for release around 8am NY time, should not be an opinion forming event for discretionary traders familiar with coffee, however it remains to be seen if outside forces or algos pick up on potential out-of-line numbers. The true events of the coming day are the twin decisions of the US Fed and Bank of Japan, which should combine to provide a dynamic macro trading environment. Reports abound of heavy physical volumes continuing to trade in Brazil with soft differentials. It now bears watching when this manifests in substantial futures flow.
On a background of concern over the crops of Brazil, Vietnam and Indonesia, New York coffee futures traded strongly higher for the second straight day today fueled by buy stops at sixteen-month highs in Dec16 futures, at nineteen-month highs on a second-month weekly basis. The rally began slowly at the opening of the active trading period (post 8 am NY time), adding about 2½¢ to yesterday's close, then accelerated shortly after the London market closed, adding the final three cents of the move in one three-minute period.
December New York (KCEZ6) settled eighty percent to its high, up four cents. Volume was fifteen percent above average at an estimated 35,646 lots including an estimated 634 EFP's, 74 EFS's, 645 TAS and 9,671 spreads. 4,361 calls and 5,920 puts also traded. The KCEZ6-LRCF7 arbitrage: 64.95¢+1.28¢ . Ratio: 1.7246+0.0157. €: $1.1156-0.2%. BRL: 3.2527/$+0.6%. CRB: +¾%. Crude oil: +1.1%. S&P500:+0.1%. Open interest: 180,960+1,866. November London (LRCX6) settled in its lower half (36%), down five dollars . Volume was nine percent above average at an estimated 15,150 lots including 4,125 spreads and 1,665 EFP's. 3,200 calls and 1,678 puts also traded. Open interest: 110,445-916. ICE Europe reports that commercial traders were net sellers of 5,574 10-tonne lots of robusta coffee in the week ending September 13th increasing their net short position to a record 42,222 lots. Managed money was the biggest buyer at 3,952 lots, increasing their net long position to 36,078 lots - 1,993 lots shy of the record long position of 38,071 lots set on 7-August-2012. ICE Europe commitments of traders data goes back to October 2011. The European Coffee Federation estimates that coffee stocks in Antwerp, Bremen, Hamburg, Genova, Le Havre and Trieste rose 17,461 tonnes (2.4%) in June to 742,142 tonnes. The biggest increases were in Hamburg (+9,339 tonnes +7.4%), and Genova (+8,390 tonnes +7.8%). Stocks are 38,476 tonnes (5.5%) higher from 703,666 tonnes in store one year earlier. Hamburg was up 21.5%, Genova up 83%. John Bernardi Arabica coffee futures rallied Monday as concerns over a possible deficit could continue for the next season. The contract with most of the activity gained 4.40 cents to 152.80 cents a pound. Volume reached 27,593 lots, including 3,058 switches. In options, significant volumes were traded on the December 160 and 170 calls, (750 and 825 lots, respectively). With ending inventories at low levels, Brazil will be dependent on the current crop to keep export commitments. Despite this is an "on "crop year, some weather problems have deteriorated the crop. The situation of the conilon is also worrying. Little of no rains in the Espiritu Santo areas, erode the outlook for the crop. In other factors, dollar weakness helped the commodity complex, as probability for a rate hike during the September FED meeting is only 12%. Participants will follow press releases closely looking for any indication for the December meeting. A constructive December chart in the coffee market attracted speculative buying. A strong bounce from 148 make the prices poise to test the recent highs at 155.70-157.75.
London Market- A fresh wave of fund buying into the commodity basket propelled the Robusta market to post new highs for the year. A subdued morning was a continuation of last week’s limited flat price activity although the presence of fresh buying raised levels through the previous 2016 high at $1947. Further speculative activity followed as the States came online, eroding moderate origin selling which had been resting above the market, having been absent throughout the passive close to last week. This week’s COT report showed a further 3952 lots added to the managed money net long as both fresh longs and short covering were present. The merchants’ net short increased a further 5574 lots to 42,222, as 12,997 new short positons were reflective of origin sellers becoming interest as the values continue to rise, outpacing fresh roaster fixations. Further downside protection continued to trade, as 1000 Jan 1800 puts were bought at $24 with a 17% delta hedge at $1979. TO HIKE, OR NOT TO HIKE, THAT IS THE QUESTION
The day after tomorrow, Wednesday September 21st, the FOMC finishes its meeting and market participants see only a 20% chance of a hike to happen, according to Bloomberg. Several analysts share the opinion that a move before the US-presidential elections will not happen and the bets for a December increase of interest rates are fairly divided 50/50 (give or take). Interestingly though a couple of weeks ago Janet Yellen and two influent governors of the FED used words that were read as if Sep meeting was a “live” one, therefore if the “normalization” does not take place, at least a more hawkish speech can be expected. That being said, if a non-hike is priced at such high levels it seems to me that nothing but a negative outcome will be the result for risky-assets on Wednesday afternoon, likely to firm up the US dollar. Tomorrow the Bank of Japan will be the first test for investors on its decision of offering further stimulus, or not. Equities in the past five days went south while commodity indices today gapped up as the week started with the Dollar Index losing ground. Coffee in New York had a technical break-out after holding last week above key support levels (a delay response on the sugar rally from Friday as well?!). Robusta prices resumed the uptrend being at shooting distance from 2000, good news for coffee holders. Fundamental Focus London coffee is making sequential new recent highs just before the start of the Vietnamese crop, a move that is more in line with most of the bullish stories that run around in regards to global Supply and Demand. The spike on prices comes in good timing, although it would be better if it can be sustained and carry on for another 2 months when availability will increase from the largest producing country of this variety. Worries on the situation of the north of Espírito Santo have not diminished, with several players thinking that next year crop is very unlikely to recover in volume, while some think it is better to wait a little to have a better idea. Certified stocks for ICE robusta are at 2.3 mln bags, not a lot but might not change much with the arrival of new coffee in the market. On the arabica front the light amount of rains that have been fallen in Brazil and the forecasts of a wetter end of September / beginning of October are not making many nervous about a potential upside move in the market (reason why we saw the board quickly rallying: a contrary play?). Inventories in general at consuming countries are not changing much, still at historical high levels, argument that bears use a lot along with the tepid demand seen from roasters. Shipments from Brazil, Colombia and Vietnam are healthy in numbers feeding end-users/traders; one more reason that does not help bears to make a case and buy the market (yet?). Exports in Vietnam in the first eleven months of their crop year, Oct-Aug, are up 33% from a year ago, running at 26.8 mln bags. Brazil exported 2.69 mln bags in August, a number likely to be revised upward according to CECAFE, and the shipment pace in September suggests an even higher figure. Colombia shipments in August were also large as delays that took place in July during the trucker’s strike boosted up the number a month later and likely will not to fall too much at the last month of their crop-year. The flow of coffee in the local markets that have beans available have been good, with Brazil seeing Co-ops releasing quite a bit of coffee, which allows exporters to extend their coverage. If the rain season arrives with no delays in the major origin one could expect farmers to be more willing sellers as warehouses are being reported to be full at most producing regions. ICE arabica certs that back in March during the NCA conference were at 1.46 mln bags are now at 1.26 mln bag, a lot more than the thought (back then) that we would see it closer to 1 mln bags (round number). In fact those following the daily warehouse reports released by the exchange see new coffee being certified – no home found for it? Looking at the COT reports the commercials have caught up a bit on their buying and have also added more selling in London, or an increase of 7,423 lots on the long side and 12,997 lots on the short column. Managed-money is getting longer, being now 36,078 lots net-long. In New York commercials liquidated longs and shorts, while non-commercials reduced only 559 contracts of their longs to 38,160 contracts. The BRL and the COP appreciated slightly in the past sessions, but not as much as the “C” has rallied therefore more selling can be found on new gains of arabica prices. The performance of currencies will add gas to make the technical picture more positive or attract profit-taking, with central banks dictating the tone. I am flying to London tonight to participate, as a panelist, on the ICO Consultative Forum on Wednesday. For those attending I will see you there. Technical Focus After several days failing to sustain intra-day gains, but only sliding lower a couple of points NY broke a key-resistance settling near the high today and it seems ready to test 155.70 on the December16 contract. If it makes a new high the next upside target will then be 157.65 and 160.60. Support areas are at 149.60, 147.40 and 146.60. London November16 has resistance at 1979, 1992, 2000 and 2019 while support levels are at 1924, 1889 and 1872. Have a good week and good trades, Rodrigo Costa Arabica coffee futures ended with little change at the end of another quiet session. The most active contract for December delivery settled at 148.40, 50 point s lower. Volume reached only 12,000 lots including 1,778 switches. The absence of fundamental news and any significant technical development cause the lack of participation. The dollar was firm against the main currencies; however a firm real discouraged coffee sales. The real reversed earlier losses, as positive sentiment was generated by President Temer’s veto salary increases of some public workers. Other Latin American currencies, the Colombian and Mexican pesos were down more than 1 percent as commodities prices fell. During the week, prices finished 235 points lower, consolidating near short term moving averages during the latter half of the week.
London Market- Options drove the majority of noteworthy action in London as a further subdued session drew the week to a close. Values fell $6 off the opening bell responding to final hour weakness in the ‘C’ contract last night. Dollar strength, aided by U.S consumer prices increasing more than previously expected, prevented any significant tests to the upside. Exposure continues to be built around the Nov 2100 call where 1000 lots traded at $13, which will be of significance if the market continues to test further highs. Conversely, downside protection remained of interest to participants with an additional 800 lots of the Nov 1800 put traded at $12. |
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