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Arabica coffee futures fell Thursday on speculative selling. The most active contract for December delivery closed 85 points lower at 128.50 cents a pound. Volume was 24,842 lots including 3,099 switches. The session was slow, with little commercial participation. Participants continued to follow closely the weather forecast in Brazil, which have been very dry during September, but rains are expected across the region by the end of the week. SOMAR is forecasting heavy rains for the main coffee producer areas while CROPCAST projection is for rains below normal. Despite that some pictures have been circulating recently showing some coffee plantations affected by the dry weather, experts consider that it is too early for assessment of any damage. Tomorrow we can expect some book squaring ahead of the end of the month. Dollar fell 0.2% today after the recent rally. Crude oil reversed from fresh highs, ending $0.53 down at $51.92 per barrel.
The lows of early September remain intact for now as values failed to drive through $1914 despite the presence of follow through selling across the early part of the session. An air of bearish sentiment was apparent before the opening as traders’ digested final hour weakness in New York yesterday evening and an early breach of $1945 attracted fresh technical selling. A stagnant U.S Dollar eased the system selling pressure which has been a feature of previous sessions, as values began to run into resting commercial buying ahead of the nearby lows. A failure to breach $1914, coupled with an intra-day recovery in the ‘C’ contract saw early shorts scramble for cover in London which went on to close around unchanged. Technicians will look at the price action of the session positively as we head into the final session of the week, noting a ‘hammer reversal’ on a candlestick chart. Good options volume traded once more with 1000 lots of the Jan18 2000/1800 fence (to the call) trading at $20 with a 64% delta hedge at $1920.
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Arabica Coffee Futures for December delivery found support near the 130.00 level on Tuesday, settling up by 70 points at 132.25 cents per pound. Volume was moderate, trading 25,241 lots, including 3,032 switches. Prices traded in positive territory throughout most of the session, supported by a strong Brazilian real. Short term correlation between the Brazilian currency and coffee prices seems to be correcting towards positive levels. Support near the consolidation area of late August/early Sep held the market. Lack of follow-through to the downside prompted some short covering. US Fed Janett Yellen’s comments regarding the possibility of a more hawkish monetary policy propped the dollar higher, limiting coffee’s upside, ahead of Thursday’s GDP figures. Throughout the next few days, end-of-quarter book squaring can bring volatility to global markets. From a technical standpoint, short term indicators suggest a possible near-term correction, although the longer-term outlook remains negative.
The Robusta market in London had a quiet session. The active November position settled $7 down at $1,999 per ton. The volume just above 7,000 lots and the small range of transactions reflected the lack of business. The structure continued with backwardation up to March, with the active Nov/Jan adding $1 to end at $25 premium. A total of 50 delivery tenders were issued last night, for a total of 648 for the September delivery. Arabica coffee futures closed lower Monday as weather services continued to forecast above normal rains across Minas Gerais, Sao Paulo and Parana in the 6-10-day period that should improve soil moisture and trigger the flowering. Over the next week, computer programs are expecting more than 70mm in Parana and Sao Paulo, and 30 mm to 50 mm in Minas Gerais. Usually during September, rains average 62 mm. According to SOMAR, rainfall so far in the main areas have been nil. The most active contract for December delivery settled 290 points lower at 131.55 cents a pound. Volume reached 26,797 lots including 3,233 switches. A firm dollar contributed to add weight on the coffee prices. The dollar rose 0.53% after the German election result, that could set a possible uncertainty on the political outlook. The euro fell 105 points to EURUSD1.1843. Technically, the December chart shows a very weak action for the coffee prices. A gap after breaking the recent consolidation makes the market vulnerable to test the recent lows at the 127 level.
A narrowing arbitrage and the emergence of technical support around $1990 meant outright values failed to track weakness in New York and remain operational around short term averages once more. With Friday’s release of the London COT report showing only a minor increase to the managed money net short position, early scrutiny remained on the macro following overnight Dollar strength. Initial weakness in the ‘C’ contract failed to spill into Robusta as the Dec/Nov arb narrowed further, trading into 41.50 cents. Trend line support was uncovered at $1990 basis Nov17, a level which coincides with the 38.2% Fibonacci retracement of London’s move away from the lows at $1914. With technical support standing firm, early shorts covered towards the close, as London went out broadly unchanged. A narrow daily trading range leaves mid-term parameters intact for now, with technicians looking for a settlement either side of last week’s double high at $2038 and short term support at $1963. Arabica Coffee Futures fell sharply on Tuesday. The active contract for December delivery fell 5 cents, settling at 135.35 cents per pound. Volume reached 40,253 lots. The weakness began early, as technical participants took profits after yesterday’s sell signal. Weather reports forecasting rains towards the end of the month in most of Brazil’s coffee areas prompted liquidations. The coffee market rallied significantly over the past two weeks on strong technical performance, weather worries, and a weak dollar. The same factors are lining up to reverse the recent rally. Bearish short-term indicators, and dissuaded weather worries in Brazil have corrected the market to the downside significantly. Tomorrow the US Fed will publish their interest rate decision. Although no change in interest rates is expected, hints of future rate hikes could be enough to give support to the oversold US Dollar.
London tracks weakness in New York following easing fundamental concerns out of Brazil, to slip back towards the middle of short term trading ranges. The fallout in London over the previous couple of weeks has largely neutralised the speculative position in the market and the lack of participation at current levels meant values struggled to match the volatility of the ‘C’ contract. Light commercial buying chipped away following a move through yesterday’s lows, although many believe it will take a move back towards the annual lows to draw significant volume, with good levels of coverage having previously been extended. Nearby structure defied weakness in the outrights to drive higher throughout; the Nov/Jan strengthening $13 into $25, the highest levels since the beginning of the month. Short term support has emerged around $1963-$1968 and participants will look for a convincing settlement below this if London is to re-test the mid-term target lower at $1914. Arabica Coffee Futures settled lower on Monday, with the active contract for December delivery falling 1.05 cents at 140.35 cents per pound. Volume increased to 40,645 lots. Resistance was found near the 200-day moving average (143.45), and failure to break through prompted liquidations. From a technical standpoint, today’s negative settlement marks a reversal day on the chart. Confirmation would consist of a consecutive negative day, which could be enough to invert mid-term oscillators. In fundamental news, the dry conditions in Brazil continue to worry participants. Dry weather is expected to continue across Brazil's coffee belt for the next 6-10 days. On Wednesday, the US Fed rate decision might bring volatility to the commodity and currency markets.
Arabica Coffee futures broke through the 140.00 resistance level today, extending the seven-day rally. The active December contract settled 375 points higher at 141.40 cents per pound. Volume reached over 30K lots. Open interest decreased 3,670 lots during yesterday’s session to 200,573 open contracts. During the week prices increased 10.80 cents, helped by dry weather in Brazil, with little rain forecasted in the northern areas. A weak dollar pushed commodity prices higher, adding to the bullish sentiment. The IBGE revised their estimate for Brazil’s 2017-2018 crop 1.1% higher from last month’s estimate to 47.8 million 60-kg bags. GCA inventories fell by 147,285 bags to 7.26 million during the month of August. Historically, inventories increase over 120,000 bags or remain with minor change during the month of August.
A favorable macro and further momentum fueled buying in New York failed to spill over into London outrights values closed the week under pressure. A widening arbitrage weighed down on flat prices once more as the Dec/Nov widened to 50 cents, the widest levels since early May 2017. A void of resting commercial buying saw values drift lower with London unable to re-test the option strike at $2000 despite afternoon Dollar weakness. With London having traded an inside week, mid-term parameters remain intact. Participants will look for a settlement above $2030 in order for origin selling to re-enter the fray following a quiet week from the Asian markets. Reasonable volumes of front month exposure are to be carried into the second half of the month with the 56 lots tendered yesterday proving to be the only deliveries of the week. The market will maintain a close eye on the nature of the delivery period with the Vietnamese harvest approaching ever closer. Arabica coffee futures settled lower for the first time in six sessions, after rallying over 12 cents. The active contract for December delivery settled 20 points lower at 137.65 cents per pound. Volume reached 27,468 lots. Dry weather in Brazil continues to push prices higher, reaching 139.25 cents per pound for the December contract. From a technical standpoint, today’s new high and negative close, and plateauing oscillators in overbought territory might prompt some technical profit taking. Resistance remains in the 140.00 area and support in the 133.00 area. In macro news, US inflation beat expectations, yet the dollar weakened against major currencies. The BOE left their interest policy unchanged. Dollar index fell 0.39%, the British Pound strengthened 1.41% against the dollar to GBPUSD1.3395, and the Brazilian real strengthened 0.57% to USDBRL 3.117. Crude oil prices increased 0.64% to $49.66 per barrel.
The volatility of recent weeks seems to have subsided for the time being as outright values look to establish a short term range following the aggressive move lower. A widening arbitrage maintained a lid to London’s upside potential with the Dec/Nov trading through 48 cents, a movement of over 6 cents wider throughout the course of the week. Commercial support has backed away for now, with many looking for a test of the annual lows at $1892 to re-engage, with the industry having extended good levels of coverage throughout the move lower. Open interest changes have stalled over the course of the week with much of the volume attributed to intra-day traders; a failure to break through yesterday’s lows at $1968 saw shorts scramble for cover during the latter part of the session as London went out broadly unchanged. The September delivery month yielded its first tenders for the week with the 56 lots stopped taking monthly totals to 329 tenders and 4 re-tenders. A further 1359 lots of positions remain open in the front month. Arabica Coffee Futures extended gains on Wednesday, with the active contract for December delivery settling 280 points higher, or 2.02%, at 137.85 cents per pound. Active buying began at the open, constantly reaching new highs throughout the session. Prices have recovered over 10 cents since the recent low on September 6th, 126.75. However, open interest is nearly unchanged from Sep 6, 206,646 lots vs 205,989 at today’s opening, suggesting an offset between new and established positions. Volume reached 35,478 lots including 4540 switches. Dry weather in Brazil, strong technical performance, and a bullish sentiment in the commodity complex continue to add fuel to the rally in coffee futures. Crude oil gained 2%, reaching $50 per barrel in the December contract. From a technical standpoint, breakage of the 50% Fibonacci retracement now sets up the 140-psychological resistance level as the next objective for the December coffee contact; support remains in the untested 133 area. Divergence between coffee prices and the Brazilian real continues, while the USDBRL weakens 0.3% to 3.1334.
An encouraging performance in London sees values bounce away from recent lows, defying afternoon Dollar strength to re-test the physiological $2000 barrier. Last night’s encouraging settlement in New York resulted in a more positive tone at the London opening with values largely holding an upward trajectory thereafter. A move through nearby resistance at $1986 attracted technical buying into Robusta, although only a move back to the option strike at $2000 attracted scatterings of Asian selling. A lack of sustained origin pressure has accentuated this impulsive move away from the lows at $1914, although technicians will look for a settlement above $2030 to confirm this move as more than corrective action. Nearby structure attracted reasonable turnover with the Nov/Jan weakening into $12 premium despite the flat price strength. The Jan/March strengthened $3 into $6 premium with the Nov/Jan/March fly narrowing $6 having settled at $12 Arabica Coffee futures extended gains on Tuesday, settling 2.33% or 3.20 cents higher at 135.05 for the active December contract. Volume reached 33,146 lots, including 861 switches. Prices began the session under pressure, and consolidated slightly higher in the morning. Forecasts of dry weather and below normal rainfall in most of the coffee belt attracted a wave of speculative short covering, which pushed coffee prices to the recent highs and resistance levels. Breakage of the 132.50 strike price and the 134.35 Fibonacci retracement level activated defensive buying, helping December prices settle near the highs. In related news, the IBGE increased the 2017-2018 Brazil crop estimate by 1.1% to 47.8 million bags. Estimates of Arabica coffee production increased by 0.4% from last month, now pegged at 37.4 million 60-kg bags.For Robusta (conillon), the estimated production of the country is 10.4 million 60-kg bags.
Nearby support remains intact as London fails to drive lower following yesterday’s weakness into the close. Flat prices responded to strength in New York to push higher although further widening of the arbitrage limited Robusta’s upside potential. A lack of commercial interest on either side of the market did little to encourage turnover throughout the session with London’s volume the lowest since 01 September. With the market consolidating following recent heavy action, good volumes of options have traded on either side of the market. January attracted much of the volume with 1500 lots of Jan 2000 calls trading at $61 whilst 1000 lots of Jan 1950 puts traded at $95. Open interest at the Jan 2000 call stands at 1050 lots with 500 lots of Jan 1950 puts currently open. London closed lower despite the perceivably bullish COT number, but we’re still $37 off the low, and above the lower Bollinger band at 1928. We’re still within the support band here, and it looks like Arbitrage activity may hold the key for future price action. If fresh Arb is really going on, with the short leg going into the Nov, then perhaps this will keep the Nov/Jan structure steady as we go forward.
Arabica – what to say? We firmed to settle above 131 despite earlier scares that saw us drop to 129.75. Early indications suggest that the damage from Irma in Miami and Jacksonville warehouses is light / non-existent, but we should receive further confirmation of that later this afternoon. It’s the first time we’ve had 3 positive closes since the 9th August. Expect support on a pullback into and around 130 (the 20 day MA is around 130). Note – it continues to be very dry in Brazil. In fundamental news, there’s a couple of headlines to analyse this morning. Firstly : “Indonesia Coffee : Arrivals seen lower as middlemen keep supply”. Bloomberg report that Robusta bean arrivals to warehouses in Lampung have dropped to 950 tonnes last week from 4,000 tonnes a week earlier. Supply is very tight as middlemen are holding on to stockpiles waiting for the prices to rebound. Farmers probably hold around 10%R of beans from this year’s harvest, according to Anton Firmansyah – head of ICEA in Lampung. The second headline of note was “Vietnam Coffee Stockpiles seen tightening, traders eye new crop” – Bloomberg report that farmers in Vietnam probably held around 2 percent of the 16/17 harvest or about 29,200 tonnes at the end of August, that compares with 10 percent of the crop a year earlier. Stockpiles have dropped after rain through Dec and Jan hurt production and damaged the quality of the beans. Current reserves are the lowest since Oct 2010 and may shrink further according to RCMA. Currencies (Bloomberg) GBP – 1.3209 EUR – 1.1975 BRL – 3.1029 DAX +0.35% WTI -0.04% |
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October 2018
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