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Arabica recorded the dullest trading day in months, yet captured the elusive-of-late positive finish, closing 111.15 +.65. Following yesterday’s consolidation signal, futures posted an inside day, the first since September 11 which was coincidentally the last time KC managed a positive close. The settle was indicative of the day, less than 2 ticks off the VWAP in Dec & March. Volume was light – the lowest since … September 11th – in total exchange traded futures, and the outright implied futures total was the lowest since Aug 24th. Price largely took its cue from the DXY on a twitchy FX trading day, with intraday dips in KC lining up with the dollar’s pushes higher. Weather may have been a factor in keeping new selling at bay as a high pressure ridge is forecast to keep rain at bay for the next 10-14 days with hot temperatures prevailing in Brazil. ZH gained a tick to -1.70, continuing to tell a different cert story than the narrative does, while ZZ gained 45 points to -6.55. Certs fell 1122 to 1,103,566. Pendings rose 2750 (all in Germany) to 10,436. No coffee was graded. Z 120 C led the option volume board at a mere 648 lots. Robusta gained $3 as well, closing 1352. U/X is effectively finished after a long journey, with the single lot of remaining OI trading out at a $58 premium.
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Arabica closed down 15 points, settling 110.50 basis KCZ in a mixed day of trading. Early returns were negative and futures chopped around in minus territory until a burst of buying broke KC out of its rut just before 10am EDT. Interestingly that rally came right as the BRL and DXY were both giving bearish inputs to coffee, and KC continued to trade in opposition to the FX for the next 45 minutes. Volumes were staid, with KCZ implied outright the 2nd lowest in nearly two months (Sept 3 and then Aug 28th lower), total exchange volume was a touch below normal (1300 lots below 10 day avg), yet 19k+ spreads traded, about 700 more than the 10 day average. While KC2/KCH broke through the swing low / approximate double bottom at 112.15/112.20 convincingly intraday, the 112.25 settlement was a tick above yesterday’s low and above that level. This set up a long-legged doji formation, an appropriate sign of indecision and a possible (but not conclusive) sign of impending consolidation. Given the competing factors in the market and apparent unwillingness of roasters to catch a falling knife, indecision seems accurate. Spreads were slightly stronger, with ZH up a tick to -1.75 and ZZ 15 points tighter at -7.00, tightening yield ever so slightly even as flat price fell. Certs fell 1100 bags, all in NY, while pendings rose 1925, also in NY. London performed better, gaining $8 to close 1349 as it never suffered the late selling that befell KC.
Arabica was unable maintain its early gains off yesterday’s marginally positive performance, wasting what was at one point a 280 point rally to settle down 145 points at 110.65. FX was surely a weight as the BRL lost 1% and the DXY gained .35%, however the dampened sentiment of traders and lack of urgency on the part of roasters hardly provided a bullish platform. In the process of selling off the KC2 200dma was taken out, while the swing low of 112.15 held by a sliver, forming an effective double bottom with today’s 112.20 low in KCH. Should that fall as well, the 110.90 and 110.10 levels, again basis KC2/KCH, would be the next obvious levels of support. Some silver linings emerged, as volume fell on the day and the VWAP for the session in the active KCZ was actually higher than yesterday’s albeit by the slimmest of margins, 111.94 to 111.92. The swing low did hold for the day, and spreads resisted further material weakness (ZH -1.80, +.05, ZZ -7.15, -.05). The yield was basically unchanged and post-close certs were revealed to have fallen another 3003 bags with all 2199 new gradings failing to pass muster. The 1100 in NY would appear to be a LatAm mild of some sort, while the 1099 bags in Antwerp are not an easily divisible number by typical Brazilian standards – the focus of market scrutiny. London lost $6, closing 1341, holding the August 11th settlement low by $4. While the chart looks better than New York’s, it will need to build on today’s moral victory to avoid damage. XF fell $1 to -16. Certs fell another 4 lots after yesterday’s 22, yet month to date are up 48.
Arabica fell another 185 points to close 118.00, a 1485 point loss with a day left in the week, and the 2nd worst performer on the day amongst major commodities. Outright volume was similar to yesterday (estimated 18,309 lots in the 2 most active contracts), while spreads took a step back at 18,008. Prices were heavily influenced by FX during the North American trading hours, although as KC hovered near the high and a potential move into positive territory on the day a spike of selling sent futures spilling 145 points lower. The settlement window was driven by sell side flows as well, and while KC went out on the bell without the recent post-settlement selling, it also did so having disconnected from what had been constructive USD & BRL indicators. Z/H managed to close a tick stronger at -1.65 after trading as low as -1.90, however the 1 year ZZ fell to -6.65, 20 points weaker. Certs were unchanged, however 1140 bags graded all failed as pendings declined 40 bags; NY added 1100 to the queue. Robusta continues to trade steadily, falling $5 to 1387. U/X saw renewed strength with a week left before the end of notice period, closing at 99, +12. OI is winding down with no new gradings and 111 new Conilon deliveries overnight. Tomorrow is last trading day in KCU. Oi there stands at 113 lots.
Coffee suffered heavy losses to open the week, falling 940 points to 123.05 and printing a low of 121.65 in the final 30 minutes of trading. By % today’s loss was the largest of the past 10 years, falling 7.1% (just beyond that window is the next largest percentage decrease, 8.08% on Aug 24, 2010), and the 18th largest drop by value in the past decade basis settlements. Early declines were manageable in reaction to the hefty spec length (largest net long managed money position since Nov 2016) and the appearance of rain in some of the forward forecasts for the Brazilian coffee belt. While the prior presence of longs on a weather thesis is of some debate, it is possible that higher confidence in a normalized picture gave license to some speculative bears who had been waiting for such a forecast to sell. At 9:34am the 3 successive waves of selling arrived, sending prices plunging from 127.30 to 123.75 on around 2300 lots in a 3 minute period (1700 estimated outright / non-implied lots, 125.90 VWAP). Recent spec longs as well as some bulls who had recently found the market a bit toppy sought the exit, preferring to wait for better opportunities ahead. Notes of concern from non-Brazil origin managers were sounded with respect to stability of the internal markets. While the chart saw damage, taking out any number of support measures; trend lines, moving averages, 61.8% retracement of the 1 year high / low, etc, the Brazil vs Certified stock story remains unresolved, and dual notes of caution may be warranted on behalf of euphoric bears. The mentioned August 2010 8% selloff saw a new low the following day, yet took off from there en route to a $3+ market half a year later, and didn’t retrade those lows until May 2012. While that certainly would be the base case of few or any, it is illustrative of the potentially fleeting nature of such dramatic price action. Separately, while certs rose 70 bags as a container of Uganda in Antwerp passed 250 bags of Hondurans in Germany like ships in the night, the real intrigue may have been in the grading data. Those 320 bags of Ugandans were the lone passing lot of a total 2929 bags graded, an 89% failure rate. Whether the bulls or bears ultimately prove right is unknown, but there will likely be no shortage of agita for each in the coming weeks and months. Meanwhile, Robusta fell $46 to 1387, proving unable to keep pace with KC both directions. The arb tightened to 60.14 in the process.
Coffee futures slumped 325 points, settling 128.85, and in what has become an increasingly relevant factor due to final hour jockeying, posted a final print of 128.00, 40 points off the day’s low. Yesterday’s cert draw was modest, and early returns on the spread were tepid. Origin hedging seems to have slowed a touch while roasters remain skeptical. The Dollar was an early weight, yet by 9am EDT both the DXY and BRL were increasingly positive tactical trading indicators. Nonetheless, in what should have been a subdued yet upwardly mobile trading environment, particularly taking into account the decreased volume on the day, futures peaked by 8:30 and began a steady decline for the rest of the day. The weakness was perhaps not as pronounced as on first glance, as yesterday’s settlement was not indicative of the day’s trading. The VWAP on the day was down a mere 30 points from 130.00 to 129.70. Z/H widened 15 points to -80, and the full year ZZ widened to -3.90. These are strong levels within both historical context and in terms of cost of carry, while the roll yield is a tight 3%, yet the direction of the move seemed to be taken negatively as bearishness in some corners (and fiercely debated amongst the trade) grows around Brazilian diffs. Certs recorded another strong draw, falling 28,081 bags, while pendings rose 1415bags to a total 4344. 275 of those were in Houston and were presumably aged Centrals or Colombians, leaving 1140 unaccounted for with no clear signals towards origin. Robusta was steady on the day, managing a positive performance on late buying (and a stubborn intraday bid) while closing 1416, +5. Certs rose 59 lots in London, equivalent to yesterday’s grading, have increased a net 118 lots MTD.
Arabica bounced back from early session lows and woes to settle 132.10, -1.90, though the final print was 131.60 leaving tomorrow’s start in a hole. Volume was hefty by all measures, appropriate given the 720 point range. Futures opened the day on the back foot and embarked on a descent with scarcely any arrest before 8:15am EDT. Newly inflamed tensions between the US and China played a key if indirect role as risk came off and the Dollar rose. Commodities as a basket fell, though by end of day Ags and Precious Metals were back in positive territory. The DXY gained .75%, and the BRL traded a 5.317 to 5.408 range at the time of writing, with a similar rounded bottom and recovery on the intraday chart. While the mid-morning 680 point loss was mostly recovered, KC managed to hold trendline support and the 9DMA. Option volumes were huge, totaling 17,883 as both the Z 160 C and Z 110 P were boosted above 1500x each via their inclusion in packages. Cert fell 250 bags while pendings rose 1280 bags to 2929. London traded a quiet day having done a fair bit of its selloff yesterday losing $16 to close 1411. Certs were mixed with 590 tons passing grading (Conilon in Amsterdam, 430 of them Class 1), yet a 440 ton cert decline was posted.
Arabica lost 10 points on the day to close 131.30, consolidating just off the past 2 day’s highs. The early hours were dull, trading in a tight range around yesterday’s final print level and negative vs prior settlement. Shortly after 8am selling began to take control as a new low was printed. Rather than succumb however, KC shook off a strong dollar (+.5%) and weak commodity complex (BCOM -.9%, on energy and precious metals losses; livestock, industrials, and ags fared better) as a new high for the year was missed by a mere 60 points (basis KC2). The gains were fleeting, peaking at noon NY time, and declines mounted for a 2nd straight day post close, leaving the final print at 130.50. In aggregate the day could best be termed mixed as ZH lost 15 points to a nevertheless strong -0.50, Z/Z closed unchanged at -3.50, and volume was slightly lower than the past 2 days. The final print was coincident to the day’s VWAP. Some friendly news that while anticipated was nevertheless likely welcomed by the bulls was delivered both midday and post close. Honduran exports for August fell 46% YoY from 272,375 in 2019 to 147,497. Marketing YTD exports stand at 5.3M bags with a lonely month left before moving into the new crop cycle. Post-close another cert decline was reported as the stock shed 21,731 bags to a new low of 1,210,011. 1.2M has long been a number that has drawn a consensus view as “mattering,” at least by anecdote. Part of that decline may have been made of the mid-August damaged bags being removed from the stock as for the first day the caveat “The stock report includes 84,423 bags of Exchange certified coffee stored in damaged licensed stores in Antwerp” is no longer on the data release. Robusta fell $23 to 1440 while trading a lower low, lower high, lower close. Nonetheless the trend remains strong and well within the trend channel. U/X closed +90 in notice period where OI remains stubborn at 2451, while the active XF closed unch at -8.
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October 2020
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