Arabica lost 90 points, closing 123.30 on the final day of November. Prices again narrowly pierced the 61.8% retracement before running into resistance, and selling across Ags suggested a possible spec unwind of a cross-product strategy into month end. However, relatively heavy selling just after 11am found no follow through and rather than post a disappointing collapse, KC regained its footing and saw a final print only 90 points off the intraday high. While spreads weakened down the curve the worst intraday losses were avoided and HK fell 15 points to -1.80 and HH slipped 80 to -7.55. Focus continued to be largely on diminished expectations for the 21/22 Brazil crop and it bears reminder, as cliché as it might be, that these are futures contracts. With record prices prevailing through this past August, eclipsing the prior record set in March (KC2, BRL adjusted), unusually large selling forward has been recorded while availability may be pared more than originally expected, lightening longer term hedge pressure. A fresh article made the Bloomberg main page just before the market closed casting a further spotlight on Friday’s driving story. Whether this becomes the prevailing narrative will be determined in the coming days and weeks; in the more immediate term a clear area of technical resistance has built and pending inventories continue to increase – another 5760 bags coming into Antwerp today for a grand total 99,985. Of the 430 unique lots graded in November, 328 passed for a 76.28% effective rate. 402 lots passed on cup either on initial or appeal, which is higher than the total 328 lots certified, which implies that color must have been the sole source of rejection for some of the coffee. Robusta lost $10 to close 1401, equal in percentage terms to KC.
Arabica gained 125 points on the day, erasing yesterday’s loss and adding two ticks for good measure, settling 117.15. Outright and option volumes were thin ahead of tomorrow’s holiday (2 month outright implied futures 13,099 vs 10 day avg 18,412, top Arabica option strike H 190 C 478x), but spread trading saw an uptick to a still quiet 8794x (3500 more than yday) after the past 2 days’ unusually low interest. Ags were broadly weaker, particularly softs where Sugar, Cocoa, Cotton, and OJ all fell on the day, making KC as an outlier for the session. The BRL gained 1% and the DXY weakened .25% adding some support. Price action was choppy; flat during the “pre-(imaginary) pit” hours, strong during the opening US trading, aggressively sold to intraday lows at 11am, and a climb back late. A report from Ihcafe pegged Eta/Iota damage risk between 119k to 413k bags in Honduras depending on how the next 30 days go, but by and large the commercial sentiment was unmoved by the forecast. Certs fell 846 bags, 2 lots of Honduras, one of Nicaragua, while there were no gradings. Robusta gained $13 to close 1366 as Jan became the spot contract. 1097 Conilon were issued to clean up the books on the last day for Nov deliveries. Structure was steady, FH +2 to -10.
Arabica lost another 115 points to settle 115.90 as volume continued to thin out as expected before Thursday’s holiday. Futures were up early before slowly weakening until 10am, albeit holding yesterday’s low. A rebound back into positive territory for the following 45 minutes buoyed sentiment, but it would not last and targeted selling on the closing window sent futures to a low for the day, 115.60, on just over 1000 lots of outright trading in the 2 minute period. While futures rebounded to positive ticks within 30 minutes, the damage was done and KCH realized a 3rd day of lower closes and lower VWAPs. Trendline support was held, major moving averages remained away (except the 9 day, which KC closed below for a 2nd consecutive session), and the 1 year 50% retracement emerged as fresh technical resistance. KC2 also closed down a YoY basis. Volumes were light, total volume down 4k lots on a 10 day average, and spreads turned over a new low since March of 5286, roughly 900 below yesterday’s measure that was a low until today. Options saw better action than yesterday, but were still led by a relatively paltry by historical “top of the ticker” standards 811x F 145 C while falling 2k lots in aggregate below the 10 day average. Certs recorded an interesting report, increasing 9858 bags of Brazil, yet only passing at a 57.6% rate. Month to date Brazil inflows have totaled 105,533 bags – 36,457 more bags than have ever been in the stock prior to this year. 667 bags of Hondos and 370 Mex left the tape. Robusta meanwhile was under consistent pressure for much of the day, with commercial selling leading the way. RCH futures lost $25 to close 1353, while FH backed out to -12, -3.
Arabica closed the day 75 points lower at 112.20, ending a 6 day streak of positive closes to close out an otherwise mostly positive week. The high fell 10 points short of yesterday’s, while the low fell 10 points below, technically an outside day reversal yet in the most subdued way possible. On the weekly chart KC held a higher high, higher low, 2nd positive weekly close, and remained above the recent downtrend. Volume was almost exactly half of the prior session’s, predictable after the index roll wound down. Z/H weakened 10 points to -2.95, a 52 week low, and underlying Honduran (and Rwandan) draws pair off against the expected inflows from Brazil. Invest 98l has become TD31, and will likely become Storm Iota by end of day, and even as it follows Eta to Central America, ever closer to harvest, there was a collective shrug from the market. Robusta held in better, 1410, -3, boosted by the relative strength in F/H (-9s, -1change). Typhoon Vamco should bring the “last surge of excessive rain to Vietnam” in the words of Drew Lerner over the weekend. The robusta COT showed the commercials flipping back to a net short while Managed Money covered a net 1626 lots in a fairly neutral report. The Arabica COT will be released Monday due to the Veterans Day holiday in the US.
Arabica rose to 110.00, gaining 45 point and closing just off the 110.30 high posted in the dying moments of trading. After yesterday’s disappointing session coffee again confounded, printing its low just after 8am and hovering about for the following hour. Spread volume spiked higher on Day 3 of the index roll as ZH closed unchanged at -2.70 on a strongish 14,940 lots, yet HH lost 15 points to -8.75. Another disturbance has emerged in the Caribbean which has a high >70% chance of cyclone formation over the next 5 days. This follows the devastation of Hurricane Eta which Central America is still dealing with. Certs rose 6080 bags, all Brazil, and it will bear watching whether this coffee is ultimately called upon to replace Centrals due to logistic delays if nothing else. Brazil now stands as the second largest contingent of Ice inventories at 103,729 bags, passing long time backbones Mexico (72,682) and Peru (78,053), a remarkable if anticipated rise from a mere 650 bags to open September. London gained $19 in strong trading, closing 1366. X again saw no tenders while certs rose 132 lots and another 125 were successfully graded today.
US election day trading was predictably volatile, buoyed early by risk on trading and aided to some extent by weather risk in Central America, while the 345 point rally at the high was undone in part by a rapidly weakening BRL as swap rates rose. KC futures ended the day 103.45, +.65, and while media reports credited Hurricane Eta, an “extremely severe hurricane” in the words of the NWS National Hurricane Center which is poised to move ashore in Nicaragua today and through Honduras in the coming days, commercial traders widely dismissed significant risk to the coffee crops based on both timing and perceived storm track. While humanitarian concerns and risk to infrastructure were the primary points of worry, NOAA flagged “A ridge to the north of Eta should steer the cyclone on a faster westward to west-northwestward heading over northern Nicaragua and Honduras over the next couple of days.” Whether this weather risk or the dollar / commodity trade was the bigger positive input early can be argued, but in either case the rally was fleeting. The BCB released its meeting minutes, with COPOM warning of potential risk to its low interest rate regime. The committee stated “that changes in the fiscal policy that affect the public debt trajectory or compromise the fiscal anchor would motivate a reassessment, even if the spending ceiling in nominal terms is still maintained” (Bloomberg reporting). Volumes were a bit above recent trends by all measures as KCH is poised to move into active contract territory ahead of Friday’s index roll commencement. Z/H weakened a tick to -2.60, accounting for the entirety of the 5 point loss in Z/Z (-9.30). Certs were unchanged as pendings rose to 70,744, +5763. There were no gradings. Option volume was dominated by low cost upside expression (Z 110 C, 2375x and F 115 C, 550x) and CSOs (ZH -1.00 C 2000x, ZH -2.60 Straddle 1200x, HK -200 P 1100x). London fell $15 to 1327 while F/H backed out $4 as well to -13. Gradings totaled 188 lots, split amongst Amsterdam, Antwerp, and London, all Conilon. There were no tenders.
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