Arabica coffee futures closed modestly higher due to book squaring ahead of the end of the year. Weakness of the dollar contributed to the up movement. The most active contract for March delivery settled 195 points higher at 135.45 cents per pound. The speculative buying boosted prices at mid-session to post gains of 4.85 cents to a high of 138.35 cents. The dollar declined today after trading at a 14-year-high as investors rebalanced portfolios for the end of the year. The dollar index fell 0.3% today but still is on track for a total year gains of 3.0%. The real was firm, trading at USDBRL3.2498 or 331 points stronger. In related news, according with World Weather Inc., dry weather in the States of Bahia and Espiritu Santos in the past week and for the next two raised yield concerns. Rain fall average in the last seven days was 2mm in Bahia and 6mm in Espirito Santo. Meanwhile, the Brazilian meteorology service SOMAR expects rains to return in the first week of January.
London Market- Robusta drives $40 higher amid book squaring in front of year end and Jan17 first notice day.
Overnight offers out of Asia encouraged values to drop $8 off the opening bell through light volume. However, the early pressure subsided rapidly, leaving the short term speculative shorts dealing with stale positions. An initial wave of short covering from this sector pushed march16 into resistance standing at $2090, where a second tranche of Vietnam selling was found. The market then observed a brief holding pattern before stops were triggered first through resistance then $2100, eventually touching an intra- day high $2125. These levels attracted arbitrage related selling into Robusta which cooled the upside and prompted levels to set back $10 into closure.
Please note Robusta will close tomorrow at 12:23 pm U.K. time.
Coffee suffered one of the slower sessions as volume posted a 4th straight decline. Opening strength through the 145 level was short lived, as buyers took out resting offers yet no follow up emerged. The recent NY arrival hour selling again showed up on schedule, wiping out the small plus signs that greeted the western side of the Atlantic. The 143 level would find great interest shortly thereafter, yet it appeared few had much of an axe to grind from either side. As Dec went off the board in KC, spread interest was muted, matched by relatively low turnover in FH robusta as we approach first notice day with a spate of holidays on the schedule. One imagines the roughly 22k lots of OI that remain in the contract will fall precipitously with the traditional EFP next week, leaving one to wonder how much book squaring truly remains to be done. Options in Arabica featured little volume, while the 2200 / 2400 CS in Robusta again found 1000 lots of interest, this time in March. The BRL gained modestly following the BCB’s Ilan Goldfajn presentation of its agenda, focusing on four pillars of financial citizenship, modern legislation (reduced bureaucracy), a more efficient financial system, and costs of credit, as they seek to create interest bearing deposits.
Arabica coffee futures for March delivery settled 180 points higher at 144.25 cents per pound. The late rally on Friday continued today, breaking last week’s high, but failing to break the 145.00 level. Lack of follow-through prompted some short-term speculative short-covering, bringing prices down from the highs. Volume was moderate, as participants prepare for the holiday breaks. On Friday, the USDA published their biannual coffee report, noting that the global production for 2016/17 could increase by 3.7 million bags at 156.6 million bags, since the record Arabica production more than offsets the lower Robusta production in Brazil, Vietnam, and Indonesia. Global consumption was pegged at 153.3 million bags, while inventories in producing countries decrease to 5-year lows.
London Market- Despite Friday’s strong settlement, early indications were for a rather subdued day as the Christmas season starts to draw traders in Europe away from their desks. Early buying on the back of Friday’s strong settlement swiftly readjusted the tone but with the gains inviting scale up origin selling it still seemed as if any move would be limited. Not so. The release of the commitment of traders report appeared to confirm the market’s idea that recent fund liquidation has been met by solid roaster buying around the $2000 area and that in itself allowed the market to work off of a more solid platform going into the afternoon. Volume increased sharply as stops were elected through $2100, the swing higher generating a momentum that begun to feed on itself as intraday shorts rushed to cover. The Jan/March structure widened in line with the action on the outright, trading close to the recent high of $35 premium before settling back slightly into the end of the session. The technical ‘inverted head and shoulders’ reversal pattern on the daily chart now looks very much in play suggesting a minimum target to the upside of $2150 basis March.
Coffee posted a volatile day of trading, with KC opening down 125 points following the seemingly innocuous comments of Federal Reserve Chair Janet Yellen yesterday’s afternoon. While late day reactions in fixed income and the dollar were noted in yesterday’s coffee report, it seemed traders entered today with a renewed axe to grind as the “relative hawkishness” of the FOMC sent the DXY to 14 year highs, yields spiraling, emerging markets crashing, and commodities into a morning long tail spin. The crux of the argument seems to fall on Fed inflation expectations, and the potential for fiscal stimulus to drive them, which strikes many as an odd catalyst for lower commodities. While the macro bears & continued system sellers ran the show for much of the day, buyers emerged in the mid-morning (NY hours) to take advantage, and late day discretionary buyers asserted themselves eventually bringing the market back near the morning’s opening print. While we tend to focus on New York for little good reason, other than history and volume, even in a year when robusta has offered better fundamental intrigue, the same comments could be made for the robusta market’s price action today minus the opening crash. Once KC opened the pattern in the markets were remarkably similar, highlighting the interdependency of the two, while notably the closing London print offered some degree of vindication for fundamental traders.
For a third day KC suffered NY hour weakness as system sellers maintained their program, only to find support and a late rally to close the day in positive territory. Roasters remain engaged buyers, while origin is largely quiet, though Vietnam hedging was notable. KCH now sits in between the 50% (146.45) and more relevant 61.8% (138.65) retracement of the year’s low to high move, while the median price (139.30) and average (137.70) provide ample nearby theoretical support. The top story of the day was a continuation of yesterday’s rumors, and last month’s hot topic, of importation of robusta into top global coffee producer Brazil. Comments from Neri Geller, the policy secretary at Brazil’s Agricultural Ministry are mixed, as he suggests that “(Brazil) should open imports for a limited period, and for a limited amount,” while also stating no decision has been made as “we did not align on all the points.” Sentiment ranges from complete dismissal of a plan ever emerging to insistence that the ink on a deal only needs to dry. Wherever the truth lies, details are scarce as to quantity, permissible origins, and timing, to say nothing of more technical specifics. Perhaps the biggest news of the day was the Fed’s post-coffee market decision to raise interest rates by 25bps, while bumping 2017 guidance from 2 to 3 actions. While questions immediately turned to the question of whether fiscal policy plans played into the decision, and whether such policy could affect productivity, Ms. Yellen referred to the action as an expression of “confidence in progress” for the economy while noting the “remarkable resilience” exhibited by it. While stating that the decision should be taken as a “vote of confidence,” she also referenced the needs for increases in productivity leading to enhanced standards of living, which could be driven specifically by training and education, quality of capital invested, and innovation.
Arabica coffee futures consolidated higher on spec buying. The active contract for March delivery closed 85 points higher at 142.85 cents a pound. Volume reached 22,341 lots. In the options, 600 Mar 165/175 call spreads, and 400 plus Mar 160/140 fences traded. BRL and COP traded with little change. The market action was inspired by the yesterday bounce. With the market in oversold territory, a corrective up move is now possible. Investors in general are waiting for the result of today and tomorrow FED meeting. Financial markets are expecting a 25 bases points increase. Last increase was at the end of last year. Furthermore market participants will follow closely the language of tomorrow’s FED statement, which could indicate the trend for additional boosts of the interest rate. In related news, Brazil may allow green coffee imports, an official from the Agriculture Ministry said today. Last month rumors circulated that the government was discussing the re-import of Conillon stocks from European warehouses, however the idea was rejected after some phytosanitary problems aroused. Terraforte, a large coffee exporter in Brazil, said that their estimate of the 2017-18 crop will be published next January.
Values lifted $18 off the opening bell as a response to yesterday’s final hour rally in New York, with a void of selling failing to provide significant resistance. With commercial buyers continuing their recent support of the market, flat prices ticked higher, though failed to attract fresh longs following a temporary breach of the 50 day moving average at $2046. Price action stagnated for the remainder of the session, offering little change with sporadic origin selling providing a lid to the market, absorbing clips of commercial buying which remain prominent. The structure continues to provide the bulk of the volume, with the much maligned Jan/March trading a $13 range while the March/May weakened through reasonable volumes.
Options volume was generated through 550 lots of the Jan 2050/2150 call spread, bought at $31 with 198 Jan futures sold at $2060.
The bulk of the session traded in choppy 225 point , -55 to +170 (13880-14105) range, as systems funds remained engaged as sellers while discretionary paper and managed money traders, encouraged by Friday’s C.O.T report, tested the muddy waters on the buy side. The C.O.T. report revealed funds to be approximately 7,000 lots less net long than the estimates, and, while the number confirmed funds have liquidated to the tune of 35,000 lots since their record long exposure of 58,960 lots the week ended the 8th of November, the knowledge alone did not put an immediate end to already engaged chart inspired selling regimens. The action got curiously exciting during the final 13 minutes of trading as prices popped from 14105-14310, finally breaking the 8 days streak of lower highs, as selling dried up and end of day buyers emerged. Whether the first positive close in 6 days will be enough to turn off the relentless fund selling, and allow for a relief rally, while plausible, has plenty of disbelievers, but whether there is a heathy degree of skepticism, remains to be seen
Arabica Coffee futures followed a similar pattern to that of recent sessions, edging 30 points lower at 141.70 cents per pound for the March delivery contract. After opening 40 points higher, prices reached an early high, and consolidated lower in a relatively calm session. Participants await the incoming macroeconomic and fundamental events, with the EU interest rate decision tomorrow, and the Fed’s Interest rate decision the 14th of this month. On the fundamental side, Brazil crop estimates are expected this month, with IBGE’s crop survey tomorrow, CONAB’s final 2016-17 estimate on the 14th, and USDA’s biannual coffee report on the 16th. January option expiration on Friday will probably add some volatility, as speculators cover any open short positions with the respective futures. In addition, 500 lots of the Mar17 145.00 puts vs 145.25 with a 46% delta traded at 7.15 today.
London Market- The Robusta terminal drifted lower towards the psychological $2000 barrier, continuing to absorb roaster buying en route. With values little changed off the opening bell, early strength in New York saw prices lift through the early part of the session, attracting scattered origin selling. Any moves higher, however, proved temporary, with the ‘C’ contract unwinding its early gains and pushing London lower into the hands of commercial buyers, which remained operational in good volumes. Nearby structure continues to attract attention and provided the bulk of the sessions volume, with over 7000 lots of the Jan/March traded as the funds roll residual long positions down the board. Options turnover was generated via the rolling of 1500 lots of the March 1950 put and March 2150 call into July.
No respite from the relentless fund selling as systems, triggered by the chart break down, abandon longs with today’s action testing, and holding if only for trading on the closing bell, the 200 day moving average(14180) for the first time since June. The ADX technical momentum indicator turned higher on the 29th of November, since then we have traded 10% lower. The last time the momentum indicator turned higher on a move lower was August 21 of 2015, at which point we were trading 133. For point of reference, the market bottomed out after declining 13% (116) on the 11th of September. Industry have been especially good buyers since prices have breached 150 while origin have been more of a psychological weight than actual sellers, as the dollar continues to hold firm courtesy of encouraging U.S. economic data. The strongest cases for the bull run up to the high of 17955 on the 8th of last month had been a week dollar, strong London and “squeezed” roaster. The Arabica market has since sold off 37 cents, and while London is hanging in there, the best bull case scenario for N.Y. now seems to be the whittled down net fund long position and a market that is “oversold” and due for a bounce.
Arabica coffee futures pared the recent fall Friday to end a little higher. The active contract for March delivery settled 90 points higher at 145.80 cents a pound. Activity was mainly generated by short term specs playing both sides of the market. Volume reached 37,177 lots, including 5,548 switches. During the week, Arabica prices fell 10.0 cents or 6.6%. Producer selling was encouraged in Brazil by the weakness of the currency. The economic and politic crisis in Brazil pushed again the real that lost 1.6% during the week, and accumulated 10.4 % drop since the peak on Oct 25.
London Market- London maintained its recent behaviour as the secondary market to New York with values driving higher as a response to corrective action in the ‘C’ contract.
A $13 fall off the opening bell was a result of significant weakness in the Brazilian Real after hours yesterday evening, drawing early spec shorts to the market. Good volumes of industry buying and a recovery in New York halted additional downside momentum as values looked to break back above $2000. Fresh intra-day buying became apparent as psychological resistance was broken, propelling March to the 50 day moving average at $2036 which remains a significant technical level heading into next week.
Much of the day’s volume was generated through the Jan/March switch, strengthening to $23 premium as spec short positions looked to cover positions established after November’s final tender day.
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