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Coffee continues to ascend in relatively thin conditions, settling up 230 point on the day at 124.50. Roaster buying was noted on the KC front, while cleanup activity drove robusta; of the 6505 lots in Jan 6396 were spreads. The more active March London contract saw sizeable AA’s, while Viet fixing was noted as well as futures fell $1 to 1711. On consecutive days Arabica has seemed to be the beneficiary of a sponsor, as late day buying led to strong closing prints. While traders attended the day in better volumes than yesterday, it was clear the minimum was being done in most directions. Options saw better paper interest with a handful of strategies bid, though nothing approached four digit volume and the best unique package was 300 of the H 115 / 110 PS.
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The market experienced a pullback, settling at 12225 -90 points, following a 775 run (11830-12620) and saw its first lower high and low following a series of 6 higher lows and 5 higher highs. A range of 220 points proved unexceptional from a flow point of view with the bulk of today’s paper changing hands amongst specs. The option trade d’jour was the Feb 120 put which traded 685 times in range of 138-195 while total option volume was 1,756 calls and 2,787 puts. Although the real was touch weaker there wasn’t any obvious catalyst for today’s softer session. Momentum to the upside faded as short term specs showed a reluctance to pay up as the year winds down in a market where the shelf life of rallies is suspect. Despite closing in the red, little damage was done from a chart perspective, as we have traded in 305 point range thus far this week and closed above the 9 day moving average and in between the mid and lower Bollinger bands.
Arabica continued its slow and steady climb, settling 140 points higher at 123.15. Roaster support was again noted, though in smaller clips than recent sessions, while origin book cleaning also ticked up from our perspective. A fairly clean trend channel from the lows is beginning to emerge, and the 2nd month MACD has crossed providing additional conviction for the bulls. KCH closed above the mid Bollinger band for the first time since Dec 1, while trading through, but not settling above, the 26MA. The newswires featured reports of a notable investment bank maintaining 3 month price targets at $1.35, above the curve implication, likely providing support as well though to what extent is unknowable. The dollar brought buying to KC as well, as it did most commodities, although this seemed to be a secondary support as KC outperformed the currency for much of the session. Mixed views are being espoused on the impact of political turmoil in Honduras, and in our view these issues are not a futures market story at this time. Robusta posted a below average volume session although fixing was prevalent across the commercial cohort, and futures settled unchanged at 1713 basis March. Options were fairly muted, as was structure which closed in contango down the board as F/H settled a dollar weaker -1, H/K at -9.
December went off the board yesterday, so those who follow the 2nd month continuation chart see a fourth day of higher highs and fifth of higher lows. On the other hand, the front month March chart shows a lower high and low trading in all of a 145 point range settling at 12175 down 15 points. Not a whole lot to write about today’s (in)action as volatility faded, the range band matched that of the day before Thanksgiving, and the market felt as if it wanted to go into early holiday mode. Given the tight range, volume was a respectable 23,827 lots while 5,804 spreads traded around unchanged. London traded in a $26 range with the January contract ending the day $10 softer, while 5,283 F/H changed hands between 3 under and 4 over.
KC suffered a 7th day of consecutive losses and a 4th day running of increases in open interest amounting to a whopping 19,331 lots. It didn’t help that the real traded lower for a 4th day, to its weakest level (3.33 $/r) since the 3rd of November as hopes fade for passage of pension reform. System and momentum driven funds pressured the market to a new low of 11830, which was posted on the close, while intraday gyrations closely tracked the path of the CRB and Brazilian currency. The last time KC had back to back settlements below 120 was a string of 3 days in May of 2016, which was followed by a 2 week rally to 135 as funds shifted from short to long 12,000 lots. While the reference to the price point is interesting, it is merely a reference, in a market that begs for a correction following 8 days of lower high’s, 6 of lower lows and an 11% fall in prices. London in the meantime settled at its weakest level since the 27th of June, 2016 while open interest increased by 942 lots, its first accretion in 5 days .
KC succumbed to further fund selling pressure and settled at the second weakest level since we gapped lower and entered the 875 point (13350-12480) range 8 weeks ago. The high for the day was -10 points and intraday gyrations closely tracked the pattern of the BRL, which started the day on a firmer note but relinquished gains as the day progressed. All but 3 of the 19 commodities in the CRB index settled in negative territory and coupled with coffee centric fund selling proved a weight too much for the market to bear. A positive note can be found in prices trading 4 times against, and holding the 12585 uptrend line of “support” to the tick. Post close the real recovered to the highs of the day however whether the currency will hold tomorrow, or coffee prices in light of their recent inelastic tracking record will pay attention might prove to be another matter.
KC put in a 175 point performance while settling down on the day yet failed to react positively to a 3rd day of gains in the Brazilian real, courtesy of positive action reported on pension reform. Short term systems turned sellers on the opening as the 12850 uptrend line of support was breached but overall participation was unenthusiastic. Prices meandered about for the rest of the session finding some willing spec buying interest as prices approached 12700, if only for having bounced to 13300ish following the last two times traded. London settled with a respectable $35 rally in Jan while the Jan/Mar spread gained $8 to settle at 10 over on 2,238 lots of volume.
KC ended the month of November trading a volatile 525 point session, the widest range since the 19th of September, and settled down 370 points on the day and a negligible 10 points on the month. The UBB at 132.70 (which has since moved tighter), 100MA at 132.95 and a double top at 132.80 seemed to provide resistance for the early part of the trading day, each being exceeded only by the slimmest of margins before 2400ish lots of selling came to market causing prices to plummet to the bottom of the 525 point range. Activity was significantly spec centric, with both cynical trade prop desks and discretionary managed money selling into the early strength How much of the selling was macro related is debatable as equities traded to historic highs and softs (excepting sugar) took it on the chin as the worse performing sector in the CRB index. The month end wild card was fully in play, yet ultimately the market enters the final month of the year tediously range bound.
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