Arabica recovered the bulk of yesterday’s loss, closing 205 points higher at 125.40. Interestingly, those extra 55 points of weakness yesterday came with an additional roughly 2700 lots of additional outright trading in KCH, suggesting a bit of additional heavy sledding on the downside, at least for the moment. In many ways it was a reversal of yesterday’s setup; the BRL gained 1.3% around the time of KC’s close, the BCOM gained 0.8%, and the dollar weakened roughly .4%. Out of offices remain heavy as one would expect during the short holiday sandwiched week, yet that didn’t seem to effect coffee grading. Certs rose 25,030 with a 94% pass rate on the day while pendings jumped to 116,207, the largest since February, +36,350, the largest increase since the day after Thanksgiving. Brazilian coffee now makes up 26.2% of the total exchange inventory. London went out unchanged on its first day back since Christmas eve, closing 1383. Deliveries are stalled for the moment, 7 lots being retendered by a non-traditional stopper, yet OI came into the day a heavy 4937 lots in the January contract. Only 21 F traded on the day out of a smallish 6592 total.
Arabica closed down 95 points at 124.30, clawing back the bulk of early losses but unable to turn a sustainably positive print on the day. Global futures were under pressure as a fresh lockdown in the UK, and border closings to the UK in a variety of nations, was prompted by the spread of a mutated Covid strain believed to be of greater contagiousness. Prices gapped lower on the open and fell as far as 120.40 by 5:25am EST. The news of fresh restraints on in person commerce in Europe overwhelmed the agreement to a US$900B relief package announced stateside, yet some of the reaction seemed to be in haste. Experts expressed optimism that vaccines would maintain efficacy on the virus and markets arrested their fall around 6am, bouncing off lows. While European equities traded lower on the day the Dow had recovered at the time of writing (just shy of 3pm EST) and the dollar was back at unchanged, having given back its early flight to safety gains. Volume in KC was above recent averages as both early macro selling and later value buying drove interest. Spread volumes were an exception, and price reinforced that it was a flat price-forward day with both spot and longer term structure unchanged. Certs rose 3625 bags on a resumption of grading while pendings ticked up 5200. London gained $3 as well, closing 1382 ahead of Thursday’s January FND. EFPs clocked in at 6039 lots, nearly split between F and H. FH weakened $4 to -22. Wednesday is the chance to clean up unwanted positions before notices.
After yesterday’s session of subtle intrigue, Friday’s trading was a display of frank aggression with early bullish headlines and typical early morning strength giving way to familiar selling towards 8am, punctuated by a roughly 1000 lot minute sell off at 9:21 EST. Futures recovered off the that low (123.50), failing to find follow through, but trading was choppy for the rest of the day and KCH settled lower, 125.25, -1.35. Still, prices remain above major moving averages, the trend is bullish, and the market is only moderately overbought, as the chart recorded a second weekly higher low, higher high, positive close and 6th such week out of the past 7. The BRL was choppy and slightly weaker while the Dollar forms a nice layover with KC, the 30 minutes or so including and following the seller’s bludgeon notwithstanding. Commodities were broadly higher with KC joining sugar at the other end of the spectrum, joined by wheat in its various forms and precious metals as the rare decliners. Volume was back after yesterday’s hiatus as total exchange lots came in just shy of 30k lots, up 10k from yday, spreads almost exactly doubled to 9107, and outright trades came in above the 10 day average. Structure tightened incrementally, HK +.05 to -1.85 and HH +.15 to -7.25, the strongest close since Nov 27th’s -6.75 two-and-a-half month high. Certs declined for a 2nd consecutive day by 1375 bags (Hondurans in NY), the first time that has happened in December, albeit aided by the fact no gradings occurred on either day. Robusta lost $7, closing 1380 while on a weekly chart legging higher after last week’s arguable dragonfly doji. FH gained $4 to -18. The London COT revealed 2318 gross lots of commercial buying against only 12 lots of commercial selling. Managed Money liquidated 892 longs while adding 320 shorts, yet Swap Dealers were the bigger seller, liquidating 714 longs and adding 1574 shorts.
Arabica posted an unchanged performance (126.60) on the lowest volume of the year in both spreads and futures. However, outright implied volume, while below average, was larger than Dec 8, Dec 9, and just below Dec 3 reviewing this month alone – the day was not meaningless. Prices gapped higher on the opening as the Dollar fell on a somewhat dovish Fed report, yet selling started building by 5am. Each successive wave of recovery was met by more selling and KC ended up one of the weakest commodity performers on the day. Certs declined 4056 bags to 1,371,566 bags, led by 3736 bags of Hondurans in Antwerp, while pendings rose 8100 bags to 70,310 & no coffee was graded. HK weakened a tick to -1.90 while HH was unchanged at -7.40. Robusta, the beneficiary of late buying, gained $9 to close 1387.
Arabica recorded a mostly quiet session, rising in the early hours en route to a 8:18am EST 127.40 new high, suffering a batch of selling roughly 30 minutes later, steadily climbing back to positive territory, and finally notching its 124.50 low during the settlement window as the day was marked with a 124.65, -1.50 decline. While the 2 largest clips of trading occurred during the 2 steepest selloffs, the VWAP on the day was actually higher, 125.8319 vs yesterday’s 124.7862, suggesting steady interest at levels above recent resistance. Nonetheless volume was just about the recent 2 week average and the trading that garnered the most interest on our chats was a second day of elevated EFS’s, 2571 in KCH. EFP (AA) volume was also notable as a percentage of the total, 2837 in the front 3 months (2343 in H) and nothing in the latter, suggesting that industry was focused largely on cleaning up the end of year physical pricings. While the lack of extension of yesterday’s rally assuredly disappointed some of the bulls, KCH managed to hold the retracement breakout and most seem to favor a later time frame for upside. Nonetheless rallies (and selloffs) rarely happen at the consensus expected time so caution both towards the expected quiet year end is warranted. Spreads were slightly weaker, HK -.05 to -1.85, HH -.10 to -7.45, and certs grew 21,483 bags on an 84% pass rate. Pendings fell 19,689 to 63,375, the lowest in 12 calendar days. Robusta trailed in interval if not direction, weakening $4 to 1372. FH gained $3 to -24, holding yesterday’s active lifetime low of -27 for a fresh double bottom. GCA stocks should be updated around 3:30pm EST.
Arabica regained it dynamism, gaining 400 points on the heaviest implied outright volume of the month to close 121.05 in a day of big unbroken runs of upside and a thousand papercuts of friendly inputs burdening the shorts. Positive forward statements from a prominent coffee shop chain released during their investor day after the market close yesterday likely added some strength early in the day as is often the case, broad commodity buying was noted in many markets from 8am onwards (KC being the largest beneficiary in the BCOM after NatGas, perhaps a factor being the otherwise dwindling participation in coffee), a positive CPI print exceeding expectations, a weaker dollar, and a particularly strong BRL (5.035, +2.6%, strongest since June 12th) all helped lift prices. Nonetheless, looking back to November 17th’s breakout and the formation of the rough 115 / 125 range that has prevailed since, KCH has recorded a dead center VWAP of 120.02 through today. This session’s 119.84 VWAP was a reminder that while a +400 day is always notable, KC has fashioned an ability to go everywhere and nowhere at once. With a fresh trade house hitting the Bloomberg ticker with a projected 34% Arabica crop decrease for next year, joining a chorus of other similar public statements from commercials, perhaps some additional support will be provided going into tomorrow’s January option expiration. HK weakened a tick to -1.80 nonetheless, yet the one year curve tightened 15 points to -7.90. London trailed in pace as is typical, gaining $17 to 1351, yet managed an impressive outside day reversal, closing $2 off the high after slipping as low as 1317 intraday. FH weakened again however, closing -25, $3 wider.
Arabica posted a more active outright trading session than yesterday’s, even as it battled to a modest 65 point gain (119.10) inside a 235 point range. Futures volatility was subdued during the overseas session, and traditional pit hours brought renewed selling – pressuring option volatility with it. Action was choppy and while a clear sell-side weight was present for much of the day, hitting a 117.20 low around 10:30 under spec pressure, a steady rise across commodities as well as value seekers among coffee endemics helped put in a floor and ultimately ran prices to intraday highs as jobbers were forced to cover. Structure made a partial daily recovery, HK gaining 15 points to -1.80 and HH 30 to -7.95, aiding sentiment. Wetter weather is expected in Brazil, yet this has often been true and needs to be realized. London fell $40 to 1343 after triggering stops around 8am EST. Structure was again at the forefront, undoing recent strength in FH which fell a dramatic $16 to -21. Appropriately given that the spot spread was the most notable coffee mover on the day, the FH -25 P CSO was the top strike across both markets trading 1700x at $6.
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