Arabica lost 350 points, settling 131.20, while Robusta fared better, shedding $9 to 1380. With KCK fnd now 4 days away, volume has moved emphatically into the July contract. Trading was choppy & somewhat dull overall, yet 2 distinct selloffs were the story of the day. With futures peaking around 8am (135.30, just off the opening high prints of 135.45), a slow atrophy began as coffee failed for a 3rd day at the upper Bollinger band. Motivated buyers were hard to find and for a 20 minute span from 8:45 to 9:05 KC lost 250 points, ensuring an outside day with what was rapidly appearing to be a bearish reversal. While KC recovered from there, chopping about for the next 3 ½ hours as the BRL and DXY both gave increasingly positive signals, a lack of follow through gave free reign for sellers to reengage. Around 1000 lots were sold at 11:52-11:53, pushing KC back into Tuesday’s breakout zone and piercing the KCN 50 DMA in the process (yet not the KC2 continuation). Things appear a bit mixed going into next week, with the outside reversal on the daily uninspiring yet oscillators mostly neutral, MACD positive, a higher low, higher high, positive close on the weekly chart, and Arabica holding above that breakout area on the chart. Bloomberg notes that “since August 2018, arabica coffee crossed below this level 20 times and fell an average 0.6% in the next five days,” hardly an inspiring trade, and recent crosses and re-crosses both directions (3/16 to 3/30 and 4/6 to 4/13 most recently) exhibit the difficulty in relying on such single indicators, particularly in a ranging market. An out of consensus GCA draw (111,409 bags MoM, 344,406 YoY) did little to boost bullish sentiment, even with prevailing expectations for a build. Brazilian certified coffees approaching 1mm bags (930,330, up 10,240, 49.4% of the entire inventory) are providing a psychological and empirical counterweight overseas to the otherwise strong US data. The Robusta COT showed little net change (+778 lots to -7442, the least short positioning since February) on the commercial side as Managed Money liquidated 3190 longs and added 348 shorts for a net 3538 lots of selling, with Other Reportables taking on 2547 lots of that with a net buy.
May Arabica closed 127.85, +1.10, while May Robusta was unable to keep pace en route to a positive 1345, +16 close. Day 1 of the index roll saw the expected focus on spreads as outright trading in the front two months came in 4100 lots (27%) below the 2 week average, yet total volume shined thanks to 29k spreads, the second most since Feb 11th, slightly behind Tuesday’s activity. OI & trading activity both remains focused in the May contract for the moment, though this should change in the next couple days. KC didn’t quite manage a 2c range, spending the early hours in quiet ascent, bottoming out with the BRL at its weakest point of the day around 10:20am EDT, while chopping its way higher. Traders seemed fairly disinterested overall, focused on the roll and lacking motivation with prices off the lows but still just off the lower end of the core range. On the option front the structure (N -1.90 C 2000x, 1850 of them via the -1.90 C/ -2.10 P fence) and K 130 C (1378x, settled 47) were the focus of the day, the latter boosted by tomorrow’s May option expiration. OI entered the day at 4528 lots in the strike. Brazil certs declined 1300 bags of a total 5897 bag dip, the first decline since March 18th’s 325 bags and more than doubling the 570 bags that had made up the 3 prior days of net Brazil draws going back to the beginning of this year’s grading campaign.
Coffee recorded a lackluster session, falling 10 points to 126.75 in KCK and $5 to 1329 in RCK. Volumes were below averages on the outright front, though total participation driven by spreads ahead of tomorrow’s traditional commencement of the index roll boosted the nominal volumes. Markets in general seemed to lack conviction (DXY +0.01%, BRL -0.16%, S&P +0.02%, BCOM +0.20% around the time of Arabica’s close) and KC was not immune to that. Most of the trading day was spent yoyo’ing on either side of unchanged, with a midsession pop 1c in the green holding for a short time, aided by a peak in the BRL and a low in the DXY intraday. With technicals now mixed, traders seemed content to add around the margins and focus on the roll. K/N widened 10 points to -1.95, while the VWAP was a stronger -1.88, and the N/U lost a tick as well to -1.90. K/K remained bound by the weaker end of the recent range as it slid 30 points to -9.35. Structure in London performed better, gaining $3 in K/N, settling -20, and $1 in N/U to -17s. Feb ICO shipments released after yesterday’s close came in at 10,477,000 bags, down 173k MoM and 569k YoY, breaking a string of YoY increases going back to September, though container backlogs may have had some role to play.
KCK closed 121.60, -1.90 while taking a large step back in trading ahead of the holiday weekend. As a reminder both Arabica and Robusta are closed tomorrow for Good Friday. Robusta will remain shuttered Monday while KC has a delayed 7:30am NY time open. Prices gapped higher on the open on the continuation of yesterday’s late trading and mostly held on through 8am while picking up very little volume. An early blow to the BRL seemed to weigh on KC and a quick reversal of positive opening prints in the FX market brought 400 lots of selling in coffee, or at a minimum was remarkably well timed to it. Some industry buying helped cushion the blow and short term specs bought it back over the next hour but that proved to be the last hurrah as coffee bled lower for the balance of the day, ultimately printing the low of 120.75 on the final trade. Basis the 2nd month continuation, the 50% retracement of the Nov low / Feb high (122.65) was supportive, holding for a second day 2 ticks below the 122.75 KCN low. Spreads saw less volume than the past two sessions yet were still elevated vs recent sessions, roughly 6k lots more than the 2 week average. KN widened a tick to -1.95s, NU gained one to -1.85s, and the KK 1 year settled -9.30, 5 points weaker. London meanwhile continues to slip, 1325, -17, well below relevant moving averages. The COT will be released tomorrow even with the market closed for those keen to get a look.
Arabica held its ground above the 120 line, settling 123.50, +.90 while trading on heavy volume. Outright action in the active KCK contract saw its thickest trading since March 1st, bookending a month where coffee lost 925 points from open to close, and 1455 from high to low. While selling was the dominant feature through 10am, discretionary bids of various kinds helped managed the decline through the traditional heavy volume periods. A strong move in the BRL was a welcome aid for the bulls – a factor that in the past 2 weeks has been an unreliable indicator – as the FX gained 1.5% while KC traded and another 1% after the fact as a shakeup in the Brazilian cabinet and ministries over the past 2 days has driven optimism around budget progress. Economic data for the top coffee producing nation was poor (unemployment rate ticked up to 14.2%, Feb’s primary budget balance -11.8B vs +58.4B in Jan, net debt to GDP of 61.63%, just shy of December’s record 62.70%), yet for all but the unemployment rate was that data considered a beat of consensus expectations. Spread volume was resurgent as well, topping 26k for a second consecutive session, roughly 10k above the 10 day average, as the index roll approaches next week in advance of KCK FND. Structure was bid on that increase in activity, KN -1.90s, +.15, NU -1.90s, +.05, KK -9.25s, +.20. London was unable to keep pace on the day however, losing $6 to 1342.
Coffee finds a new reason to weaken each day it seems, leading the pack in an ugly commodity day lower, 122.60, -4.45, the largest one day price decline of 2021. Selling was relentless if not necessarily dynamic; volume continued to come arrive in an orderly fashion throughout the entirety of the traditional pit session as futures marched lower with no relief. The chart was remarkably similar to cocoa (the 2 worst futures performers in March save the VIX, followed by cotton and sugar), and KC shrugged off a strong performance from the BRL (+.80% around the time of KCs close). That familiar FX correlation has seemingly only worked on days of devaluation, while some other impetus is found on +currency sessions. While commodities as a whole were down nearly 1.5%, suggesting the continued negative effects of macro inputs in real time, KC’s table leading decline reflected the more specific technical hurdles coffee faces. Yield continues to widen, KK now at -9.45, -.25 combining with lower outrights for a 7.7% prompt roll yield (6.5% 2nd month), and the 20, 50, and 100 dmas all sit as overhead resistance while encouraging spec selling. Oscillators are now well oversold, suggesting a pause is due soon, but with month end tomorrow and roasters taking advantage of the opportunity for much needed coverage, a significant rally seemingly will need some effort. London trailed in sorrow, falling $28 to 1348, though spread there weakened for a second day as well (KN -25s, -4, NU -21s, -3)
Arabica fell 145 points to 127.05 on fairly low volume on a day where the macro winds offered early pushback, but where coffee also specifically underperformed. The BRL was an impediment from the start as the FX traded to its weakest level in 19 days, eclipsing the 5.80 mark in the process. While the currency was weighed down by a host of factors – contagion risk, Covid statistics, budget issues, plain negative sentiment – coffee had already been well into its decline before the currency opened, trading within 20 points of the intraday low during the pre-North American hours. While commodities as a whole were peaking around 8:30am KC was unable to get off the mat. The COT drove some of the specific negativity no matter if traders chose to look at the fund side (where shorts flooded in as 9 entities left the long side of the tape and 10 new shorts emerged) or the commercial side where needed paper was added both during the reporting period (+6,978 commercial longs, disagg w options) and anecdotally through the balance of the week, removing some of the sense of urgency from the roaster position. Nonetheless, material selling failed to appear as KC holds around recent support and the consensus bottom end of the range, and the 1.13% loss in futures was almost the same as the 1.19% weakening in softs. Spreads were unchanged in the front 2 period while the back end of the curve weakened further, KK -9.20, -.10, a 52 week low. With the issues in the Suez canal improving after the Ever Given began moving again, some roasters are likely feeling some relief with respect to their specific inbound coffee, even if total supply was never a concern given destination stocks. London declined more or less in line with her sister market, falling $23 to 1376. KN widened $4 as well, closing -21 after retracing Friday’s -15 high.
Coffee fell 250 points in mixed trading, settling 127.60. Prices gyrated throughout the session as spec flows dominated both directions and volume, while not dismissible, was certainly not impressive. Early weakness was noted from the start as futures were pressured by news of additional lockdowns in Germany – a key factor in a global risk selloff overnight. KC recovered just after 8am however, and tracked the BRL higher for the following 2 hours, maintaining that familiar correlation trade through the 11:20am EDT high and for another 20 minutes of backtracking. For unclear reasons that relationship fell apart as the BRL remained around its best levels of the day (5.49 vs 5.48 peak at time of close) and futures took an escalator down to intraday lows (127.45 low / 127.55 last print / 127.60s) with no real reprieve. As well trod as the 130 / 128 range has been in recent days, a late day axed buyer was nowhere to be found. The BCOM was down around 1.75% vs 1.92% for coffee so it may have just been a factor of trading one proxy for another with prices at the upper end of commercial interest. Spreads were weak overall, KN and NU both losing a tick (-2.05s and -1.95s respectively) and the KK 20 points (-8.75s) although not remarkably so – also at the lower end of the recent range. London meanwhile shed $21 to close 1377 while structure was flat.
KC fell another 95 points, a third consecutive day of lower lows, lower highs, and negative close, en route to a 129.00 settle and a fresh low for the week. On consecutive days Arabica has now closed below the 20dma (133.30) and 50dma (129.10), driving negative feedback from traditional chart aficionados looking for a deeper correction. A longer term view looks better with last week’s lows holding and 128 holding firm, a price only eclipsed once since Feb 22nd’s breakout – March 9th when futures fell with the BRL weakening on news of Lula’s potential return to politics before reversing higher and leaving patient industry buyers below. Structure was again mixed though slightly weaker as both the nearby (KN -2.05s, -.05) and 1 year (KK-8.65s, -.10) slide wider in the least dramatic way possible. KC had familiar company on an otherwise bullish commodity day as softs congregated in the back of the bus, KC -.73%, SB -.82%, CC -1.93%, CT -.64%, OJ -.77% (Sugar, Coffee, and Cotton were joined by Cattle as the worst performers in the BCOM), even as the commodity complex rose around 1%, the DXY was a negligible headwind, and the BRL strengthened an impressive 1.7% around KC’s close. Today was the last trading day for KCH1, so there should be a rollover gap on the pure continuation charts Monday morning. London fell $6 as well, settling 1380. Spreads gained a tick in the front 2 rolls, erasing yesterday’s loss.
Arabica recorded a particularly futures focused day as KCK fell 90 points to 132.10. Outright trading in K surged to its heaviest turnover in 4 days as the market settled 70 points below the VWAP and 10 below Friday’s VWAP. While broad commodity weakness can be blamed in part, select other ags that managed to turn positive and the DXY and BRL were both modest headwinds at most. The larger issue was a series of hefty sell side market orders, deployed through the intraday low (600+/- lots) and another through Friday’s low (another 500+/- lots) as KC recorded its intraday bottom. Each blow off encountered support, but outside of the deepest 80 points drove little in terms of aggressive buying. Longer term spreads floundered as well, KK continuing its outward momentum to -8.70, -.20, while KN (-2.00, -.05) and NU (-1.90, +.05) were a wash in the nearbys. Options were uncharacteristically quiet, paced by the N 135 C at a mere 537 lots. Coffee has a few new inputs on tap with today’s GCA stock report and Wednesday’s dual BCB / FOMC events. London closed 1388, $15 lower after Friday’s eventful COT. Spreads were little changed.
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