Another rough day for the longs in coffee as the Arabica market relinquished 250 points to settle at 106.00 the lowest settlement since November 6th of 2013, while London on September option expiry, lost $26 to settle at 1643, a 27 month low. Red across the board as the dollar index traded to a 14 month high on safe haven flows amidst ongoing concerns over tariffs and Turkish tensions spilling over to emerging markets. The BCOM fell 1.8% (at print) as all commodities save lean hogs and live cattle suffered losses. Equities had their worst session in 2 months with the S and P falling for the 5th time in 6 sessions The dollar index turned negative In tandem with London’s close yet the BRL failed to gather any upside traction and KC prices remained under pressure into the close. KCU/KCZ weakened
to it lowest level to date of 360 under as DFU/DFX paradoxically strengthened to its highest level to date of 53 over. In search of a silver lining, save the record fund short, all suggestions are welcome.
Coffee (108.50, -80) again constrained its excitement to the spread where volume came in at 50,228 lots, led by 31,754 UZ. Once again outright volume was muted, implied around 5400 lots, on 175 points of intraday volatility. Rather amazingly U/Z alone saw a wide -300/-345 range as sellers pummeled the bids in size. In a familiar refrain the DXY dictated much of the day’s price, 8am weakness notwithstanding. With the COT coming to a close the parlour game continues; prices fell 400 points on the reporting week to the tick, with OI up 3633 (non-inclusive of today’s mundane trading). Anecdotally many are expecting the first 100k net CIT short, though to what extent that will stimulate interest is debatable. Brazil was quiet on the day – a departure from recent sessions, while roasters again added out as far as mid 2019 from our vantage. London slipped $4 to 1630. Structure remains the star as UX traded through 50 before settling 49 over on 6723 lots of volume. Like her sister market, the vast majority of volume remains in the spread arena.
A rough start to the week for KC which traded a contract low of 104.35 before recovering 250 points intraday, yet ultimately closed down 75 points at a contract settlement low of 106.25. A weaker BRL as a result of increasing concern over the Turkish currency crises set the tone for a “risk off” day in emerging markets and overshadowed any encouragement found in Friday’s COT report. Many a trader ended last week expecting the market to find support, if not a rally, as the 8,474 lot net increase in the non-commercial position far exceeded expectations. Volume was hefty at 129,042 lots with 59,565 spreads of which 32,418 were in Sep/Dec trading between 320 and 295 under. Robusta outrights traded within the recent range with Sep settling -7 at 1667, while the action was all in U/X which traded between 37-48 over as the playout of July’s delivery remains fresh in mind.
KC (107.65, -20) posted an inside day with 2 spurts of excitement in otherwise drowsy trading. It’s getting redundant, but KC spent much of the session tracking the currencies, seemingly devoid of other motivation. The volumes on the day back up the assertion; 39,753 spreads traded on the day implying around 79,500 lots associated while total volume came in at 86,579, allowing for somewhere on the order of 7k lots of outright trading. For a point of comparison, 12k options traded, the preferred venue for expressing a market view at the moment for many. Robusta closed the day up 16 at 1671, avoiding some of the deeper recesses that Arabica explored, while following the same general pattern. The arb closed at 31.85, the tightest levels in a year.
KC started the week gaining 1 cent to settle at 108.75. The net change was 575 lots or less in all of the supplemental COT categories and although the non-commercial position came in on lower end of expectations, traders went looking for another cue off the starting block. The BRL weakened yet KC managed to rally 240 points at the days pinnacle as the intraday pattern closely tracked that of the steadier commodity index. Snippets of Brazil selling showed up at 3 day high’s and bottom pickers tepidly tested the waters 3 days after a new contract low was posted in the September contract. Sep/Dec tightened into 320 under,15 points dearer than Friday’s settlement, as outright buying was biased to the front month and 9,174 spreads traded. Tomorrow begins the traditional index roll. London traded the high for the day on the close settling at 1682 +20 while UX traded to a high of 32 over with 3 weeks left until FND.
Arabica took advantage of a favorable set up to close +105 at 107.75. Chinese central bank support set a constructive early morning tone for the market as the dollar came under pressure, and a modest jobs number added fuel to the fire as a disappointing July print was muted by a strong revision higher for May. For much of the day currencies set the tone, and trading was something close to tick to tick. That said, statement trades did not materialize in the outrights, and midmorning resistance was momentarily removed allowing a sharp move higher on around 400 lots of outright volume. Brazil was a noted seller into strength, exhibiting a short term need to clean up the books, while also admitting to a bit of Stockholm syndrome in conversation. Industry continues to be an impressive buyer, adding cover down the curve with managed money aiding in the cause as the open interest explosion is considered by many as untenable. Robusta (1662, +18) saw good call interest, but the day – like many in London – was mostly about the structure. U/X regained steam closing at 20 over, +9 on the day, with nearly 6k lots trading. CSOs indicated caution with excellent volume in U/X options. The COT indicated little of interest as net position changes were minimal. The chunky gross moves in the commercial contingent – to nearly no net result – are most likely a result of spreads.
Coffee again succumbed to aggressive spec selling, settling 135 lower at 106.70, the lowest level since Dec 10, 2013. Since last September’s rally back above 140, the narrative has centered around the bearishness of the Brazil crop upon us. With prices marching steadily lower, momentum has fed on itself in a continuous loop, to the point where the crop itself has become a non-primary motivator, and today was a perfect example of that. Roaster & trade house spec buying were both apparent throughout the session, yet the rollover gap from July 19th was finally filled by a single tick, a 2 week old objective of some. Unlike recent days the currency markets seemed to hold little relevance. U/Z weakened again, closing -3.40 (-.15). A surprise OI reading of +9690 on yesterday’s 270 point range was taken by most as primarily a mix of pre-roll spread jockeying, additional fund shorts, and additional roaster longs. Robusta again was a sideshow, trading in minimal outright volume while falling $6 to 1644.
Coffee, 109.90, -1.50, began the day under pressure, succumbing to end of month selling at an abnormally early hour. From there the DXY / BRL once again took over and the intraday influence became as stark as ever. Spread volume was heavy as expected approaching the index roll, with U/Z changing hands nearly 14k times on the day settling unchanged. While outright volume was not particularly notable, bouts of intermittent selling (10:32edt, 12:56, etc) found willing prop buyers in a battle of wills. OI was something of a surprise, increasing 1401 lots on yesterday’s rally. Origin selling was better noted during that session than todays – quite understandable given the price action. Both Arabica and Robusta (1644, -16) again sit below all relevant moving averages, with London in particular hanging on to the LBB by $10. Prices over the pond traded in sympathy with NY, slower to fall after yesterday’s inability to keep up. The arb stands at 35.32.
KC (111.40 +.95) started the week with a bounce after trading to the highest level (113.40) since the 11th of July on the back of a constructive COT report and weaker dollar which proved supportive to the commodity sector. The dollar softened amidst growing expectations that central banks outside the U.S. will be less accommodating as prospects for growth improve and the Commerce Secretary reminded traders that US-China trade issues remain yet to be resolved. The COT report was bullish at face value, as the non- commercial gross and net short for a 4th week running reached another record. Whether today’s bounce was courtesy the COT report or due more to the weaker dollar, the days pattern suggests more credit is due to the greenback, as the market opened up trading lower on the day and captured a more aggressive bid as currency markets traded in earnest. Short term systems stops were triggered through the prior week’s descending highs and Brazil was noted taking advantage of the best intraday bounce since the 6th of July. Robusta traded a virtual triple bottom at 1647-48, and, while it bounced $23, it also backed off to settle plus $7 at 1660 basis the September contract.
KC fell 145 points to settle at 109.55 while Robusta lost $28MT, settling at 1652 basis the new front month September contract. Funds continue to pressure KC and industry take on additional cover as a matter of course, while discretionary specs largely stood aside. The low for the day (109.25) coincided with London’s close as Robusta traded an intraday bottom of 1647, -$33 during the settlement. The BRL, which rallied yesterday yet failed to inspire upside in coffee prices, fell by 1.2% today and proved true to form in influencing the downside. Open interest grew by another 1,093 lots, its 7th consecutive increase. Much anticipation ahead of tomorrow’s COT if only for little else to get excited about. Let’s hope that changes soon.
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