Opportunity wasted, the story of the coffee market. Arabica futures closed a single tick higher at 94.80, +.05, ignoring the FOMC driven FX inputs overnight. Late buying ultimately arrived around the traditional US arrival time, driving intraday gains to +1.75 before news hit the wire that former Brazilian President Temer had been arrested. Reactions to the news were mixed, yet the currency suffered an emotional response widening to 3.83 from 3.77, ultimately taking coffee from intraday highs to intraday lows over the following 90 minutes. Option volumes were decent, led by paper buying 1500+ N 85p vs 97.75, 8d, 1000+ K 100 C, and 1000 K/N -275 C CSOs at 15 points. Structure went out trading unchanged, with all the KN volume again in a stable -275 / - 270 range. London tracked KC closely, gaining $8 to settle 1503. A strong bout of MOC buying lifted the market back through the 1500 strike after weakening off the highs post BRL move. K/N briefly inverted just after 8am EDT, driven in to par by around 750 lots of buying, adding an extra tick to +1 on small volume shortly thereafter.
Arabica was buoyed by spec buying, settling 99.65, +230, holding on even as the DXY strengthened late in the day. At the time of the close KC stands at the top of the BCOM leaderboard, where it was joined for much of the day by Sugar – 2 of the worst commodity performers yesterday. Media reports gave fair credit to a prominent bank report which raised price forecast from $1.10 to $1.20, a reasonable 11c premium to the back end of the curve. While it couldn’t have hurt, it is an open question how much risk allocation is driven by 3rd party opinions in today’s world. London continues to do ever so little, closing $6 higher at 1527 while trading in a sub 1c ($18) range. Volume in robusta fell short of 10k lots (inclusive of spreads), yet futures managed to close in the green on little volatility even while trading to the lowest levels intraday since Jan 23.
Arabica settled down 285 points at 97.35 amidst the background of a weaker softs complex as Sugar, Cocoa and Coffee, in that order, fell to the bottom the CRB index. Chart wise KC traded an outside reversal lower with a settlement below the lows of Thursday and Friday, setting a negative undertone to the start of Carnaval week. Open interest increased by 4,177 lots during Friday’s 175 point rally and while short covering was the logical expectation, 28,411 spreads traded could have muddied the waters of interpretation. London relinquished $13 to settle at 1521, its weakest close since the 22nd of January.
Arabica began March on a high note, closing above the dollar mark for the first time in a week at 100.20, +175. Early Americas hours gave no indication of what was ahead, with a familiar arrival of selling at 8am EST, and for much of the morning KC tracked its commodity complex cousins. A blast of buying showed up at 12:12, right around intraday highs, and convincingly drove prices to their highest levels in a week, ignoring deepening BRL softness. Little willingness to counter the flows materialized, and with Brazil off for Carnaval to start next week, one wonders if this is an opportunity for longs to breathe. Spreads were heavy, eclipsing 28k lots, with both K/N and N/U clocking in at over 8k lots a piece, and U/Z around 4500. Robusta remains a drag, marooned in a $40 (sub 2c!!!!) range since the Feb 11 selloff, and having set the high and the low of the that range on Feb 14/15. RCK closed 1534, -3 on what amounts to utter disinterest. For those surprised by London’s “strength” as KC withered away, we now have countervailing “weakness” that in the end amounts to a whole lot of nothing.
Arabica closed up 215 points at 98.95, wiping out 2/3 of yesterday’s losses as follow up selling failed to materialize. Roasters again were happy buyers sub $1, adding to their already impressive length. K/N tightened a tick to -2.75 on good volume (6k+ lots), while N/U went out flat, -2.80, on 3k+ lots. Certs fell 6000 bags and remain a key focus for those looking for a turnaround spark. Substantial work on that front remains. Robusta continues to be quiet, trading a $13 range, settling up $10 as the chart again looked like a scatter plot for what seems like the infinitieth straight time. K/N creeps ever closer to level money (-4 settle, $3 tighter) with Vietnam kicking the can as prices fail to stimulate interest and Brazil remains over yonder.
Arabica succumbed to unrelenting pressure, wavering between sideways and down for nearly the entirety of the day while settling 96.80, -305. The anguish engulfing the market finds many measures; a fresh KCK9 contract low (96.35), closure of the 98.20 - 98.60 gap many had presumed would exist for a generation, and the lowest 2nd month continuation price since Sept 18th at 95.10 when the non-commercials posted their record short position on the CIT, 151k gross / 113k net. Fairly massive option volumes traded on the day, with 1600+ K 115 C leading the charge (paper buy ½ of them laid up around the NY lunch hour), 1500+ K 100 C, ~1200 J 95 P, and ~1200 M 120 C (paper again a buyer delta neutral). Origin was nonexistent from our perspective, both in direct paper and in posting, leaving a consensus sentiment of astonishment amongst traders at the one sided flow. Robusta continues to want for interest, falling $12 to 1538. By most accounts Vietnam is undersold and Brazil has yet to begin marketing Conilons in any real volume. Price action remains choppy across the pond, though structure tightening on the day was a source of interest as KN closed -7, +3 and NU -11, also 3 ticks up.
KC ended the week at $1 on the nose, a gain of 55 points, while trading in all of a 95 point range. Pardon the redundancy, but its bears mentioning that Arabica traded a 14th consecutive lower high in a chart pattern that resembles a ski slope. The weekly charts show the lowest settle since the week ended July 21st, 2006 , but not to be totally negative, on the day we did manage to hold yesterday’s 4 month lows. Robusta went into Monday’s FND with a $6 gain settling at $1539 MT. There were 9,419 AA’s in March and another 10,848 in May of which the lions share were likely financing related, while open interest stood at 11,691 lots in the March contract entering the day.
May Arabica fell 85 points to settle 101.45, a fresh contract low (100.60), closing the December 19th KC2 rollover gap in the process. H/K blew out to contract lows as well, widening as far as -3.70 intraday before closing -3.60 as volume slipped sub 13k as the index rebalance passed. Few have expectations of a motivated stopper due to the RCA implementation in May unless significant further weakness materializes. The Brazilian government announced a pension bill proposal raising minimum retirements ages to 65 for men and 62 for women which now needs to be approved by congress. Initial BRL response was positive as the currency posted an intraday move from 3.79 to 3.71. Robusta boasted surprising strength, buoyed by heavy industry buying down the board, closing $3 higher to 1537. The final 45 minutes of London trading was spotty yet strong, with few motivated sellers noted.
More of the mundane for the coffee markets as Arabica settled at 103.55 +25 points. Robusta traded in all of a $7 range, its smallest range since 2008, and managed to accrete $7 for a 1535 settlement. The dollar index posted an 8th higher high and low, as stocks soared encouraged by a potential deal to stave off another government shutdown before Friday’s deadline. March/May traded 22,194 times between 315 on 305 under in what proved to be another spread centric session, with 42,786 spreads and total volume of 93,497 lots. An inside session saw yesterday’s lowest low since the 3rd of January hold unconvincingly by 10 points, while reports of more origin selling dampened enthusiasm for the up side. Open interest fell by 4,373 lots and while the expectation is fresh fund shorts were added on the 230 points sell off, the mix of heavy spread action, and the possibility of catch up from Friday’s option expiration, muddied waters that are already downright sludgy given the lack of COT position clarity, courtesy of the government shutdown that ended the 25th of January. For the record, a rollover gap from 101.95 to 100.85 appears destined to be filled, and the closest unfilled gap to the upside 117.20-117.40, was formed 3 months, and what seems like a lifetime ago.
A rough start to the week for coffee prices as N.Y. settled down 2.40 at 100.20 and Robusta dropped $26 to close at 1504, both basis March. Arabica traded to its lowest level since the 3rd of January and worst settlement since the first trading day of the year. The day’s trajectory closely mirrored that of the weaker Brazilian currency and while some reports noted weakness due to rains in producing regions, from our vantage point, the activity was more suggestive of a reaction to the currency. Some smaller origins were noted throwing in the towel as prices revisited trading sub $1 for the first time since day one of 2019, Open interest jumped by 6,258 lots on Friday’s weaker action, and, similar to today, the bulk of volume was weighted towards spreads in the midst of the traditional roll period.
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