The week started with KC settling at 102.75 down 110 points, on the last day of the traditional rebalance, and third Monday without COT data to chomp on due to the government shutdown.. A 2 cent inside range and a 3rd lower high/low provided little fresh inspiration, as prices fell to the middle of a well tread upon 7 cent range. Mar/May faltered as a matter of course, as outright pressure remains biased to the front month, while the spread value naturally widened to 350 under from Friday’s -3.35 settlement. London relinquished $15 to settle at 1528, its lowest close thus far this year.
KC chalked up a 3rd day of gains settling at 108.50, plus 40 points, as it parlayed a string of higher lows for each session thus far in 2019, along with higher high’s in 5 out of the year’s 6 trading days. Open interest increased for an 8th day running today to the tune of 1,889 lots as the first day of the traditional index fund rebalance saw anticipated inflows. Industry and short term specs again were noted adding to the long side amidst some weather uncertainties and the Brazilian currency trading at its firmest level since the day following Bolsonaro’s election. London failed to keep pace with N.Y. as it settled down $21 at 1535 while posting a 1559 triple top. Beginning of the year flows, a lack of COT data and N.Y. trading 10 cents above 12 year lows, muddle already murky waters in a market where the funds remain short but its share of skepticism does not.
Arabica gained 115 points to settle 102.75 in quieter than expected trading. Index allocations are locked in basis settle today, with expected net buying in KC of somewhere +/- 5k lots over the coming 5 days. This appears to have excited no one, as coffee has managed to ignore the imminent buying up until the brink, as well as a mid-session CL/SB rally, the BRL strengthening from 394 to 370 from Dec 26th through today’s morning trading, and a developing (if admittedly low probability) dryness story to lose 125 points since Christmas – or gain a whopping 75 YTD depending on which arbitrary recent holiday calendar measure one prefers. Stranger still, KCH traded in a 35 point range for the final 2+ hours of the day, spanning the fresh early settlement period. Initial thoughts were that the machines hadn’t been recalibrated, but the innocuous action at the historic 1:23-1:25 window suggested disinterest was more at issue. Robusta fell $3 to 1542, missing Friday’s high by $2. Volume was thin and structure roughly unchanged (HK -18s, $1 weaker, KN -15s, $1 stronger).
KC reversed yesterday’s losses chalking up a 260 point gain to settle at 102.15 basis March, saving face by closing at the top of the commodity index following yesterday’s close at the bottom. Coffee prices found inspiration in what appears to be a honeymoon rally for Bolsonaro in the Brazilian currency, as the real traded to a 7 week high. The intraday rhythm in KC mirrored that of the BRL as traders blew off yesterday’s disconnect as an aberration due to first trading day of the year paper flows. While N.Y> remains within the 98.60-104.00 trading range, London broke out to a 4 week high, accreting $26 to settle at 1526 MT and was accompanied by a 6th session of higher lows
Arabica posted its first higher high, higher low with a positive settle since Nov 27th, closing up 165 points at 102.50. Discretionary spec buying was noted through the session as liquidity thinned in an otherwise challenging day for commodities. H/K again was pushed out under the weight of risk premia selling before again closing -3.15. London rose $17 to 1524 on industry support as momentum selling appears to have slowed. F/H held steady at -30 ahead of Monday’s FND.
More seepage for KC, closing down 215 points at 100.10 as unabated fund selling continues. Arabica prices traded below $1 for the first time since the September contract went off the board and the 9820-9860 rollover gap was formed. Since November 30th , open interest has increased 11 consecutive days to the tune of 27,228 lots and judging by today’s action, tomorrow will bring a 12th day of increases. The last time the market traded below $1, funds were short in excess of 100,000 lots and basis last Tuesday held a net short of 55,103 lots. Open interest has since increased 9,928 lots. A lack of conviction that funds are finished adding shorts, has, along with the year wind down, discouraged those buyers who otherwise might be more aggressive from a price/value perspective. London suffered a 13th lower high however, on the bright side, held the low of 13 days, settling with an $8 gain at 1478 basis the March contract.
Coffee rose 105 points to 104.10 in what felt like a monumental accomplishment given the horrific sentiment going into end of year. The early hours were familiar, with prices sliding ever lower before bottoming at 101.75 around 9am. 3 discrete blasts of volume gave the impression of at least one motivated sponsor, as ~400 lots showed up to support the market on the low, and 2 additional ~400 lot bids sent prices 150 points higher through sparse resistance ahead of 11am EST. All this irrespective of a 0.80% weakening in the BRL which gave up yesterday’s gains. London was the recipient of no such joy, falling $18 to 1504 as roasters accept length into weakness. Origin was noted, though not in the sort of aggressive manner that should account for the weakness. The arb closed just below 36c (H/H) while FH weakened to -27.
Coffee fell 280 points to 102.35 under DXY pressure for the entirety of the day, with selling led midmorning by a smattering of Brazil before specs again took the reigns. Roaster buying was modest with small picking around the edge noted well out the curve, though at least from our vantage in less than impressive volume. The BRL was volatile – more so than the DXY or Coffee – but its occasional efforts to perk up went wanting for attention from coffee. Structure did not help sentiment as H/K slipped out to -3.30. London, 1527 -21 (March), fell to its lowest levels since late September as sentiment continues to deteriorate. Final Conilon shipments for November came in at an unseasonably strong ~234k bags.
Coffee slipped under its own weight, falling 185 points to 104.10. The market has now given back 83% of its rally (basis H) as it fails to attract significant value seekers before end of the year. The trade seems focused on excellent Brazil development and anticipated Centam selling in short order, and treads lightly ahead of perceived fund aggression – thus largely removing a likely buyer-in-aid to industry. Unlike recent days macro considerations seemed to play little role in the weakness, as the mere paucity of determined buyers was enough to let prices trudge ever lower. The ever exciting H/K recovered from intraday weakness (-3.35 low) to post a positive performance on heavy volume, settling -3.10 on 10.5k lots. Robusta appears to be marked by a similar unwillingness to stand before apparent fund selling and a heavy balance sheet, and prices fell another $12 to 1533. The spread traded in fair volume, 3400x, before settling $3 weaker at -21.
Arabica closed the day unchanged at 105.95 after taking its cue from macro concerns for most of the session. The BRL returned as a reliable correlation, however KC led the currency action for much of the day suggesting that the Reai was reacting to commodities and not the other way around. Structure continues its moment, with CSOs continuing to trade busily (the H/K -300 P posted another 770 lots, likely taking OI through the 5000 level), and H/K was drilled ahead of the close – falling from -300/-290 all the way to -340 before stabilizing on hurried commercial buying. Z/H settled -530 deep in notice period, which while largely inactionable served notice to some would be buyers that a long might not be safe. London suffered to a tune of an $11 loss, closing 1545, as industry appears to be the last man standing. Even as crop sizes are ever so marginally reduced by the trade for 18/19, past crop shipments remain strong, and a heavy Brazil crop sits a few months ahead, leaving prop buyers leery.
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