Morgan Stanley Coffee Report - July 8'19

While temperatures were colder than advertised, cracking the freezing level in areas of the coffee belt, most traders (and meteorologists) dismissed the likelihood of meaningful crop damage, setting the stage for a 470 point loss (106.40 KCU settlement).  Initial returns would not have suggested the day in store; prices gapped up from Friday’s close on the opening, posting a 114.65 high (+415 from last week’s final print) in the first two minutes.  Two waves of prominent selling would arrive between 7:30 and 7:40am EDT however, fully altering the complexion of the market.  The second, larger, sell order came in just shy of 1800 lots in KCU, sending prices plunging over 400 points and instigating a 30 second Ice trading halt that went unnoticed by many.  Prices snapped back after trading resumed and futures were quiet and orderly for most of the balance of the day, with occasional bouts of selling interrupting the calm.  Interestingly, outright volume for the day was fairly small by any standard, but particularly given the magnitude of the move, coming in at an estimated 16,412 lots in Arabica, backing up our perception of thin liquidity.   London fell $18 to 1426, and interestingly saw a similar sell order to KC at the same 7:40am EDT time.  Far less volume was needed to send prices spiraling lower, 280 lots, though the degree of travel was also less – below 1c equivalent.