Morgan Stanley coffee report - May 21

Arabica fell 90 points to 104.75, the lowest settlement for the active contract since March 17th.  Pressure arrived as risk came off on the back of another increase in the governmental war of words over the coronavirus, with the DXY rising and commodities broadly slipping lower.   KC and the BCOM were down nearly the same % and equities slipped as well.  The BRL continued to gain ground, another 2% at the time of KC’s close, but was a nonfactor from 10am onwards.  In comments yesterday BCB President Roberto Campos Neto suggested FX intervention was necessary last week as the BRL selloff brought it out of line with peer FX and fundamentals – reflecting on prior statements to regarding central bank perspective earlier in the year – which has driven recent short covering in the currency.  Nonetheless with the BRL ignored and trading otherwise dull steady selling was noted in both the flat price and spreads; N/U weakened 15 points and N/N half a cent to -7.70 (also the lowest level since March 17th).  Total volume was the largest since April 24th, spreads even longer (April 17th), and implied outrights were the largest since the 24th as well.  The settle / VWAP spread was a fairly modest 44 points as most of the damage was done in real-time trading.  London appears to be the beneficiary or arb buying, either explicit or implicit, standing strong again (relative to KC) at 1189 +3.  Spreads in London weakened as well, albeit only modestly on a net basis, and were a point of as much conversation as traders could muster on the day.  Robusta certs drew another 21 lots on the day.