Morgan Stanley Coffee Report - May 5, 2021

​Arabica gained 950 points to settle 149.85, 3.75c below the contract high, while London rallied $64 to close 1538.  The 950 point increase was the 20th most since at least Jan 1, 2010 (the furthest back we checked), while in percentage terms the 6.77% gain was the 10th largest over the same decade+ period.  Given the rising importance of these percentage based metrics in coffee, the second number is all the more striking.  Futures had their foot on the accelerator from the open, gaining a quick 355 points in the first 30 minutes of trading before settling in for a lull until nearly 10:30.  Short lived probes lower were quickly rejected at 8am and 9:30, and while Cocoa was unable to match KC's strength (+3.06% which would be 2nd most in the BCOM were it included), similar trading patterns were noted in both markets throughout the day, suggesting that outside money was entering the market.  Given the magnitude of the move, volume was somewhat unimpressive; estimated outright volume in KCN came in below 23k lots, and while roughly 6k above the 10 day average, was not much different than April 23 or 26 when prices rallied 235 and 485 points respectively.  The trigger for the move is still up for some debate; early consensus was around a London-inspired sympathy trade, while a headline grabbing "drought alert" on Bloomberg yesterday afternoon comparing the coffee situation to corn would have certainly grabbed the eye of outside money.  Still, neither of these arguments do much to explain the broader KC/CC/SB bid.  Attention was also drawn to Colombian social issues where exports have apparently been  slowed due to protests around the port over a since-withdrawn tax reform bill - a situation physical traders have been monitoring for 1-2 weeks, yet hitting the tape with the more dramatic "Colombian Coffee Exports Halted by Protests" headline (Bloomberg).  Whatever the trigger was, liquidity deserts seemingly emerged as the hefty commercial short and lower hedges on origin and traders books dampened the flow of sales, along with the natural inclination of origin to step back on rallies and see what happens.  From 145 to 148.50 precious little volume traded as better liquidity emerged above 149.50 as traders set their eyes on the big round number.