Morgan Stanley Coffee Report

An inside day in coffee with many market participants headed to the hills amidst a Swiss holiday, late summer vacations, and overall lack of new information to trade.  Early trading was moderately positive as KC gained back some of Friday’s post close sell off, though at precisely 8am EDT the market began an inexorable trip lower that seemed half-hearted, yet also attracted only a modicum of buyers.  Around the same time KC reengaged with the DXY correlation, and while not posting as dramatic a move as the currency did at 11am, overall the directionality of the relationship was unavoidable.  With aggressive month end trading being apparent not only in the price action but with today’s 3934 increase in OI, and combined with a steady BRL, perhaps the slow start to August should have been expected.  The CRB posted its 12th day of lower lows, while the crude losses that continue to drive the complex have posted a 7th days of lower lows.   Coffee has managed to separate itself from the complex at times, so perhaps we are not  giving the fundamentals their proper due.  Yet with the Fed keenly watching Friday’s employment numbers, Chinese growth in question, and Crude at the critical $40 inflection point, it seems outside factors are likely to be critical to coffee.  Interest in 17/18 Brazil crop forecasts have generated a notable uptick, which seems at once far too early yet entirely understandable given the desire of traders to get ahead of the next story.