KC spent the entirety of the day in positive territory closing up 70 points at 93.65 in the still-active May contract. Day 3 of the index roll did not disappoint with 35k+ KN AND 50K+ total spreads dominating trading. Structure finally tightened, moving 2 ticks tighter to settle -2.45, while posting a final print on the day’s high -2.40. Options were quiet, led by book cleanup type paper ahead of Friday’s May expiry. Softs were the best performers on the day as a basket, with sugar (+1.74%), coffee (+.75%), and cocoa (+.25%) all posting gains while energy, grains, industrial metals, and livestock all fell. Robusta closed unchanged basis July, 1442, unable to keep pace with her sister market in choppy trading. Aside from the opening volume, the best clip of trading came in the form of a mere 74 lot burst during settlement. K/N was an anchor on the outrights as it settled $6 weaker at -22. 800 N 1400 / 1550 CS at $45 was the notable option traded of the day.
A fresh 13 plus year low for the KC market, which saw the May contract settle at a contract low of 91.65 down 45 points. Today’s low of 93.80 was 30 points above the open gap from the September 30th 2005 low of 9350, to the September 28th high of 9300. Milestones are greeted as de riguer while open interest posted another new record of 357,447 lots, increasing today for a 17th day running (2,158 lots), and has surged 40,955 lots since the 11th of March. Second month Robusta traded to its lowest level since the 16th of March, 2016 while the front month contract settled at 1413 down $5 after breaching the 1400 level by $5 MT. It is proving increasingly difficult to accentuate the positive, eliminate the negatives and latch on to the affirmatives. At this juncture many would settle for messing with Mr. In-Between.
Coffee again fell to start a week, the 11th time in 14 opportunities to date. Prices slipped 240 points to settle 92.10 closely following the DXY, although no one appeared to credit the currency. Day 1 of the week / month / quarter notwithstanding, the setup was primed for a positive session that didn’t materialize. Risk assets were well bid after a strong Chinese PMI print (alongside that of other Asian EM), boosting equities, emerging markets, and most commodities. The BRL tightened nearly 1.5% as well. No other commodity came close to matching KC for incompetency; the 2.5% selloff was distantly challenged by gold, which was -0.45% at time of writing. Perhaps not coincidentally, the oil markets topped the leaderboard +2.45% (WTI) and +2.05% (Brent). K/N posted heavy volume ahead of Friday’s index roll commencement, trading 17k+ times in a -260 / -245 range before closing -250. After the COT reflected record non-commercial spreading, a 36k+ aggregate spread day seems appropriate. Robusta withered in-line with NY, albeit at the slower pace it is noted for, closing down $38 at 1418. The front month K/N spread weakened $4 to -19, perhaps in itself a primary example of the sentiment around coffee.
Arabica ignored the early FX weights of the DXY and BRL to gain 190 points by mid-morning US time, yet was greeted by additional Brazil & speculative selling that capped the move for an eventual 95.35, +1.10 settlement. The intraday pattern clearly mirrored sugar – while ignoring the BRL after yesterday’s heavy correlation – and volume was a decent 48k+, albeit with roughly 18k spreads boosting the total. 12k+ of those were in the front month (led by nearly 10k K/N) as structure tightened down much of the board. K/N went out -260, matching the strongest settlements in the last month and a half (March 6 and Feb 14) since closing -255 back on Feb 7th. Robusta tracked the KC pattern as it typically does, yet couldn’t keep pace closing 1510, +11. The arb remains historically tight at 26.85, and the front month spread is ostensibly suggesting a near term demand story in London. K/N traded 2k+ times between -4 and -1, ultimately settling -2. Conilon trading seems quiet in origin based on trade house comments, while in-country stocks in Vietnam are fairly consolidated in a few strong hands.
Opportunity wasted, the story of the coffee market. Arabica futures closed a single tick higher at 94.80, +.05, ignoring the FOMC driven FX inputs overnight. Late buying ultimately arrived around the traditional US arrival time, driving intraday gains to +1.75 before news hit the wire that former Brazilian President Temer had been arrested. Reactions to the news were mixed, yet the currency suffered an emotional response widening to 3.83 from 3.77, ultimately taking coffee from intraday highs to intraday lows over the following 90 minutes. Option volumes were decent, led by paper buying 1500+ N 85p vs 97.75, 8d, 1000+ K 100 C, and 1000 K/N -275 C CSOs at 15 points. Structure went out trading unchanged, with all the KN volume again in a stable -275 / - 270 range. London tracked KC closely, gaining $8 to settle 1503. A strong bout of MOC buying lifted the market back through the 1500 strike after weakening off the highs post BRL move. K/N briefly inverted just after 8am EDT, driven in to par by around 750 lots of buying, adding an extra tick to +1 on small volume shortly thereafter.
Arabica was buoyed by spec buying, settling 99.65, +230, holding on even as the DXY strengthened late in the day. At the time of the close KC stands at the top of the BCOM leaderboard, where it was joined for much of the day by Sugar – 2 of the worst commodity performers yesterday. Media reports gave fair credit to a prominent bank report which raised price forecast from $1.10 to $1.20, a reasonable 11c premium to the back end of the curve. While it couldn’t have hurt, it is an open question how much risk allocation is driven by 3rd party opinions in today’s world. London continues to do ever so little, closing $6 higher at 1527 while trading in a sub 1c ($18) range. Volume in robusta fell short of 10k lots (inclusive of spreads), yet futures managed to close in the green on little volatility even while trading to the lowest levels intraday since Jan 23.
Arabica settled down 285 points at 97.35 amidst the background of a weaker softs complex as Sugar, Cocoa and Coffee, in that order, fell to the bottom the CRB index. Chart wise KC traded an outside reversal lower with a settlement below the lows of Thursday and Friday, setting a negative undertone to the start of Carnaval week. Open interest increased by 4,177 lots during Friday’s 175 point rally and while short covering was the logical expectation, 28,411 spreads traded could have muddied the waters of interpretation. London relinquished $13 to settle at 1521, its weakest close since the 22nd of January.
Arabica began March on a high note, closing above the dollar mark for the first time in a week at 100.20, +175. Early Americas hours gave no indication of what was ahead, with a familiar arrival of selling at 8am EST, and for much of the morning KC tracked its commodity complex cousins. A blast of buying showed up at 12:12, right around intraday highs, and convincingly drove prices to their highest levels in a week, ignoring deepening BRL softness. Little willingness to counter the flows materialized, and with Brazil off for Carnaval to start next week, one wonders if this is an opportunity for longs to breathe. Spreads were heavy, eclipsing 28k lots, with both K/N and N/U clocking in at over 8k lots a piece, and U/Z around 4500. Robusta remains a drag, marooned in a $40 (sub 2c!!!!) range since the Feb 11 selloff, and having set the high and the low of the that range on Feb 14/15. RCK closed 1534, -3 on what amounts to utter disinterest. For those surprised by London’s “strength” as KC withered away, we now have countervailing “weakness” that in the end amounts to a whole lot of nothing.
Arabica closed up 215 points at 98.95, wiping out 2/3 of yesterday’s losses as follow up selling failed to materialize. Roasters again were happy buyers sub $1, adding to their already impressive length. K/N tightened a tick to -2.75 on good volume (6k+ lots), while N/U went out flat, -2.80, on 3k+ lots. Certs fell 6000 bags and remain a key focus for those looking for a turnaround spark. Substantial work on that front remains. Robusta continues to be quiet, trading a $13 range, settling up $10 as the chart again looked like a scatter plot for what seems like the infinitieth straight time. K/N creeps ever closer to level money (-4 settle, $3 tighter) with Vietnam kicking the can as prices fail to stimulate interest and Brazil remains over yonder.
Arabica succumbed to unrelenting pressure, wavering between sideways and down for nearly the entirety of the day while settling 96.80, -305. The anguish engulfing the market finds many measures; a fresh KCK9 contract low (96.35), closure of the 98.20 - 98.60 gap many had presumed would exist for a generation, and the lowest 2nd month continuation price since Sept 18th at 95.10 when the non-commercials posted their record short position on the CIT, 151k gross / 113k net. Fairly massive option volumes traded on the day, with 1600+ K 115 C leading the charge (paper buy ½ of them laid up around the NY lunch hour), 1500+ K 100 C, ~1200 J 95 P, and ~1200 M 120 C (paper again a buyer delta neutral). Origin was nonexistent from our perspective, both in direct paper and in posting, leaving a consensus sentiment of astonishment amongst traders at the one sided flow. Robusta continues to want for interest, falling $12 to 1538. By most accounts Vietnam is undersold and Brazil has yet to begin marketing Conilons in any real volume. Price action remains choppy across the pond, though structure tightening on the day was a source of interest as KN closed -7, +3 and NU -11, also 3 ticks up.
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