Arabica posted a modest recovery rally, gaining 55 points to settle 88.55. Volume was about average, and the best buying was seen around 8am EDT as small stops appeared to be triggered through the 89 level. The June 90p leads relevant OI ahead of Friday’s option expiration, 3k+ entering the day and is seen by some as a short term cap on the market. Ultimately the plus sign will be welcomed by many, but there is little to take from such a day. Robusta meanwhile fell $5 to close 1290 while posting yet another contract low (1267), unable to find any support of substance. Roasters were noted buyers into new lows as they have been all along. Vietnamese selling was noted not long after the open, while multiple reports of improving conilon business in Brazil is not helping sentiment.
Coffee continues to succumb to gravity, pulled 215 points lower to 88.00, the lowest settlement since May 28, 2004. The dollar was a key driver of the weakness as global uncertainty drove risk markets lower. The KC x DXY was persuasive, and while systematic funds would be the logical conclusion, sentiment grows worse by the day and commercials have been the instigator of much of the recent weakness. Outright Arabica volumes were approximately 19k lots, a bit above recent average yet nothing that would suggest the drama that price would. Even as KC ground down to prices never seen by many in the market today, Robusta was the clear focus of attention. July futures fell to 1295, -50, with a low of 1282. The settlement was the lowest since a 1287 double bottom on March 23 & 24th 2010, from which London bounced to 1342 the following day and has never returned (until now). Pressure came both via the arbitrage and reportedly by origin as the Vietnamese hit stop loss levels on shipped / unfixed and deposit coffee. An 8:30am washout saw roaster buying arrive, yet few expect a white night anytime soon. May open interest remains above 2k lots. Interestingly, and admittedly a simple factor of math, Arabica is down the equivalent of $57/mt over the past 2 sessions, with robusta -$50/mt today (which would include any catch up from yesterday’s closed session; KC fell 45 points while London rested). However in terms of percentage moves which may catch the eye of investors, the smaller Robusta pullback in terms of value was also the larger move in terms of ratio; KC is down 2.87% to start the week while RC has fallen 3.72%.
Arabica closed out the week in poor fashion, settling 90.60, -95, having traded into a fresh low for the week on the settlement period on what was far and away the best volume of the day. A familiar arb was present, with Coffee and Sugar trading the Americas session in tandem (and in opposition to a strengthening BRL) as Crude and the BCOM at large ascended. Discretionary buyers were in short order, seemingly dissuaded in part by the admittedly modest arrival of yet more Hondurans at the exchange. Robusta continues to find new ways to depress, falling $19 to 1345. Yet another contract low was posted, taking out the Feb 2016 level by $1, and finding “support” a mere $2 above the 19 year lows of Jan 2016 (1339).
The Arabica market settled with a 50 point gain at 93.15 amidst tranquil dealings in the outrights and an unchanged structure. Prices traded to the tempo of the BRL, for lack of a better excuse, with the high in both markets occurring shortly after the currency markets started actively trading. KC opened on the low of 92.55, then managed to trade a 6 day high of 95.10, before prices succumbed to a lack of upside momentum, and gravitational forces pulled the market back to 93 cents by the closing print. Open interest fell by 2,115 lots, its 10th drop in the last 11 days, and has fallen 25,395 lots since April 15th, the biggest caveat obviously being the approach to FND into 14 year lows. Across the pond, May open interest still stands at 4,238 lots while notices remain a scant 100 lots to date. Robusta traded an inside $13 session settling plus $4 at 1407 MT.
The Arabica market accreted 65 points to settle 96.75 basis July, trading in a 135 point range amidst lackluster outright transactions. A firmer BRL ($R 3.82), helped keep coffee prices stable as Brazil’s annual inflation was reported to jump to the highest in more than two years on rising food and transportation costs. May/July steadily changed hands 18,585 times between 250 and 240 under on day 4 of the index roll. Open interest in May stood at 90,442 lots entering the day, as the contract with the highest open interest shifted to July, 3 days before May option expiry. May/July London traded 9,266 times and fell to 29 under, its widest active level, while the July contract traded a double bottom (1439), with yesterday’s low and settled with a $10 gain at 1452 MT.
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.
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