Coffee Commentary by BGC

Good morning all. An indiscriminate sell-off across global markets yesterday with overnight Asian bourses weighing on European and US equities, prompting the biggest global sell off since September. The declines started in China after data showed the country’s huge manufacturing sector contracted at a swifter pace in December than forecast. The doom and gloom gathered pace after it emerged that US manufacturing hit its weakest pace since June 2009.Concerns regarding Brazil also worsened with the economy forecast to contract more than previously thought, heading for the deepest recession since at least 1901 with confidence in economic activity slumping a midst the recent political crisis. A somewhat ominous start for 2016, although the reality for coffee is yesterday’s losses merely offset the majority of the positive price action seen on the final session of 2015.   
 
Broadly  commodities  will  look  towards  index  re balancing  due  to  take  place  from  the  8th   to  the  14th .  It  has  been  well  advertised  that  coffee  is anticipated to encounter 8-9,000 lots of buying, although recent TAS bid activity has prompted some to think maneuvering, in some form or another, may have already taken place. Yesterday’s TAS trades saw an early offer of just under 400 contracts offered at FLAT, which then went offered over for another approximate 300 contracts.  
 
Brazils trade ministry preliminary export figures show December exports at 2.97m bags, an approximate 67,986 basg lower than the same month last year.  
 
Robusta Jan16 Tenders totalled 2216 lots on first notice day. All tenders were Brazil  Conillons, 85% of which was issued by ICS to numerous receivers with the majority going to FIMAT totalling 855 lots. Market structure traded marginally softer with Mar16/May16 printing a low of 29 under on a volume of 1,014 contracts. Market rhetoric suggests that new owner(s) may have commercial homes for these stocks; any drawdowns over the
coming month may give probable confirmation.  
 
Robusta commitment of trader’s data was published whilst Arabica was delayed. Managed money registered at -23,392 Short (chg. +147), whilst commercials reduced net longs by 552 lots to register a long of 34,168 contracts. Open interest decreased by 2,597 lots to 133,047 lots. Arabica COT data released Monday evening shows that for the final reporting period of 2015 non commercials, the proxy for large speculators, reduced netshort exsposure by 989 contracts ahead of the new year registering a net-short of 20,556 lots.  
 
The Latest report form the Australian Bureau of Meteorology suggest that El Nino has peaked in recent weeks. According to the Bureau “Tropical Pacific Ocean temperatures suggest this event is one of the top three strongest El Niño events of the past 50 years”. The same climate model predicts that the 2015–16 El Nino will decline during the coming months, with a return to ENSO neutral likely during the second quarter of 2016.
Models  also  suggest  neutral  and  La  Niña  are  equally  likely  for  the  second  half  of  2016,  with  a  repeat  El  Niño  the  least  likely  outcome.

 
Notable Options trades:  
 
Robusta
400x DF H6 1600C trade @ 57
300x DF K6 1600C b1555 (43%d) trade @ 57
Arabica
850x KC H6 120/110 1x2 PS vs125 (12%d) trades @ 2.00
622x KC G6 120P Live between 0.35 to 1.15