INTL FCStone Daily Coffee Report

The battle against the 20-day moving average continues, as coffee futures erase nearly all of yesterday’s losses, helped by a recovery in the Brazilian real. The active contract for July delivery settled 150 points higher at 136.65 cents per pound. Volume reached 26294 lots, including 6944 switches. Inflation figures in Brazil beat estimates, decreasing for the 8th consecutive month at 4.08%. The Brazilian real strengthened 0.77% at 3.1682, limiting origin selling. June option expiration on Friday might add volatility to prices. Open interest is concentrated near the 135.00 Puts and 145.00 Calls. In related news, Brazil’s Trade and Industry Ministry has authorized four drawback requests to import Robusta coffee from Vietnam into the country. Japanese warehouse coffee stocks rose 0.3% in March to 202,558 tons.
London seems to have found short-term equilibrium for now, with today’s session once again unfolding within the recent trading range. The lack of turnover reflects a considerable drop in physical activity following the recent move lower, with many participants content to take stock and re-assess positions while the market absorbs the sharp change in price level. Much of the current action seems to be being driven by intra-day traders, a theory backed up by the low turnover and minor changes in open interest of late. Structurally the market remains under pressure (July/Sep ended the session out at -19 discount) and option activity continues to grow in out-the-money strikes further down the board, on both sides of the market. Today’s highlight was 750 lots of the Sep 2100/2350 (1x2) call spread trading at $31, alongside a 9% delta at $2035.