INTL FCStone Daily Coffee Report

Arabica Coffee futures extended recent gains to a seven month high by posting a 660 point increase and settling at 164.50 cents per pound for the active December delivery contract, prices not seen since February 2015 on strengthening of the Brazilian real amid a tight supply and demand scenario. Volume increased significantly to 62,491 lots, including 15,463 switches. Speculative buying got to work early in the session, as data showed lower Brazil exports and prices continued making new highs. The rally surprised short term trades, forcing them to cover short positions early on. Recent weather concerns in Brazilian and Vietnamese Robusta producing areas have maintained the market firm. Nevertheless, arbitrage values have widened nearly 8 cents in the past two days, suggesting Arabica is pulling Robusta higher. In addition, the strengthening of the Brazilian real (USDBRL 3.1110) has attracted additional speculative buying. In Brazil weather news, scattered showers have favored central and southern Sao Paulo and western Parana, and are expected to build throughout southern Minas Gerais, Sao Paulo, and Parana up until Saturday, which should replenish moisture and improve conditions for the flowering crop, according to Cropcast. In macroeconomic news, participants will eye the upcoming Brazil unemployment data on Thursday, followed by US GDP on Friday. In options activity, over 5000 March Calls traded between the 175 and 200 strikes, reflecting upward protection.
London Market- Upward momentum continued to build in London as aggressive technical buying in New York pulled values higher. Roaster buying once again provided support, albeit in light volumes, towards the bottom of the day’s range amid ongoing rains delaying harvest in Vietnam, as January breached what was the annual high at $2163. Both volume and upside momentum increased as the U.S emerged online, as London tracked significant upside traction in the ‘C’ contract. Flat price strength was reflected in the structure, with the Nov/Jan narrowing as far as $19 as November book management continued while the F/H narrowed to $6 with January contracts remaining in high demand. Though origin pressure remained absent, resistance was found through arbitrage players as the H/F widened 4 cents to 67.3 cents. Options activity simmered as participants searched for cheap downside protection with futures ticking higher, as 1000 Jan 2000 puts were bought at $25 with a 19% delta at $2178.