INTL FCStone Daily Coffee Report

Arabica Coffee Futures settled lower for the third consecutive session, pressured by a bearish commodity sector outlook and pressure from currencies. The active contract for July delivery settled 170 points lower at 128.55 cents per pound, after breaking through recent lows to 128.00. Volume was limited, trading 24,640 lots. Prices consolidated near the recent lows finding some support. However, bearish pressure from the softs commodity complex prompted additional speculative selling. Additionally, the Brazilian real reversed early gains, and began weakening towards the end of the session. The sum of these factors was enough to push levels to new yearly lows. In macroeconomic news, Moody downgraded China’s credit rating, pushing commodities lower on expectations of lower global aggregate demand. In addition, the Brazilian real was pressured, since China is Brazil’s largest trading partner. US Fed minutes were published after the close, noting plans to reduce the balance sheet. In related news, the latest data from the Colombian Coffee Federation (FNC) showed that coffee production in April was 20% lower than the same month last year, to total 834,000 60-kg bags. The country has also been dealing with transport challenges due to landslides and a recent strike at Colombia’s Pacific port, Buenaventura.
 
Flat prices in London ticked down throughout the session to breach the nearby low at $1916, although failed to generate sufficient follow through selling to test $1900 basis July. With the market having observed a downward trajectory through relatively low volumes in recent times, it seems many participants await a breakout below $1900 before a test of the recent lows at $1871 in order for volatility to return to London. Scatterings of commercial buying continue to chip away as the board moves lower, although lacking in volume with good levels of coverage having been extended from the original move lower.
Good volumes of options traded further down the board, with  1000 lots of Sep 2000/1900 fence (to the put) trading between $12 and $13 with an 83% delta at $1933 . A further 1050 lots of Sep 21501850 fences, also to the put, traded at $25 alongside a 54% delta hedge at $1942. With recent flat price action yielding little open interest changes in the futures market, participants will closely monitor the release of tomorrow’s numbers in order to discover if these were new positions being established.