INTL FCStone Daily Coffee Report

Prices for Arabica coffee futures rode the tail wind of 20 consecutive trading sessions with an open interest (OI) increase, presenting the highest close of 2016; and inching into the 30th percentile of high prices over the last five years. The active contract for December delivery rose 5.70 cents to end at 171.35 per pound. OI has increased 35,836 contracts over the 20 straight trading days since October 7th through November 3rd, representing new participants equal to over 10 million bags of global production in size terms. This unprecedented performance has now propelled the spot continuation “C” futures 35.24% higher this year; and up over 53% from the January 21st 111.60 intraday low. Speculative buying appears to constitute the greatest concentration of the new activity as Coffee traders weigh the impact of sharply lower Conilon production and seemingly low stocks in largest producer Brazil. This concern is now being exacerbated by the expectations of a lower Robusta crop from second largest producer Vietnam. The sum total of crop losses is anticipated to curtail global output placing additional stress on supply chains that will also be vulnerable to any unforeseen weather events over the coming year. Looking ahead (short term) is the upcoming ICE US December options expiration on Friday, November 11th.  Heavy OI is quite spread out for calls ranging from 150.00 to 180.00 strike prices, while puts see heavy OI from 160.00 down to 150.00.  First notice day for the December contract is November 21st, and OI in Dec still stands at over 94,000 contracts despite increasing switch activity.  Lastly, this Sunday, November 6th daylight saving time ends at 2:00 AM in the US, and clocks “go back” one hour.

London Market- Sustained strength in New York pulled London higher as values breached what was the 2016 high at $2191.
Arbitrage traders continued to stunt the upward momentum of the Robusta terminal, buying the H/H (buy N/Y, sell London) as values moved through 75 cents. The scattered presence of origin selling further prevented the explosion to the upside which was seen in New York. A fresh wave of spec buying inside the final 15 minutes of the session breached the near term upside targets although came too late to test the psychological $2200 barrier which remains going into next year.
Options generated siginifcant volume with 1850 lots of Jan 2000/2150 callspread (traded 1x2) with a 26% delta at $2191. Downside proctection remained sought, as participants looked for cheaper downside proctection as outright futures prices continued to rise; 1000 lots of Jan 2000 puts bought at $19 with 180 futures bought at $2191.