Morgan Stanley Coffee Report 02-02-16

A positive performance in the coffee market which managed to rally to a new high for the run, settle at its firmest level in 4 weeks, and alleviated some of the concerns that Friday’s sell off was much more than month end related. Not much new in the way of a catalyst to trigger the buying as short term systems remain engaged covering shorts whilst the market flirts with the 40 and 50 day moving averages of 119.45 and 120.11 respectively.  Bullish option paper gave some pause to natural sellers today, the most notable trade being  2200+ May 135 calls bought live between 260-270 points. With a 27ish delta attached to the strike, delta hedge buying aided the market in trading to a 4 week high of 12050 basis March. The trend in cert draw down and reflective tightening of the curve is being closely monitored as having the potential to be the “smoking gun” that could lead that market higher.  To wit, the Mar6-Mar8 spread which started the year trading at a discount of 1695 points closed today at 1465 under, encouraging to those who believe the structure must lead the market higher. A constructive spin on the day for a market well accustomed to seeing the glass half empty.