Morgan Stanley Coffee Report - August 27, 2020

Arabica traded a predictable day in its inputs if wildly unpredictable in path on its way to a 122.35, +.25 settle.  KC was quiet early, suffered a sharp sell-off on a near 500 lot clip of volume while the US slept, and crept cautiously higher ahead of Fed Chair Powell’s 9:10am Jackson Hole Symposium address.  Via Morgan Stanley Research, “In a unanimous vote, the Fed adopted a new policy framework that "seeks to achieve inflation that averages 2 percent over time". As a result, "following periods when inflation has been running persistently below 2 percent, appropriate monetary policy will likely aim to achieve inflation moderately above 2 percent for some time." That was in line with what we expected – a flexible average inflation targeting framework that avoids setting a formulaic time-horizon over which the Fed seeks to average 2% inflation, but emphasizes that the Fed will target an inflation overshoot in recoveries following inflation shortfalls during downturns.  Also in line with expectations, the Fed dropped specific quantitative targets for maximum employment. ”  The Dollar initially reacted as expected, trading a new low and bringing coffee & the commodity complex higher, yet counterintuitively it all quickly unraveled.  The dollar went positive, commodities sold off in near unison, and KC fell as low as 118.90.  Sugar turned higher first, and by 10:15 Arabica had not only stabilized, but began a nearly unbroken march higher.  Ags as a basket were the strongest performers amongst commodities with cotton the lone BCOMAG component trading lower at the end of day.  The resilience of KC was notable as it was yesterday in that it did not irretrievably roll over when presented the chance to, a marked difference from much of the last couple years trading.  Spreads were mixed with ZH a tick higher at -1.35 and ZZ 35 weaker at -4.95 as the yield closed right around 4%.  Certs fell 19,228 bags, all but 275 of them in Antwerp.  Pendings rose ever so slightly to 3915.  Robusta was not as spirited, falling $22 to 1405.  Certs rose 300 tons on a fresh conilon grading as inventory draws overall have moderated in the past 2 weeks with gross increases of 480 tons of conis mixed in.