Morgan Stanley Coffee Report August 6, 2020

An absolutely massive day in coffee trading in all senses except for settlement as the active KCZ closed 123.40, -.05 and the prompt KCU 50 points stronger at 121.55.  Dec futures traded in a 655 point range that felt larger, capped on the 61.8% retracement of the 1 year range basis KCZ.  What had been a steady climb through the day, consistently taking out chunks of Brazilian and other selling dramatically reversed course just after 11am, trading the entirety of the range over the follow hour with scarcely a moment of recovery.  Aggregate futures volume was 101,574, or 106k+ including EFPs and EFSs, the largest going back to February 11th and the 30th largest on record.  Spread totals were also large, totaling 43,554, as was outright trading in the 2 most active contracts, both of which came in at their heaviest since we began tracking these in late March.  Spreads were on the move again as U/Z rallied 55 points to -1.85 and Z/Z gained 20 to -4.40 even as Z/H backed out 2 ticks to -2.00. While reports of Brazilian coffee trading at tenderable levels (in both markets) continue to flow in, the structure seems to be discounting the likelihood of it being a lasting remedy.  Certs fell another 14,603 bags overnight with no new pendings, and much of the conversation was around the likelihood of the coffee reappearing as future regrades.  Late July pass rates appeared to be declining from the YTD average, however the publication of the months grading summary suggested that appeals were mostly successful for an effective 79.53%, with color failures being the bulk of the issue.  Robusta fell similarly off its perch, closing 1379 -25 basis U, $87 off the intraday high and only $3 off the low.   Spreads remained in backwardation, yet U/X lost $1 to close +17 after peaking $30 higher midday.  The U/U arb closed at a recent high of 59c.