Morgan Stanley Coffee Report - February 10, 2021

A huge day in Arabica on March option expiration as KCK futures fell 185 points to 123.15 after early positive prints above the active 125 strike.  Given the roughly 2 months spent building OI at effectively the same price as the in-play expiring strike (124.40 VWAP since Dec 10, KCH), and the 4th day of the Index roll, the recipe for huge volume was there.  On that front coffee did not disappoint – the aggregate futures volume of 86,119 was the heaviest since September 15th, 43,125 spreads were the most in even longer – going back to August 5th (a 100k total volume session), and even the outright trading in H was resurgent as OI pares down, the most in 3 days as total outright activity in the front 2 months came in 6100 lots, 43%, higher than the 2 week average.  The charts saw some damage as KC2 flirted with the lower end of the short term trend channel while convincingly closing below the 50DMA (125.03).  However, the longer term range held as well as the trendline support back to the mid November breakout, and prices remain well above the 118.50 100DMA.  It should also be noted that heavy selling was featured across the Ag space.  The BCOM AG subindex fell 2.54% (KC declined 1.5%), as all components save Sugar (which arguably saw energy-driven support) traded lower.  While H/K settled -2.05, unchanged on the day, the VWAP was -1.999 and the spread traded as high as -1.85 late in the session (around 350x).  Far more traded on the ask over the day, 13,455 vs 5719 on the bid, suggesting buyers were the more aggressive participant.  Robusta saw better support as short term systems covered, driving prices $9 higher to 1374, running into the UBB.  However, H/K weakened $2 to -25dit.