Morgan Stanley Coffee Report - February 17, 2021

​Arabica gained 120 points in a fairly subdued day of trading, closing 127.40.  KCH positions should have been largely cleaned up going into tomorrow’s FND as OI entered the day at 8432 lots, with 10,994 H based spreads trading and a combined 1909 KCH EFP/EFS’s posted, though there is always room for a surprise.  Futures were effectively flat after opening higher through the “pre-pit” session, trading a 115 point range from the open through 8am.  A relatively shallow yet glaring V shaped selloff around 9am was short lived and prices never really retreated thereafter, ignoring a stronger dollar and a choppy, late-opening BRL that weakened <1%, disappointing bears who expected catch up selling as the currency reopened.  H/K continued its week+ long ascent, trading as high as -1.65 as the close approached. Chunky by the day’s standards selling showed up at the settle time however, and the spread widened as far as -2.25 by 12:40.  The settle was marked at -1.70, the day’s VWAP was -1.77, and the day’s strongest print was notched with a minute left to trade at -1.60, yet the roughly 35 minutes of weakness was a good reminder of how wonky that spot spread can get on the last ~1000 lots before FND.  Wonky could also extend to the big news of the day, where the GCA posted a revision to yesterday’s inventory release.  Gone was the January decline of 135,130 bags, replaced by a build of 50,870 as the oddity of the December Jacksonville print was resolved by a warehouse correction, while December’s reported 169,195 bag US increase was flipped to a 16,805 bag decline.  That Dec Jax number was assumed to be inaccurate by the bulk of the market by yesterday afternoon, and in the end a large-ish December build that had been a bearish weight on KC for a month was erased, while yesterday’s surprising MoM decline was also negated.  Since November there has been a net increase of 34,065 bags of inventory, a fairly mundane factor after a bit of a rollercoaster to that final conclusion.  London meanwhile gained $9 to 1372 on March option expiration.  With a reference price of 1341 steering clear of major strikes, there were no surprises. Steady strength was driven by short covering & KC sympathy buying, though total travel was a less than impressive $18 on the day, less than 1c equivalent.