Morgan Stanley Coffee Report - January 5, 2021

Arabica fell 105 points to settle 125.10, a second straight negative close to start the year.  Prices were stable through the early session and ticked up ahead of 8am but neither the quiet nor the marginal plus signs would last.  8:29am saw heavy volume (1100+ lots) as prices plummeted 2c, a familiar trade, and even heftier volume across a 3 minute spread starting at 8:37 as the lows were traded.  The sell-off was arrested at trendline support, at least basis KC2/KCK, as the low came in about as perfectly at the intercept as possible.  A lack of follow up selling and a friendly turn in the BRL prevented further losses, yet a return to positive prints was not in the cards.  Competing export inputs were released as well; December Honduras exports fell 17% YoY to 281,471 bags as the hurricane disruptions and high diffs limited shipments yet global exports for November were pegged at 10.15mm bags, +5.7% YoY  driven by Brazil, Colombia, and Indonesia.  KC again underperformed the broad agricultural basket – the lone BCOM AG subindex component to decline – driving speculation as to whether coffee is the short leg of the new year inflation trade with spreads breaking again, HH -8.70,  or if it is again just a day delayed.  Robusta shed $7 as well, falling to 1365.  Spreads were steady in London with H1/H2 settling unchanged and H1/K1 a dollar firmer at -9.