Morgan Stanley coffee report - July 22

Arabica posted a remarkable session, gaining 660 points to close 108.35, its highest level basis KCU since May 19th.  The 660 point rally was the largest since March 3rd.  Futures extended yesterday’s macro aided gains from the open leaving sizeable rollover gaps on the continuation chart (75 points on KC1, 215 on KC2) as a fair adieu was bid to the N20 contract.  Continued weakness in the DXY put a wind in New York’s sails, subdued business overnight In Brazil due to lower prices in local terms kept fresh hedge selling at bay, and sizeable buying around 6:30am NY time took out yesterday’s high (102.95).  There was precious little backtracking on the day and as the trend turned positive, waves of spec short covering spurred prices ever higher.  Long commercial / discretionary profit taking was noted as futures rose above the lower range trade targets, but would not be fairly termed aggressive.  Although the managed money short at 59k lots is well below last October’s 94k+, it is only slightly below the late June 62.7 max for 2020, allowing ample opportunity for continued buying if the momentum can be sustained and macro factors remain positive.  Nonetheless, aside from the final settlement price, action was quite similar to June 29th.  Outright volume in the prompt came in at an estimated 23,222 today vs 24,203 on 6/29/20, total volume today 63,567 vs 66,118 that day, spreads were around a 1k lot difference, and the intraday VWAP change from the prior day was 487 points today vs 465 points on the 29th.  While today was a convincing breakout from the recent term 95 / 105 range, that session saw a 22 day run of the active contract settling below $1 conclude.  Coffee traded modestly higher for the following 3 days before pulling back to the midpoint of that day’s breakout as commercials grew in confidence with their selling and short covering faded. Whether a similar model is ahead from here remains to be seen. Certs fell 275 bags, drawn from NY, while pendings remained unchanged.  Structure tightened in the front (U/Z -2.65, +0.10) and out the curve (Z/Z -6.50, +0.50).  Robusta too benefitted, though to a lesser degree than yesterday, as futures rose $40 to 1357.  Options in London again saw the largest trades, with the U 1100 P trading 2250x live.  Spreads were mixed as U/X gained $2 to close -13, and X/F weakened 2 to -12.  Robusta certs declined 13 lots net, with 18 new gradings (12 London, 6 Antwerp, all Conilon) pairing with 31 lots drawn.