Morgan Stanley Coffee Report - May 18, 2021

​Arabica gained 705 points (4.84%) to close 152.80 while London rallied $56 (3.84%) to 1515 and the arb widened to 84.3.  Volume was up from the past 2 days’ sleepy trading, yet even with a 640 point range (prices gained 90 points after yesterday’s 145.75 settle to go out trading 146.65, then gapped higher to 147.30 in opening trading vs yesterday’s 146.90 high), estimated outright volume was only 4200 lots above the 10 day average, and a reasonably docile day in spreads kept total exchange volume less than 300 lots above the 10 day average.  The rally was in effect immediately after the open, as prices gapped higher extending yesterday’s post-settle gains and more.  An article highlighting the ongoing dearth of rainfall in Brazil was at the top of the Bloomberg ticker after yesterday’s close, driving fresh eyes to, as they stated, “World’s Oranges, Coffee at Risk as Brazil Runs Out of Water.”  If such a headline was not enough, currency tailwinds aided the futures contracts, and it appears some took the GCA as a bullish signal, although that was a less favored narrative for the day amongst traders.  Liquidity picked up as prices rose higher -  volume traded on the offer outpaced the volume on bid 10,120 to 8073 – yet volume on the bid was actually heavier at 150 and from 151.50 to 152.50, suggesting that sellers perked up at round number resistance (150) and around 600 points up on the day.  While the headline story was seemingly the catalyst for the move, there were likely some underlying flows also aiding KC.  The BCOM Softs subindex was all positive, with Cotton gaining +2.05% and Sugar +1.29% on a day when the BCOM was marginally lower overall.  Cocoa and OJ – markets excluded from the BCOM – failed to generate positive performances, even with OJ sharing the ticker headline.  Spreads gained, though perhaps not in the way some bulls would have preferred, as NU picked up a tick to -1.95 and NN rallied 30 points to -8.25. The charts will rollover tomorrow for continuation purposes with KCK1 going off the board, KCN1 becoming the front month and KCU1 the 2nd.