Morgan Stanley Coffee Report - May 26, 2021

​KCN closed 155.70, +5.20 (+3.46%) while Robusta gained $15 to 1503 (+1.01%).  The arb widened to 87.57c in the active or 88.43 in the 2nd  month continuation, the widest it has been since mid-January 2015 when prices were respectively 179 and 1998 on the downslope from the Oct 2014 240+ highs.  Volume was resurgent in Arabica where all the focus seems to be (the arb / relative lack of robusta follow along with perceptions of the balance sheet breakdown helps foster this), as estimated outright volume in KCN hit 17,952, the most since May 6th, a date which featured a 445 point leap through the 150 line.  For the 3rd day this week futures have climbed post settle as well, though today in doing so it erased an initial pullback before recording a final print of 155.95.  Headlines and technicals went hand in hand on the push higher; an early quiet was pierced at 8am as futures ascended from 151 to the day’s high of 156.75 (a lifetime contract high for KCN21 and the highest price in the continuation since January 2017) over the next 45 minutes with no real reprieve.  Natural longs were noted futures buyers as prices rallied, in part thanks to a story about default risk in Brazil.  While this has been a noted topic amongst the trade, it is not clear what, if any, imminent impact there is on the futures market – many believe it will remain an issue for the cash markets to sort out.  It would seem that much of that buying was more technically or financially biased rather than due to market view.  Notably roaster activity was reported to be muted as spot inventories and reported comfortable replacement diffs from origin offer little appearance of nearby supply constraints.   The spreads were uneventful, N/U unchanged at -1.95 and N/N 20 points stronger at -8.55, albeit well within recent levels. Certs were mixed, Brazils rising 7075 bags, Hondurans falling another 4211 (6261 in 3 days), Peru down 1000, and Rwanda and Burundi ticking lower as well.  In aggregate exchange stocks were up 1512 bags, driven by a 3555 increase in US ports, while pendings fell 10,720 to a still material 93,077.