Morgan Stanley Coffee Report - Nov 3, 2020

US election day trading was predictably volatile, buoyed early by risk on trading and aided to some extent by weather risk in Central America, while the 345 point rally at the high was undone in part by a rapidly weakening BRL as swap rates rose.  KC futures ended the day 103.45, +.65, and while media reports credited Hurricane Eta, an “extremely severe hurricane” in the words of the NWS National Hurricane Center which is poised to move ashore in Nicaragua today and through Honduras in the coming days, commercial traders widely dismissed significant risk to the coffee crops based on both timing and perceived storm track.  While humanitarian concerns and risk to infrastructure were the primary points of worry,  NOAA flagged “A ridge to the north of Eta should steer the cyclone on a  faster westward to west-northwestward heading over northern  Nicaragua and Honduras over the next couple of days.” Whether this weather risk or the dollar / commodity trade was the bigger positive input early can be argued, but in either case the rally was fleeting.  The BCB released its meeting minutes, with COPOM warning of potential risk to its low interest rate regime.  The committee stated “that changes in the fiscal policy that affect the public debt trajectory or compromise the fiscal anchor would motivate a reassessment, even if the spending ceiling in nominal terms is still maintained” (Bloomberg reporting).  Volumes were a bit above recent trends by all measures as KCH is poised to move into active contract territory ahead of Friday’s index roll commencement.  Z/H weakened a tick to -2.60, accounting for the entirety of the 5 point loss in Z/Z (-9.30).  Certs were unchanged as pendings rose to 70,744, +5763.  There were no gradings.  Option volume was dominated by low cost upside expression (Z 110 C, 2375x and F 115 C, 550x) and CSOs (ZH -1.00 C 2000x, ZH -2.60 Straddle 1200x, HK -200 P 1100x).  London fell $15 to 1327 while F/H backed out $4 as well to -13.  Gradings  totaled 188 lots, split amongst Amsterdam, Antwerp, and London, all Conilon.  There were no tenders.