Morgan Stanley Coffee Report - Sept. 23, 2020

Arabica closed down 15 points, settling 110.50 basis KCZ in a mixed day of trading.  Early returns were negative and futures chopped around in minus territory until a burst of buying broke KC out of its rut just before 10am EDT.  Interestingly that rally came right as the BRL and DXY were both giving bearish inputs to coffee, and KC continued to trade in opposition to the FX for the next 45 minutes.  Volumes were staid, with KCZ implied outright the 2nd lowest in nearly two months (Sept 3 and then Aug 28th lower), total exchange volume was a touch below normal (1300 lots below 10 day avg), yet 19k+ spreads traded, about 700 more than the 10 day average.  While KC2/KCH broke through the swing low / approximate double bottom at 112.15/112.20 convincingly intraday, the 112.25 settlement was a tick above yesterday’s low and above that level.  This set up a long-legged doji formation, an appropriate sign of indecision and a possible (but not conclusive) sign of impending consolidation. Given the competing factors in the market and apparent unwillingness of roasters to catch a falling knife, indecision seems accurate.  Spreads were slightly stronger, with ZH up a tick to -1.75 and ZZ 15 points tighter at -7.00, tightening yield ever so slightly even as flat price fell.  Certs fell 1100 bags, all in NY, while pendings rose 1925, also in NY.   London performed better, gaining $8 to close 1349 as it never suffered the late selling that befell KC.