Morgan Stanley Coffee Report - Sept. 9, 2020

Coffee futures slumped 325 points, settling 128.85, and in what has become an increasingly relevant factor due to final hour jockeying, posted a final print of 128.00, 40 points off the day’s low.  Yesterday’s cert draw was modest, and early returns on the spread were tepid.  Origin hedging seems to have slowed a touch while roasters remain skeptical.  The Dollar was an early weight, yet by 9am EDT both the DXY and BRL were increasingly positive tactical trading indicators.  Nonetheless, in what should have been a subdued yet upwardly mobile trading environment, particularly taking into account the decreased volume on the day, futures peaked by 8:30 and began a steady decline for the rest of the day.  The weakness was perhaps not as pronounced as on first glance, as yesterday’s settlement was not indicative of the day’s trading.  The VWAP on the day was down a mere 30 points from 130.00 to 129.70.   Z/H widened 15 points to -80, and the full year ZZ widened to -3.90.  These are strong levels within both historical context and in terms of cost of carry, while the roll yield is a tight 3%, yet the direction of the move seemed to be taken negatively as bearishness in some corners (and fiercely debated amongst the trade) grows around Brazilian diffs.  Certs recorded another strong draw, falling 28,081 bags, while pendings rose 1415bags  to a total 4344.  275 of those were in Houston and were presumably aged Centrals or Colombians, leaving 1140 unaccounted for with no clear signals towards origin.  Robusta was steady on the day, managing a positive performance on late buying (and a stubborn intraday bid) while closing 1416, +5.  Certs rose 59 lots in London, equivalent to yesterday’s grading, have increased a net 118 lots MTD.