Morgan Stanley Coffee Report

Early losses were erased as coffee traded to the bottom of the elusive gap, yet the void from 12195 to 12210 proved unfillable.  European hours weakness followed yesterday’s pattern, though with Chinese exports falling an astounding 25% yoy in February, generalized commodity vulnerability was forseeable.  Indicating the recent unpredictability of markets however, US equities followed their overseas lead and declined only a marginal amount, while early session strength in energy markets evaporated by mid-morning New York time.  Coffee followed the Crude trend for the first 2 hours of the North American session before separating and rallying higher on a mix of spec buying and market makers covering the delta from an array of bullish options.  The +Z 150 C / -N 120 P continues to trade, following 3 weeks of action in the strategy, and early morning demand for the K 135 / 145 CS was followed later in the session by the N call spread featuring the same strikes.  1100 U 150 / N 140 CS traded through the close as well.  Robusta managed to climb back over 1400 as reports of firm differentials across the relevant major exporters persist, along with limited flow.  Fundamentally bullish, the London market has shaken off such indicators in recent times, as the exchange Conilon poison pill combines with reported Vietnam upcountry stocks to provide a difficult swallow to Bulls.  With KC spreads remaining firm, and RC structure weak, it will be interesting whether creative traders find a way to capitalize on the disparate and occasionally conflicting indicators.
 
 
Chris Hampson