Morgan Stanley Coffee Report

The Arabica market struggled to stay above unchanged as the opening print of the day (12865) was 10 points higher than yesterday’s settlement and proved to be the pinnacle of the day’s trading session.  A third session of lower high’s and low’s follows a 23 cent rally from the beginning of March which brought along with it a record reversal pace in the fund position from net short to net long courtesy of 46,000 lots of net buying.  Last Wednesday’s 5 month high in the coffee market coincided with the 6 month high in the real and while the real has faltered give or take 3%, coffee prices have thus far fallen 10 cents or 7% as short term technical indicators turn negative yet teeter on the edge of the 200 day moving average basis May. Outrights in London traded in a quiet $20 range while the option trade of the day was the N 1600-1800-2000 call fly trading 2000 times at 26 points, paper buying the wings.   Dovish comments from Fed Chairwoman Janet Yellen spoken in front of the Economic Club of New York regarding “greater gradualism” in the pace of rate hikes were expressed at 12:20 p.m., which caused the dollar to plummet .7% and while the New York coffee market attempted to bounce in consideration, efforts failed at 12840 and receded to 12710 on the close.  At print the CRB was a mixed bag as the market digests Yellen’s comments meanwhile, the dollar continues to weaken.  Post the coffee market close, in a major blow to president Dilma Rousseff, the Brazilian Democratic Movement Party (PMDB) approved the motion to formally abandon the governing coalition. While the move was largely expected, the Bovespa has extended its best monthly advance since 1999 on speculation the decision may tip the balance against Rousseff.