Morgan Stanley Coffee Report

Saved by the bell indeed, as the 100 and 200 day averages which held on yesterday’s close, were readily violated after today’s opening.  In a pattern similar to Monday’s, prices initially dropped then traded sideways before breaking for another leg lower once U.S. markets became active and the dollar started to strengthen, especially against the real.  The Brazilian currency weakened 1% to 3.66, for its first back to back weaker performance in 3 weeks, as emerging market currencies fell on renewed concerns for a global economic slowdown.  The CRB is already down 3.3% in the first 3 trading days of the new quarter, while Arabica coffee prices have dropped 5% mtd and 11.6% from the 13640 highs of the 23rd of March.  The pace of fund liquidation, judging by last week’s COT report, and considering this week’s drop so far of only 879 lots of open interest, is demonstrating that while funds were quick to reverse from short to long, they are not in a rush to exit.  The last time the market stood at 120ish funds were net short 13,711 lots. They are either in it for the long haul, or, should the pace of liquidation accelerate, we are destined  to take out the lows.  As we have seen since the beginning of March, all could change in a heartbeat, should mixed economic signals reemerge.