Morgan Stanley Coffee Report

An outside session ended with the lowest close for the Arabica market since the 3rd of March,  as currency related and momentum selling put further pressure on prices. Brazil’s real led the drop in emerging market currencies, falling 2% at the low to 3.7183 to the dollar, after the central bank sold 8,500 of 20,000 forex reverse swap contracts as it extends its effort to weaken the currency.   Meanwhile across the pond London staged its strongest rally since the 22nd of March as concern grows over dryness in Vietnam and conilon growing regions of Brazil.  The K/K arbitrage tightened by just short of 3 cents to 51.94 London under NY as fundamentals led London higher while systems liquidation carried New York lower.  NY open interest has now fallen by only 1,047 lots since last Tuesday which is causing many who would be willing to buy the dip to hesitate.  When one looks at May and July separately, the months in which funds are most active, the net decrease in May open interest since last Tuesday is 7,037 lots  (5,907 week over reporting week)  which should provide a clearer indication of the pace of liquidation.  May/July traded 17,616 times on the first day of the traditional index roll in a -215 to -200 range. A total of  35,085 spreads traded (3,598 KU, 4899 NU, 2580 UZ), all settling around unchanged, bringing total volume on the day a hefty 78,459 lots.