Morgan Stanley Coffee Report

The week ended on a high note after a seventh day of lower lows, climbing back above the 120 strike that featured 2877 lots of Call OI entering the day and 2605 in the Put.  The K 120 P was the most popular trade of the day, changing hands 1716 times, following yesterday’s 2051 lot performance.  A tight 225 point range never allowed the market to move more than 130 points from the 120 strike that proved magnetic.  The day’s high coincided with a rally to the peak of the intraday crude market, although the charts are significantly divergent enough to engender skepticism that this was the catalyst.  A third consecutive weekly negative close illuminates an interesting, if perhaps coincidental pattern, as the previous 12 weeks have provided a 3 up, 3 down trend.  Robusta remains the favored market, as weather concerns in Vietnam, which is reported to remain dry through the nearby forecast, along with consistent industry demand  provides support.  An opening decline in the RC market found immediate buyers, providing value not seen again throughout the day.  Mid-session weakness in Arabica was shaken off by the London market as it traded higher for the 3rd consecutive day, as the correlation between the 2 markets wanes, as seen below in a 3 month daily chart.  The COT net noncommercial  position came in at +8760, a bit below consensus.