Morgan Stanley Coffee Report

Another strong performance for the coffee market with Robusta closing at its highest level since April 22,2015 and Arabica settling at its highest level since the 20th of February, 2015, as coffee prices continue to benefit from technical and macro inspired fund buying.  The sell side, be it origin or managed money, by all accounts is thin, as discretionary sellers who took advantage of the top of the old range around 1.40, have not been provided with accustomed reentry opportunities, and today are faced with the market flirting with the 1.50 level.  Origin, namely Brazil, have demonstrated a disciplined regimen with their hedge selling, in the meantime the roaster has been reluctant to follow prices higher as fundamentals fail to verify the suggestions of price action.  The net non-commercial long position shows funds carrying their longest exposure while commercials carry their shortest exposure since the market was trading above 1.80 at the end November of 2014. While market positions impress as “extreme”, experience has demonstrated that rationally forecasting when the rally will top out, particularly in the face of macro stimuli, is all the more challenging amidst conflicting physical market indicators.