Morgan Stanley Coffee Report

The market started the day trading on the defensive as Brazil’s Real fell amidst speculation that ex-president Lula would accept an offer to be named a cabinet minister potentially shielding him from prosecution and tempering expectations for a change in government.  The real traded 2.5% lower to 3.76 while President Rousseff awaited his response as rumours circulated that Lula had accepted the position to become her chief of staff.  Coffee prices initially came under pressure as short term specs sold on anticipation that the news would be enough to pause the run up in prices from March 1st’s low of 11340 to yesterday’s high of 11770, however the systems funds remain engaged as buyers and a minor new high of 11780 was posted before the market reverted lower.  The action was very choppy as the disconnect in the correlation between the currency and coffee prices, a consistent directional indicator since the years inception, proved undependable.  Unconfirmed rumours emanating from Brazil citing unnamed sources continued to circulate throughout the day, all of which had the effect of creating more uncertainty and putting further pressure on the currency.  In the context of the currency’s performance coffee prices held rather well, posting an 8th day of higher highs and lows, and although revisiting the 12535 lows on the close, only settled down 150 points on the day.