Morgan Stanley Coffee Report

The risk trade vacillates on and off, yet coffee continues to march upward, shaking off a deeply skeptical discretionary community’s selling.  The roll provided the bulk of the volume to the board today, while Q call activity was significant as well as single strikes dominated.  Much of the morning’s positive performance seemed driven by system buying off technical support & a weak dollar and the macro rally reemerged as Britain paused their Brexit campaigns to mourn the loss of Parliamentarian Jo Cox.  Midday selling from fundamental bears took coffee well off the highs, eventually triggering stops and plunging to the lows on the best outright volume of the day before short term spec buyers stepped in, stabilizing trading.  Robusta finally awoke as well, trading to the verge of 1700 before settling up $26 on the day.  With the arbitrage around 66cents, one wonders whether the top end of the arb trade that has held since Feb 2015 can be taken out, or if something will have to give, particularly with most observers noting a tighter s&d landscape in robusta than arabica.  With the COT coming in at the higher end of expectations featuring a Net Non Comm of +19,137, it may be that Arabica is responsible for the gap closing.  Coffee has been resilient of late, and it remains to be seen if fund  positioning alone is enough to stem the momentum.