Morgan Stanley Coffee Report

The funds have yet to have their fill and following today’s strong performance it is reasonable to suggest they are no longer net short.  Unfortunately today’s 6 cent range, 335 point net gain and 45,000 lots traded comes a day after the COT reporting deadline so we might need to wait for confirmation.  Action wise the day started with more headlines out of Brazil, starting with a report that the central bank  President Alexander Tombini may ask to leave his post which was followed up with confirmation that Lula will become chief of staff for President Rousseff.  The real which had traded to a 6 month high on hopes for impeachment and an administration change only last Friday, slumped for a third day as sentiment turned risk averse.   Meanwhile coffee disconnected from the weaker real, lower coffee price correlation for a second day as Friday’s breach of the 200 day moving average for the first time in six months keeps systems funds engaged on the buy side.  The firmer “C” market and weaker real naturally encouraged some, but not a significant amount, of hedge selling out of Brazil.  With upside momentum intact, prices gravitated to and through the 12890 highs of December 31st which triggered more buying and a final push to 13000 before pulling back a cent into the close. A very impressive technical performance ended the day with the largest range since the 8th of December and the highest settlement since the 16th of October.  Expectations for a pullback are sensible but the past two days reminds us  that coffee can still march to the beat of a different drummer