Morgan Stanley Coffee Report

For a third day KC suffered NY hour weakness as system sellers maintained their program, only to find support and a late rally to close the day in positive territory.  Roasters remain engaged buyers, while origin is largely quiet, though Vietnam hedging was notable.  KCH now sits in between the 50% (146.45) and more relevant 61.8% (138.65) retracement of the year’s low to high move, while the median price (139.30) and average (137.70) provide ample nearby theoretical support.  The top story of the day was a continuation of yesterday’s rumors, and last month’s hot topic, of importation of robusta into top global coffee producer Brazil.  Comments from Neri Geller, the policy secretary at Brazil’s Agricultural Ministry are mixed, as he suggests that “(Brazil) should open imports for a limited period, and for a limited amount,” while also stating no decision has been made as “we did not align on all the points.”  Sentiment ranges from complete dismissal of a plan ever emerging to insistence that the ink on a deal only needs to dry.  Wherever the truth lies, details are scarce as to quantity, permissible origins, and timing, to say nothing of more technical specifics.  Perhaps the biggest news of the day was the Fed’s post-coffee market decision to raise interest rates by 25bps, while bumping 2017 guidance from 2 to 3 actions.  While questions immediately turned to the question of whether fiscal policy plans played into the decision, and whether such policy could affect productivity, Ms. Yellen referred to the action as an expression of “confidence in progress” for the economy while noting the “remarkable resilience” exhibited by it.  While stating that the decision should be taken as a “vote of confidence,” she also referenced the needs for increases in productivity leading to enhanced standards of living, which could be driven specifically by training and education, quality of capital invested, and innovation.