Morgan Stanley Coffee Report

The news of the day in the coffee market was the announcement from ABICS director of international relations abandoning the plan to repatriate Robusta stored in other countries due to the process taking too long to enact.  Bringing the beans back to Brazil would have required a pest-risk analyses and a change in the law.  The effect on the market was initially felt in the Jan/March spread which had been trading at $8 under 2 weeks ago and closed on Friday at $36 over.  With the announcement the spread quickly came under pressure changing hands 3,569 times on the day in a range of +29 to +1 ultimately falling $28 to settle the day at an $8 premium.  The flat price had a delayed reaction, but followed suit, falling $101 at the day’s low (2051 basis Jan), as spec longs liquidated which encouraged industry to step in on the price break to a one week low.   New York was initially pressured by the arb and traded to a 4 week low of 15950, yet being less affected by the Robusta news found willing buyers encouraged by  a 1% strengthening in the real ($/r 3.35) largely courtesy of a broad based rally in the commodity complex.  A spurt of buying brought a spark of life to New York during the final 10 minutes of trading taking prices from 16135 to 16410 and settling at 16330 for a net gain of 120 points on the day.   Industry participated in adding cover on both sides of the pond while trade and specs were the notable sellers.