Morgan Stanley Coffee Report

The month of January went off the books with London and New York succumbing to pressure, as funds lightened up in the face of a weaker real while rain is forecast to fall over the next week in the parched Conillon region of Brazil.  The real traded to the brink of, but failed to break through, the 3.10 level for the third time in 6 months, a level which many analysts expect the central bank would reduce or even eliminate the rollover of the next maturity of FX Swaps.  Origin were active sellers in London as differentials are softening, while funds carry record long exposure in the futures market.  At the low for the day, March London had fallen by $43, its steepest intraday dip since the 22nd of December, yet still managed to hold last Wednesday’s 2193 low.  Despite today’s weaker performance, the Robusta market ended the month at the highest monthly close in the front month contract since June of 2011, and since July 2012, basis the 2nd month.  New York followed directional suit with systems being the heaviest sellers on the day as the market traded a 6th session of lower lows.  Open interest in N.Y. has increased by 5,281 lots since the January 24 high (and COT cutoff date) of 15695, which is worth noting due to the selloff that has ensued  following funds adding 6,479 net longs over the reporting week. The Arabica market outperformed on the month accreting 9% versus a 4% gain for the Robusta market, and, while London has had the story to watch, New York was the beneficiary of fund rebalancing.