Morgan Stanley Commentary for January 12, 2015

A rough start to the week for the commodity complex as a worsening slowdown in China bears down on the sector and coffee was spared no pain.  Crude oil alone  fell by over 6% to 12 year lows as producer prices in China fell for a record 46 th month a reminder that China’s economy  has yet to hit bottom. Coffee started the week handicapped with the knowledge that funds were much less short (net  13,365) than the consensus anticipated. The market gapped lower on the opening (12020 basis March) which proved to be the high for the day as red in the macro only served to add fuel to the fire. Prices gravitated lower to the 11530 contract lows of the 13 th of November, which, once violated, kicked systems sellers into high gear.  Managed money and industry were buyers of size into the weakness but the waves of systems and momentum selling proved an inordinate obstacle. London fared much better by comparison as the arbitrage tightened from 51.60 to 49 cents but once London closed and arbitrage support was removed, New York proceeded to trade to a fresh 2 year low and a 3.8% loss in value. Volume was a hefty at 58,480 lots with 20,836 spreads while London traded 12,272 lots and 4,067 spreads.