Both the commercial and the small trader changes are mostly legs of spreads which they seem to have liquidated. Commercials however liquidated longs as well and provided a reminder that any strength will be met with commercial selling. What the changes do not show is commercial new buying of forwards on weakness, likely consumer, and commercial new selling on strength, likely origin. The opposite side of the commercial selling was large trader new buying. What stands out to me is what is not present - fund selling.
We referred several times during this period and after that funds seemed to be absent. Last week’s report pointed out that when we see a halt or a reversal of this group we will likely see a correction, if not a reversal. Of course there are several factors that may take prominence but it is undeniable that fund shorts only added a relatively minuscule amount.
The Real’s weakness that we see, isn’t much of a factor in our market. There is some origin selling it seems but any speculative reactive selling is not reflected in prices. Possibly the occasional weakness that we see is due to the Real but commercials are there to prevent any significant drop.
Reports pertaining to fundamentals have been both bullish and bearish. We see that restricted rain is leaving some doubt that recently opened flowers will fully pollinate, that quality has been compromised and that production estimates may be too high. On the other hand we see reports that global inventories are high and that the next crop will be greater than the last year’s large crop.
World trade continues to be disrupted as aggressive tactics have replaced diplomacy. Self defeat accompanies aggressive measures by governments. Until we see a reversal of destructive trade tactics our market will have negative liquidity consequences, imo.
Spreads have been steady with DecMar leading by trading at -3.40. The build up of short funds is an incentive for traders to buy spreads. If we see the Dec OI drop, then we can assume that shorts are covering, thereby reducing the roll factor. Both markets are experiencing strength in spreads. ICE Arabica stocks continue to drop but Robusta stocks are increasing. The high number of EFPs in both markets is related in part to notice season but some EFPs extend to forward months.
Monday we will be closed but Robusta will be open. Any dramatic move will be a surprise as RC has generally been timidly trailing KC. The following days we will see if funds reverse or, at least, if they continue to abstain from selling. In Robusta funds are reversing.
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