As we know, the Supplemental is a combination of futures activity and options, which are expressed as delta. The week’s option activity was not very great. And so we can conclude that most of the changes in the Supplemental occurred mostly in the futures market and not in options. By realizing this, we can see that, among the managed money short covering, index funds bought 17% of their short position and roughly 40% of what was purchased by all managed money. In my view, index fund decisions are more long term than other sectors or even other funds. Whatever significance we place is an individual decision. Maybe it’s just something to be watched for now.
Robusta was very quiet with a range of 47 $/tonne equaling 2.20 c/lb. compared to an Arabica range of 4.95 c. However, the activity in RC was the inverse of KC’s. Commercials got longer while funds got shorter.
For the remainder of the week, the market remained on the defensive as rallies continued to be selling opportunities but there was an element of strength as well. Commercials were of course big buyers on weakness while other sectors were mixed. Prices may very well climb higher but short covering is only one factor within the formula that wil effect a major trend reversal. Besides a tenuous investment environment we have a supply driven market and a weak currency, all of which are factors that need to reverse. We wait for weather developments and any changes in production estimates.
Next five days:
A cold front brought 5mm rain and 50km / h wind gusts north of Paraná yesterday afternoon. Between today and tomorrow, it will still rain between 20mm and 30mm in the region. In other producing areas, the rain will be much more punctual. From Tuesday, the formation of a new frontal system will finally bring more intense and comprehensive rain to São Paulo, Minas Gerais and Espírito Santo, as well as Paraná. In three days, the accumulated varies between 20mm and 40mm in Mogiana, southern Minas Gerais and Zona da Mata.
Another episode of heavy rain will happen next week in central and southern Brazil.
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