Similar to the prior COT report, the market began at the highs and ended at the lows only to continue dropping for the remainder of the week. Monday is the MLK commemoration and the US is closed but Robusta will be open. Tuesday will either replicate the previous reporting periods or disrupt the pattern. What is highlighted in this COT report is the similarity/contrast of the two markets.
The similarity is that both markets are propelled by fund selling and the contrast is that in KC it is liquidation and in RC itís new selling. Another difference is that in RC the buyers were commercials while in KC it was the large and small traders who covered shorts. These two sectors get the award for calling the market. It appears that consumers are buying forwards but the COT doesnít show much commercial buying. The buying has been intense and very similar to the way commercials buy, yet specs are the main buyers. But, if commercials are not yet the major buyers, what does it say about the market? At what point will commercials step in?
Worth noting is that origin has not been seen selling forwards in spite of a weak Real and talk of increased production in Ď20í21. This presence of forward buying and a lack of forward selling has resulted in widening of spreads but only from DecMar and onward.
Other factors in spreads that should be on the radar screen are increasing warehouse stocks, all of which are from Honduras. The managed money OI is net log 34,664 lots which will need to be sold or rolled. The MarMay is holding at -2.35 bid however. Finally, although not yet a consideration, Brazil winter will attract buyers at some point of Sept either as outrights, spreads or options. July, Sept and Dec implied volatilities are about the same at below 28% but Sept has been known to go a few percentage points over its neighbors.
For now the market feels weak and the COT is not reassuring. Nor is there much in the form of potential headlines that can improve the marketís outlook. The increasing short Robusta position may be looked upon as bullish but when KC shot up to 140.00+ RC managed money did not cover. They did not add shorts but they didnít cover either.
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