The market began on a steady tone but, as we see on the COT, fund selling drove prices lower and into the hands of, mostly new, commercial and large trader buying. As the week went on post COT, commercials continued to buy for option hedging as well as for consumer purposes. Funds continued to sell, and, according to the COT, the majority of selling is new. On Friday, the support at the 100-101 level seemed endless as commercials and other sectors bought from funds. It proved to be enough buying to provoke a good rally to end the market in a friendly mood.
We know that fundamentals are bearish, and have been so throughout the strong move that we saw into the 140.00 area. The rally was never a fundamentally driven rally but rather it was due to non-commercials buying. Possibly it was caused by improvements to the macro picture or rebalancing, and enhanced by stops and delta short covering. On the way down commercials, including roasters and merchants, have been the primary buyers.
Whenever we see low prices, discussions surface about the hardships to farmers. Nations hold meetings and, inevitably, speculators who sell short are the culprits. Speculators are not the ones producing up to 70mm bags of coffee in Brazil in Ď20í21, based on ECOMís projections. The way I see it, the gross short position of specs mitigates some of the overproduction. It is a supply driven market as opposed to a consumer driven market. Overproduction and carryover stocks are burdens of the market, not speculators who can buy as well as sell, thereby providing opportunities for farmers as we saw.
Monday will be a revealing day. Selling by funds will continue. Although, in Robusta we donít see the aggressive selling that we do in Arabica. In fact funds bought slightly. The Real continues to drop. Maybe itís due to external reasons, like general emerging markets currency weakness. But in spite of the weak Real, origin selling has not been great. It did increase on Friday. So, the COT on its own is bullish because of fund shorts increasing their positions but also because of the relentless commercial buying.
Spreads remain an enigma as specs continue to increase their positions. They now hold 89,042 lots but we donít know what their positions are. On Friday the trend reversed slightly as the MarMay softened while the remaining spreads firmed.
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