The market began flat but managed to make a high of 114.85 only to drop under heavy pressure from the spec sector. The blue line on the chart indicates the Real (BRLUSD) which dropped sharply and then rallied. KC however did not react positively when the Real reversed and the selling continued. This deviation of the market from the currency reminded us that maybe other factors are at play.
We see on the COT report that there was heavy selling from swap dealers, who sold longs and went short, from index funds and other managed money, who went heavily short. The buyers were large traders who covered shorts, and small traders. Commercials were present in full force as they covered shorts and went long big across the board, making the 105.00 level in July impenetrable. Considering that forwards were bought in good volume, it’s likely that it represented roasters and merchants. Spreads weakened out to May22 as forward bids were filled by spreads while specs sold the front month. Nevertheless, spreads remained well bid as stocks are depleting.
The behavior of the market reflects different forces at play both in spreads and in the outright market. It would be nice to hear from those whose businesses are actually impacted by the covid. We have a great account by Nagual who describes the situation in Colombia:
Posted by nagual<iframe src='https://mb.boardhost.com/coffeetraders/info/user=nagual' width='330' height='300' border=0 style='border:none;'> on April 30, 2020, 9:55 pm, in reply to "Coronavirus Statistics for The Americas”
“As far as Colombia is concerned the figures of the chart are right. We have been in a mandatory confinement nationally since March 25th and it has been extended so far until May 11th.Only one person of the family can go out to buy groceries,banks or notaries. Also in cases related to medical purposes.For those that violate there are strong fines and jail.It is very strict and is not voluntary.
The only business open are the very essential ones such as supermarkets and start working. And after May 11th if the mandatory confinement is not extended, people have to respect the social distance and go out with masks.
Besides, all people older the 70 have to be confined until May 31st.
IMO, the government has done right being so strict. We only have around 6000 cases so far compared to countries of the same size and even less population.
The demand for coffee obviously is being affected because of the pandemia and I think it is going t o be more affected in the mid term future. I see coffee going to 10000-9800 in the near term.”
I think many traders on the forum would like to better understand the consequences of the covid on the coffee market. As I see it, there is a great demand of domestic stocks but exports by producing countries are either interrupted or have stopped, thereby creating a buildup of stocks in these producing countries. Is this the correct picture? Are ships leaving Santos as usual? What about harvesting? What happens if there is no labor to pick, process, transport and load?
In any case, the sellers may be influenced by whatever the situation is in the supply chain. Or maybe not, possibly some other motive. Either way, the selling is mostly short and all speculative. Algos could be in the market but the market’s behavior does not support this. Although the selling is consistent, it is also interrupted and corrections occur. The COT is bullish not only because the abundance of spec selling but especially because of key commercial buying. Of course, there are other factors to consider.
On Friday, the market penetrated the 105.00 level and traded below 104.00, although it managed to bounce back 2.50 c. Volumes remain light and so prices are still, often in the trading day. Yet, it continues to be a good market for daytraders, especially small traders. Prices may continue lower because of the global pandemic but shorts beware. Based on the COT, ammunition for bulls is building and a sharp reversal is possible.
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