Blue Line = BRLUSD
The strength of the Real had no impact on coffee prices. The market remained in a narrow range of 5.30c to close 1.95c lower. But within this narrow range we see a sudden increase in fund activity, and a prelude of the sharp drop in prices that we saw the remainder of the week as the OI increased by 8,296 lots excluding Friday.
The buying by commercials, which began at around the 106.00, provided support to the market, as we see in the report, and hopes for the bulls. The selling however was, and is, significant.
The uncertainties that we have been confronted with as a result of the pandemic seem to be dissipating though only in the investment community. The reality of the pandemic remains uncertain as the virus subsides in some places, giving a sense of security, maybe false, while the pandemic expands in other parts of the world. Brazil is among the latter.
The consequences of a disruption in the coffee chain is not fully realized both in consuming countries and in producing ones. If these disruptions are the motivation for the selling, first by swap dealers in the weeks prior to this last COT report, then by managed money during this report, and likely the days that followed, is uncertain. Irregardless, the selling has emerged in a major way. Looking at the number of traders in this group, we see an even 54 number of funds on the buy side and sell side, and still a net long position. Itís likely that the remainder of the week at least evened the net position. Knowing that this sector has plenty of room to increase their short position, are we seeing a new normal of programmed selling by managed money? Add to this a record production in Brazil and we may have further reduction of prices. Ultimately however, the dynamics are what we have seen time and time again, where speculative shorts are selling to delta and outright shorts, and to consumers, building a setup for a reversal. Warehouse stocks continue to drop and adding to the bulls argument both for outright and spread trading.
« Back to index