Blue Line = BRLUSD
Prices reached their high of 127.25, of the period and of the move, on the first day. They hit the low on the last day, and then recovered after finding support at the 110.00 level. The total range was 17.55c and the net change was 9,70c.
The COT report shows that as the market dropped funds continued to cover. In Arabica, the liquidation was mostly in the form of the roll. Yet, net short covering within such negative change in prices is significant imo, indicating that funds did not reverse as expected. Rather, this group increased its net long position in a falling market. In Robusta, the managed money short covering was in the form of outright and spread liquidation, as the front spread ended at 71 premium. The outright sellers in both markets were mostly commercial but in KC, swap dealers and large traders also sold. There was what appeared to be origin forward selling which continued in the days following the COT.
In KC, spreads have been volatile and mostly steady. Of course, the SepDec was the focus of the roll and option expiration. Based on closing prices, the spread had a range of -2.70 to -1.85. It ended Friday at -1.75. The active and lead month is now Dec. In spite of the precipitous drop in warehouse stocks, the DecMar is on the defensive. It appears that commercials continue to be bullish spreads. The DecMay +2.00 Call has been .10 bid. Just to clarify, this is a striking price of a 2c premium market. And so the premiums on all related spreads are high. Of course, warehouse stocks are not the only consideration. The disparity expressed in points per month is DecMar at a 26.67 discount to MarMay. In three month terms it is a 80 points discount. In the SepDec 6,830 calls expired worthless and ranging in strikes to 1c premium. Are we to second guess commercials?
The discussion of certified stocks is ongoing. The fact that stocks are going down when, I think, they should be going up as they represent collateral for loans at very cheap rates globally. With regards to trying to guess direction of futures prices, I maintain that warehouse stocks only affect spreads unless global stocks are depleting. The last USDA report showed carryover stocks of around 40mm bags. ICE stocks are around 1.4mm, or 3.5% of total stocks on hand. But now that option expiration is out of the way and the Sep OI is diminishing, we may get a clearer picture of price trajectory.
With regards to option expiration, we have one notable occurrence. Sep settled at 114.70, .30 under the 115.00 strike. The post close ended at 115.20. Of the 912 calls that were open, only 107 lots were exercised, leaving 805 calls abandoned. Of the puts, out of 692 lots, 465 lots were exercised and 227 lots abandoned. There may be some residual activity on Monday.
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