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Blue Line = BRLUSD
The market traded down to above 103.00 during the first two days of the COT period and made its high on the last day, rendering a 5.45c range and a net change of +2.05c. Robusta closed at the very high bringing the Dec/Nov arbitrage value to the low for the period at 46.58. KC is the cause of the weakness in the market while RC is providing strength. Both markets are experiencing adverse weather. RC appears to be reacting while KC is not. Reports from yesterday evening are as follows:
Viet Nam: Lots of land slides and floods are occurring as a result of heavy rains. Exactly how the crops are impacted is unknown but the ports of Hue and Da Nang have had an accumulation of almost 68” (1727mm) for the month. Rain is expected to continue for up to two more weeks.
Brazil: WWI describes conditions as “a classic La Niña summer” with dryness in southern Brazil and plenty of hydration in the rest of the country. Any rains have been spotty and have certainly not reached the subsoil in the south.
In RC, funds did not sell this period while selling in KC has continued by algos. Every other sector bought in both markets. In KC, commercials were the major buyers while RC experienced liquidation as options expired and 25,735 EFP were posted. Large traders were also good buyers in both markets and Swap Dealers bought in RC, likely representing end users but it could be institutional buying as well.
As this week progressed, weakness prevailed. The arb value ended at 44.71 on Friday, fund selling in KC continued. The Real remained weak but origin selling was not apparent. The lengthy period of dryness that southern sections of Brazil is experiencing is becoming more widespread news. Production estimates by the usual reporters will be very revealing and helpful as any damage will be factored in. For now we see a struggling KC that is overwhelmed with fund selling. However, in looking at the depth of market, there are sizable scale down bids in the forward months that are likely merchant/processor/roaster. We are now in roll season and approaching Dec expiration, a major option month. We remain subjects to the market.
Spreads have become steady but mostly reacting to whatever strength futures experiences. If the market continues to slide forward bids and front selling will cause spreads to lose value.
Thank you M for your insight.
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