Blue Line = KC



Because of Thursday’s Thanksgiving celebration, the KC COT report is delayed until Monday. The RC COT report is not very interesting. It shows commercial liquidation of spreads both in futures and options. Spread liquidation also occurred in the other sectors as well. What is interesting is what took place in RC on Thursday. As we look at the chart, the market was very strong as a result of production estimates that were released. When the KC market opened on Friday, it did so with a gap followed by a rush to buy in both markets. Eventually, KC took the lead to close the arb value of 60.11 over RC, +5.58 from the last day of the COT report.

For last week, both markets show that prices began at the highs, at the same level that we are in now, and dropped sharply. Will this pattern repeat itsel?. The difference between last week and now is that last week lower expectations of production were not well advertised outside the forum and outside Brazil. But when Rabobank, Wolthers, Volcafe reported, then all those involved in the coffee market, including investors, were awakened. Those that alerted the forum of the dryness that has impacted the crop negatively are certainly thanked. Prices are likely to continue higher especially as other researchers release projections. Let’s remember however that some of these researchers will release bearish numbers, like ECOM, who has a large following. From a market behavior and COT point of view, the commentary is somewhat different.

We won’t know what the COT report in KC will show on Monday but from a market dynamics point of view we see what is taking place. The strength that we saw on Thursday and Friday is, imo, meaningful, a market action that we haven’t seen for some time. What we have seen regularly is the resistance that was present between 122.00 and 123.00. The 123.50 price attracted a lot of selling that pushed prices to below 122.00. At around 8:30 we saw the funds reverse and prices finally rose later in the day, likely with the help of other buyers. As we have seen time and time again, a higher move cannot be sustained by fund buying alone. A lot of the day on Friday consisted funds and other buyers, and probably long liquidation, commercials selling delta and possibly origin selling as forwards were hit. Hopefully now we have a new ingredient in the mix - lower coffee production which may attract more universal buying.