Blue Line = BRLUSD

The COT report again fails to show the entire picture of participants. Who was responsible for the sharp rise on Monday after margins were raised from 4,050 to 7,500, and later to 9,000? Was it writers of calls, specs or even commercials, or maybe all three? My expectations that the many spec longs would liquidate were obviously wrong. That very Monday the market made a high of 215.20 and proceeded to drop from that point onward, capturing a range of 48.65c for the COT period, and to close at an impressive +34.95c. The days following only showed additional weakness in the midst of more frost threats for this weekend and hitting a low of 178.60 on Friday to close near this level. Other observations from the COT report are the increase in the delta position of 33,547 lots with option spreads increasing by 38,194 lots. The Sep OI in both markets dropped as the roll has begun in KC. The total OI in KC increased however. Origin appears to have been very active if forward outright selling, and across the board daily EFP and EFS postings are of any evidence. There was no suggestion that the consumer side was buying.

The front two spreads, UZ and ZH, remained on the weak side generally while forward spreads were relatively steadier. CSO activity consisted of what appeared to be trade defensive buying of puts in ZK and HN. By Friday the weakness in spreads expanded to more forward months.

The market activity that we are seeing is a reminder of the irrelevance and futility of price projections and crop estimates (I include my own). Sure, data and price projections may serve the long term investor. We can buy a contract and withstand all the corrections, roll positions forward, and wait for our contract to bear fruit, or invest in a fund. But the forum consists of mostly traders and not investors. Sudden alerts on coffee news can be helpful, but by the time the CTF is aware, it is likely too late to act. For traders, market behavior is the most important tool. In the midst of all the noise in the forum, the most important, posts in my opinion, are, ultimately, Nagual’s charts. Whatever shortages will occur as a result of droughts and frosts will affect prices as these shortages become realized, based on immediate need, sometimes a few years after an event. As far as further frosts are concerned, one weather service has announced, “the end of this historical frost season,” but we know that frosts have occurred in August in the past, and with this unpredictable global climate behavior, frosts are not necessarily off the table imo. GT


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