BLUE LINE = BRLUSD
The market began at the highs, after a week of a mostly uninterrupted rallies. After a high of 215.15 the market proceeded to drop 14.60c but not a straight drop as many attempts to recover took place. Weakness continued for the remainder of the week. Both KC and RC lost contracts in the respective front month, Z and X, as delivery periods are approaching in both markets. Total OI however, stayed near unchanged in KC and was much higher in RC.
The KC COT reflects a flatness in position changes. In my opinion, funds were buyers at the early elevated prices while commercials and others were sellers. As the market dropped, at some point the funds reversed and continued the pressure that contributed to Friday’s low close. Liquidation also took place in options. What may be an interesting factor is the activity of Swap Dealers in KC. They were buyers, specifically short buyers. It could be institutional or, possibly, related to commercial activity. In RC, commercials were clearly short buyers.
In social media the sentiment appears to be that liquidation by longs took place. OI is high indicating an elevated non-commercial long position in both markets. Friday we broke through the 200.00. However, it took a lot of selling to even come close to that level, including on Friday. And, although prices closed below 200.00, it could have been a correction of 16.70c from the COT period high to Friday’s low. The market, imo, closed in the general area of 200.00 which may translate too the bottom of the correction. On the other hand, it is the beginning of the roll and more weakness may persist. The Real certainly has not helped the market, but it did have a strong close after KC closed, ending at 5.6502, USDBRL, after a high of 5.7543. Rain in the Brazil and Viet Nam coffee regions has added to the weakness, ignoring the possibility of irreparable damage to plants in Brazil. So there are several situations that may add pressure to prices.
Spreads became very steady on Thursday’s post close and remained so throughout the outright weakness. ZH traded up to -2.70 and HK to -.65. Remaining spreads were strong as K3N3 joined the forward spreads that are premium markets. The strength of the spreads is due to the continuous forward selling by origin, presumably, who are taking advantage of the weak Real and high Selic rates. It is also due to both commercial and non-commercial who are anticipating shortages in supply as well as the curtailment of transportation of products both on land as well as sea. The XF in is back to a discount market as a result of not yet materialized shortages. The FH however rallied as outright buying took place in RC as KC was dropping. Both markets remain the subject of fears of shortages which may be a positive factor. Warehouse stocks have been slowly climbing as Brazil is being withdrawn while other origins are being added. Brazil origin is the youngest of the coffees and with the least penalties.
instagram download your own photos
« Back to index