BLUE LINE = BRLUSD

The volume comparison of outright to spreads has improved but total volume, outright and spreads, is still low. Both trade and specs are are doing option fences in large numbers, in both outright and spreads, with their agents, to supplement exchange activity. So, for now, electronic trading is lacking its usual liquidity but I’m sure it will return. The result is, however that both outright and spreads can be bullied, momentum can be reversed.

The market made it’s low for the COT period of 206.50 on Monday the 22nd and it’s high of 228.60 on Tuesday the 23rd, the following day. The net result was an increase in prices of 11.95c for the period. For the volatility that the market experienced this period, it is surprising that managed money shows a noticeable change in both KC and RC. In KC 16 funds were buyers. Of course, the market continued higher during the days following the COT period and I would imagine that the buildup of longs in the fund category has increased substantially in both markets since the COT report.

There is no denying that the market is behaving in a positive fashion. But to me there are mixed signals. It is strong and resilient but rallies invite selling. Nagual’s charts look bullish, yet they all show an overbought situation. The X OI in RC is very high at close to 60k. The Z OI in KC is over 100k and climbing. Specs are likely buying from commercials. Yet, from a fundamental point of view the market should go higher, at least for the long haul. Shipping is still an issue, fertilizer is not available, weather is volatile and unpredictable. The consumer sector needs to buy at any cost. Every news agency is advertising shortages, yet not one that I’ve seen provides the amount of shortfall. Consumption continues to outpace production for now but no one, that I’ve seen, has stated what the carryover stocks are. Hoarding, carryover stocks, and backed up stocks still count as supply. Finally, I’d like to ask the forum what are the implications, if any, to the coffee market for the next Brazilian election if either Bolsonaro or Lula become president. I understand that Lula is ahead in the polls.

Spreads continue to be elevated and this week size traded in ZH 10.00c calls even though UZ disappointed several longs. This spread simply drifted lower after expiration, unlike the NU which rallied. Warehouse stocks are climbing as a result of previously withdrawn bags being re-deposited. We can better judge the direction of certified stocks after the current pending bags have been processed. Available coffee seems to be loosening up a bit. Notices are being issued at a better pace than the N delivery. The EFP/EFS market is higher in quantity than in June and July indicating that coffee is available in exchange for hedged futures.

I have zero sense of direction for now. If you have a strong opinion, please provide one.