Arabica extended yesterday’s gains another 4.45c to 154.30, closing above both the psychological 150 line and the previous contract high of 153.60, while Robusta gained a more modest $9 to 1547. Options were predictably active as traders were able to digest yesterday’s move overnight and formulate plans for today’s action, and the 26,053 calls (inclusive of CSOs – more on that in a moment) were the most traded since at least Jan 1 2010, and aggregate options (calls + puts) of 42,137 were the second most in that decade+ window, trailing only the put-driven day of March 3, 2020 (27,633 puts that session – a record for either side of the put / call equation). 4500 of those calls were via the U/Z -2.50 / -1.75 CS and the U/Z -2.00 / -2.50 Fence, which fits with another statistical point of intrigue. While outright trade was above normal, it was about the same as yesterday and roughly equivalent to the April 23 and 26 sessions; heavier than the 2 week average by about 34% but not unprecedented. Spreads however were atypically active, interesting on a day when such heavy focus would normally be on the continued ascent of the flat price and options. Aggregate futures spreads totaled 33,599 lots (based on a Webice tally – keep in mind Ice totals on their end of day report include futures / options combinations, spreads and strategies, not just future spreads), the most since day 4 of the May index roll. U/Z volume was 10,923, more than double the prior max of 4637 on April 27th as the spread traded its recent swing high and found defense. And while Arabica has clear momentum & positioning based reasons for the price action today, it would be remiss not to highlight the broader factors that have helped drive KC to this point and which were present again; the BRL gained 1.5% at the time of KC’s close after yesterday’s BCB hike and telegraph of an additional action at the next meeting, bringing the critical producer’s currency to its strongest level since January, the DXY weakened a significant 0.40%, and the BCOM leader table was littered with ags and metals, coffee trailing only cotton and silver as every on-Broadway Ag was positive, and all metals save zinc were likewise. Tomorrow is the end of a remarkable week, and with what should be a special COT released after the close, it will be interesting what path KC chooses.
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Arabica gained 950 points to settle 149.85, 3.75c below the contract high, while London rallied $64 to close 1538. The 950 point increase was the 20th most since at least Jan 1, 2010 (the furthest back we checked), while in percentage terms the 6.77% gain was the 10th largest over the same decade+ period. Given the rising importance of these percentage based metrics in coffee, the second number is all the more striking. Futures had their foot on the accelerator from the open, gaining a quick 355 points in the first 30 minutes of trading before settling in for a lull until nearly 10:30. Short lived probes lower were quickly rejected at 8am and 9:30, and while Cocoa was unable to match KC's strength (+3.06% which would be 2nd most in the BCOM were it included), similar trading patterns were noted in both markets throughout the day, suggesting that outside money was entering the market. Given the magnitude of the move, volume was somewhat unimpressive; estimated outright volume in KCN came in below 23k lots, and while roughly 6k above the 10 day average, was not much different than April 23 or 26 when prices rallied 235 and 485 points respectively. The trigger for the move is still up for some debate; early consensus was around a London-inspired sympathy trade, while a headline grabbing "drought alert" on Bloomberg yesterday afternoon comparing the coffee situation to corn would have certainly grabbed the eye of outside money. Still, neither of these arguments do much to explain the broader KC/CC/SB bid. Attention was also drawn to Colombian social issues where exports have apparently been slowed due to protests around the port over a since-withdrawn tax reform bill - a situation physical traders have been monitoring for 1-2 weeks, yet hitting the tape with the more dramatic "Colombian Coffee Exports Halted by Protests" headline (Bloomberg). Whatever the trigger was, liquidity deserts seemingly emerged as the hefty commercial short and lower hedges on origin and traders books dampened the flow of sales, along with the natural inclination of origin to step back on rallies and see what happens. From 145 to 148.50 precious little volume traded as better liquidity emerged above 149.50 as traders set their eyes on the big round number.
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