Arabica held its ground above the 120 line, settling 123.50, +.90 while trading on heavy volume. Outright action in the active KCK contract saw its thickest trading since March 1st, bookending a month where coffee lost 925 points from open to close, and 1455 from high to low. While selling was the dominant feature through 10am, discretionary bids of various kinds helped managed the decline through the traditional heavy volume periods. A strong move in the BRL was a welcome aid for the bulls – a factor that in the past 2 weeks has been an unreliable indicator – as the FX gained 1.5% while KC traded and another 1% after the fact as a shakeup in the Brazilian cabinet and ministries over the past 2 days has driven optimism around budget progress. Economic data for the top coffee producing nation was poor (unemployment rate ticked up to 14.2%, Feb’s primary budget balance -11.8B vs +58.4B in Jan, net debt to GDP of 61.63%, just shy of December’s record 62.70%), yet for all but the unemployment rate was that data considered a beat of consensus expectations. Spread volume was resurgent as well, topping 26k for a second consecutive session, roughly 10k above the 10 day average, as the index roll approaches next week in advance of KCK FND. Structure was bid on that increase in activity, KN -1.90s, +.15, NU -1.90s, +.05, KK -9.25s, +.20. London was unable to keep pace on the day however, losing $6 to 1342.
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Coffee finds a new reason to weaken each day it seems, leading the pack in an ugly commodity day lower, 122.60, -4.45, the largest one day price decline of 2021. Selling was relentless if not necessarily dynamic; volume continued to come arrive in an orderly fashion throughout the entirety of the traditional pit session as futures marched lower with no relief. The chart was remarkably similar to cocoa (the 2 worst futures performers in March save the VIX, followed by cotton and sugar), and KC shrugged off a strong performance from the BRL (+.80% around the time of KCs close). That familiar FX correlation has seemingly only worked on days of devaluation, while some other impetus is found on +currency sessions. While commodities as a whole were down nearly 1.5%, suggesting the continued negative effects of macro inputs in real time, KC’s table leading decline reflected the more specific technical hurdles coffee faces. Yield continues to widen, KK now at -9.45, -.25 combining with lower outrights for a 7.7% prompt roll yield (6.5% 2nd month), and the 20, 50, and 100 dmas all sit as overhead resistance while encouraging spec selling. Oscillators are now well oversold, suggesting a pause is due soon, but with month end tomorrow and roasters taking advantage of the opportunity for much needed coverage, a significant rally seemingly will need some effort. London trailed in sorrow, falling $28 to 1348, though spread there weakened for a second day as well (KN -25s, -4, NU -21s, -3)
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