Cotton Slumps on Government Forecast; Cocoa Ends Higher

By Julie Wernau Features Dow Jones Newswires

Cotton futures extended losses Friday after the U.S. Department of Agriculture boosted its expectations for U.S. stockpiles of the fiber.

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Cotton for July lost 1.1%, to end at 75.69 cents a pound on the ICE Futures U.S. exchange, the lowest close for the most active contract since April 12.

Bill Nelson, senior economist at Doane Advisory Services in St. Louis, said with the robust pace of exports this season, he and other analysts were expecting the USDA to increase its export projections for the current season, which would have meant less fiber to carry in to the new season's crop. But the USDA kept those projections the same.

Instead it raised its projections for U.S. stockpiles of cotton on ideas of higher global production will cut into demand for U.S. fiber in 2017/2018. Analysts surveyed by the WSJ had anticipated stockpiles in the U.S. at 4.83 million tons, but the USDA says it expects 5.5 million tons.

In other markets, cocoa markets in New York and London were higher Friday after British Prime Minister Theresa May's Conservative Party unexpectedly lost its majority in Parliament, pushing down the British pound against the dollar.

Cocoa futures are traded in both New York, in dollars, and in London, in sterling. When the sterling falls against the dollar, cocoa prices in London tend to rise as traders jump in to snatch up the relatively cheaper cocoa.

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London cocoa prices were up 4.5% at GBP1,605 ($2,078) a metric ton on the ICE Futures Europe exchange and helped boost cocoa demand ideas in general, with New York futures up 2.9% to close at $2,020 a ton on the ICE Futures U.S. exchange.

The London cocoa contract is one of the only commodities contracts still traded in sterling, long after most other markets have moved to the dollar. The two cocoa markets are of roughly similar sizes, but they are traded in different currencies to serve slightly different markets.

"When you get a weak pound, you get a stronger cocoa market," said Mike Seery, president of Seery Futures. "But those reactions don't seem to last very long."

Fundamentally, demand for cocoa in Europe, the world's largest consuming region for chocolate, has recently disappointed bullish traders. The tonnage of beans processed in Europe rose 1.1% in the first quarter from a year earlier to 339,485 metric tons, falling below industry expectations, according to data from the European Cocoa Association.

Despite the increase in cocoa beans processed above last year, quarterly figures remain relatively flat and demand for cocoa has failed to recover to 2015 levels, when tonnage reached 342,442 tons in the fourth quarter.

This month, the International Cocoa Organization raised its forecast for the 2016/2017 season, indicating a surplus of 382,000 tons versus a previous estimate of 264,000 tons, as supplies of beans swell in Ivory Coast, the world's largest grower.

Raw sugar for July lost 0.5%, to settle at 14.27 cents a pound; arabica coffee for July was up 0.2%, to settle at $1.2655 a pound; frozen concentrated orange juice for July rose 1.4%, to end at $1.388 a pound; and July cotton lost 1.1%, to end at 75.69 cents a pound.

Write to Julie Wernau at julie.wernau@wsj.com

(END) Dow Jones Newswires

June 09, 2017 16:22 ET (20:22 GMT)