Cocoa futures dropped Monday as concerns over a cocoa glut resurfaced and emboldened an already large base of short sellers to stay bearish.
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Cocoa for September fell 1.2% to $1,857 a ton on the ICE Futures U.S. exchange. Cocoa futures lost 6.7% last week on the back of the return of wet weather to the key cocoa growing areas of West Africa.
Last week, managed money sold 2,984 lots, to a net short position of 29,703 lots, according to the Commitment of Traders Report.
Cocoa has struggled to move higher amid an expected surplus of beans, along with sluggish growth in demand.
Last month, the International Cocoa Organization raised its forecast for the 2016-17 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. Several private research firms already predicted another large surplus for the next season, traders said.
"It'll be tough to sustain a higher price for a longer period of time, unless the fundamentals for cocoa change," said Nick Gentile, managing partner at Nickjen Capital.
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In the latest report, the ICCO increased its forecast for global production in 2016/2017 by 140,000 tons to a record 4.69 million, up 18.1% from the previous season. The increases were expected to largely come from Ghana and Ivory Coast.
Mr. Gentile said it is hard for cocoa farmers to "just turn the spigot off," as opposed to grains where producers plant the seeds every year. Once cocoa trees are planted, farmers aren't likely to remove the trees even as prices drop, but would rather reduce uses of fertilizers and pesticides on the trees. This makes the supply side less sensitive to price changes for tree crops.
"It may take a couple of years, or some sort of weather events, to work through the glut," he said.
In other markets, raw sugar for July was down 2.2% to 12.67 cents a pound, arabica coffee for September rose 1% to $1.2415 a pound, frozen concentrated orange juice for September was up 2.7% to $1.3580 a pound, and December cotton lost 0.7% to 66.56 cents a pound.
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(END) Dow Jones Newswires
June 26, 2017 11:56 ET (15:56 GMT)