Cocoa Ends Lower; Cotton Bulls Profit From Squeeze
Cocoa futures fell back from gains Tuesday on signs that military unrest in Ivory Coast appeared to be easing.
On Monday, soldiers opened fire in four cities in Ivory Coast, the world's largest grower of cocoa, in a dispute media reports said was about unpaid bonuses. Overnight, Defense Minister Alain-Richard Donwahi appeared on state TV to announce a settlement had been reached.
Cocoa for July delivery lost 0.3% to close at $2,034 a ton on the ICE Futures U.S. exchange.
"If other towns report the same positive news as Abidjan did, we could see another downturn and have the funds reestablish some of their short positions they abandoned last week," said Michael Kerensky, a trader at RJ O'Brien in New York.
Since May 4, cocoa has seen a brief rally after dropping to a 10-year low of $1,780 a ton on swelling supplies of beans in West Africa, the largest growing region.
Commerzbank noted that Monday's 1.3% price rise isn't due to the latest production figures. Instead, deliveries in Ivory Coast have increased their year-on-year lead to 22.5% recently, the firm said.
In the last CFTC reporting week, short-term-oriented market participants had expanded their net short positions to a new record level of 48,000 contracts, the firm noted.
In other markets, July cotton futures reversed court Tuesday, the first drop in four sessions following a dramatic short squeeze in the market. The contract ended down 4.6% to close at 81.42 cents a pound, narrowing avoiding a trading limit down day.
Cotton futures had soared 12% over three sessions and hit trading limits Friday and Monday, leading the exchange to increase the margin requirements for buyers and sellers in the cotton market for two straight trading sessions. Increasing margin requirements--the amount of money traders must put down as collateral to guarantee trades--is a tool frequently used by exchanges during times of run-ups caused by speculative volatility.
Most merchants and mills were bearish on cotton prices at the beginning of this crop season as U.S. output is expected to grow more than 30% to 17.2 million bales.
Those merchants and textile mills held a large number of short positions in the July contract as a hedge against their physical cotton, but cotton's bullish run forced many of those short players out of the market over the last few days. Tuesday, bulls are taking profits in anticipation that futures will fall back to a more normal trading range.
Raw sugar for July rose 1.7% to settle at 15.88 cents a pound, arabica coffee for July was off 1.5% to settle at $1.3145 a pound and frozen concentrated orange juice for July lost 0.6% to end at $1.4335 a pound.
Write to Julie Wernau at firstname.lastname@example.org
(END) Dow Jones Newswires
May 16, 2017 15:12 ET (19:12 GMT)