Soft Commodities Fall on Glut Concerns, Weak Inflation

Soft commodities fell across the board Thursday, as the sector came under heavy selling pressures amid continued oversupply concerns and tamed inflation forecasts around the world.

Prices for cocoa, cotton, orange juice, coffee and sugar all ended lower, a rare uniformity for the segment where the five different commodities are often driven by their individual fundamentals. On Thursday, concerns about abundant supplies of sugar, cocoa and cotton came to the fore, while market sentiment worsened as a number of countries lowered their inflation forecasts.

Cocoa futures for September fell 1.6% to settle at $1,823 a ton, threatening to retest the ten-year lows hit in early May. Raw-sugar futures for July delivery continued to slide, down 1.7% to end at 12.84 cents a pound, the lowest settlement since February 2016. December cotton futures were down 2.1% to 66.74 cents a pound, the lowest since September.

Coffee futures for September lost 4.6% to $1.1650 a pound, the lowest settlement since March 2016. Orange juice for September fell 1.5% to close at $1.2795 a pound, a 14-month low.

"We haven't seen this sort of a perfect storm in all soft commodities for a very long time," Michael Kerensky, a trader at R. J. O'Brien & Associates. "Everything just keeps falling; it's quite scary."

Favorable weather conditions in Brazil contributed to recent upward revisions by analysts to their forecasts of sugar, coffee and orange juice outputs. Higher-than-expected cocoa production in Ghana and the Ivory Coast also threatened to leave the world awash in the key ingredient for chocolate.

Central banks in Brazil and Philippines on Thursday cut their inflation forecasts, while a Bank of Japan official also expressed concerns over the slow increase of consumer prices. Reduced outlook on inflation could hurt commodity prices as speculators, especially momentum-driven traders, tend to sell the commodities in hopes that their prices will continue to drop and they can buy them back at lower prices.

"The funds are transparently heavily short but clearly in the money with the 'winds at their backs' as still we have a conducive environment to be short commodities," Tom Kujawa, co-head of softs department at Sucden Financial Research, said in a note to clients.

In the cocoa market, computer-driven traders added more short positions on Thursday, Mr. Kerensky said. But lower prices also drew some buying from commercials, as a few global chocolate companies stepped in and bought cocoa and sugar, he said.

"These companies believe that with the prices this low in each commodity it is smart to start locking in these low prices that have not been seen in a long time," he said.

Write to Carolyn Cui at carolyn.cui@wsj.com

(END) Dow Jones Newswires

June 22, 2017 16:13 ET (20:13 GMT)