Soft Commodities Fall on Glut Concerns, Weak Inflation
June 22 2017 - 04:28PM
Dow Jones News
By Carolyn Cui
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)
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