By Carolyn Cui

Cocoa prices plunged to a three-year low Friday, dealing a blow to many bullish traders as their options expired worthless.

Cocoa futures for December delivery tumbled 4.3% to $2,588 per metric ton, the lowest price since November 2013, on the ICE Futures U.S. exchange.

Friday's price retreat would prove to be painful for many bullish cocoa traders. According to the exchange, a large number of call options were held by traders as of Thursday's close with strike prices between $2,700 and $3,300. At the current price level, all of these contracts are expected to expire worthless by Friday's close.

Cocoa prices have lost 19% since British citizens in late June voted to leave the EuropeanUnion, causing a sharp drop in the value of the pound. As the pound weakens, the price of cocoa in pound terms increases, as the purchasing power of consumers in other currencies strengthens. The British currency is widely used in pricing and negotiating physical cocoa transactions.

The pound has somewhat recovered in recent days after a U.K. court ruled that the Parliament must give its approval before the Brexit process can begin, but prices for New York-traded cocoa remained under pressure.

Recent news of improved weather in Ivory Coast, the world's largest cocoa producer, along with a slew of disappointing readings on global cocoa demand, helped keep cocoa prices from any meaningful rebound. In the year ended Sept. 30, the International Cocoa Organization estimated a cocoa production shortfall of 212,000 tons.

But traders seem to have turned their focus on to the next year's crop.

In Ghana, the world's second largest cocoa producer, dwindling cocoa industry has become a hot-topic issue in the nation's 2016 presidential election.

The candidate for the New Patriotic Party, Nana Addo Dankwa Akufo-Addo, pledged to overhaul the industry and significantly increase Ghana's cocoa production if he gets elected. In recent years, Cocoa production in Ghana fell about 30% from a peak of one million tons in 2010/2011 as a result of unfavorable weather conditions and government policies.

Historically, the NPP, under President John Kufuor, had managed to double Ghana's cocoa production with two crop years through mass cocoa spraying and subsidized fertilizer programs.

In other markets, cotton futures for December delivery rose 0.8% to 68.63 cents a pound, arabica coffee for December was up 3.7% to $1.7180 a pound, frozen concentrated orange juice for January delivery fell 0.9% to $2.1925 a pound, and sugar for March delivery was up 1.3% to 21.75 cents a pound.

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

(END) Dow Jones Newswires

November 04, 2016 13:07 ET (17:07 GMT)

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