By Julie Wernau

Cotton prices were on track for their steepest percentage drop since Oct. 31 Monday as bullish speculators took profits headed into the holidays.

Cotton for March delivery lost 2%, to 69.62 cents a pound on the ICE Futures U.S. exchange, headed for the lowest close in a month. "As 2016 comes to a close, some specs will likely book profits on their longs," said Louis Rose, founder of commodities-consulting firm Risk Analytics.

Mr. Rose also said that index fund rebalancing in 2017 will likely see fewer funds taking long positions in cotton.

As of last Tuesday, hedge funds and other speculators betting on higher prices for cotton outweighed bearish positions by 83,095 contracts, morethan double the contract's position at the start of the year. Fundamentally, the cotton market has been stuck in a tight trading range as the market weighs strong overseas demand for cotton against a strong dollar which could weigh on demand for all commodities and government supply estimates that traders have read as mostly bearish. Sales of the fiber overseas reported last week were the second highest in the marketing year at 318,000 bales and outpaced the weekly rate needed to reach U.S. Department of Agriculture export targets.

"Kindling and other wood are being stacked higher and higher in preparation for an explosive fire under the market," O.A. Cleveland, consulting economist at Cotton Experts, noted.

Still, the USDA increased production and ending stocks above analysts expectations in its monthly forecast of supply and demand for the fiber this month. The USDA placed ending stocks at 4.8 million bales versus 4.5 million in November, boosted production to 16.52 million bales due to better than expected crops in Texas and upped exports to 12.2 million bales.

In other markets, raw sugar for March was off 0.2% at 18.18 cents a pound, cocoa for March rose 2.8% to $2,301 a ton, arabica coffee for March rose 1.3% to $1.4425 a pound, and frozen concentrated orange juice for January delivery was up 1.9% at $1.988 a pound.

Write to Julie Wernau at julie.wernau@wsj.com

(END) Dow Jones Newswires

December 19, 2016 11:44 ET (16:44 GMT)

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