Is my candy bar getting smaller? Yes, a Chocolate Crisis Means Hershey’s Smaller and More Expensive
After reaching a new record on Monday, cocoa prices fell 13% – a sharp drop in just three days. But experts say the market remains facing a critical shortage, which explains why Valentine’s Day chocolates were so expensive.
Meanwhile, hedge funds continue to build long positions.
Despite the drop over the past three days, US cocoa futures have jumped 43% to $5,999 per tonne since the start of the year. Four days ago, it hit a new all-time high of $6,929.
This is particularly difficult for companies such as Hershey Co. (NYSE:HSY). The company announced earlier this month that it now expects flat profits for 2024 due to rising raw material costs.
“Historic cocoa prices are expected to limit earnings growth this year,” the Hershey CEO said. Michele Buck.
Hershey’s shares have fallen 8% to $186.25 since releasing its quarterly results and 2024 outlook on Feb. 8.
Also Read: Choccy-Horror Show: Hedge Funds Piling As Cocoa Hits Record High
But what does this mean for the consumer? Ether, you will pay more for your candy and candy bars, or the packages will be smaller.
“Chocolate prices are about to go up – and bars and boxes will go down too,” said Javier Blas, a columnist for Bloomberg and former FT commodities correspondent on X.
The cocoa crisis has been brewing for a long time. Most farmers in West Africa are overwhelmingly poor smallholders who do not have the means to reinvest in their farms. Now left with mostly old trees, farmers face lower yields and plants more susceptible to disease.
“Both factors are coming into play this year and the result is a stark gap between supply and demand, with the market heading towards a deficit of between 300,000 and 500,000 tonnes. If confirmed, it would be the largest deficit in 65 years,” Blas said.
While this doesn’t necessarily mean there will be a shortage of candy bars on shelves – there are global stocks of cocoa – those stocks are running out, adding to price pressure.
The International Cocoa Organization said: “It would be beneficial if all major stakeholders reconsidered the structural problems facing the cocoa sector – aging trees, diseases, remunerative farm prices, climate challenges, etc. »
The World Cocoa Foundation said it was tackling the imbalance between wages earned by farmers in Ivory Coast and Ghana, the world’s two largest cocoa producers, and the prices charged to Western consumers.
“Improving farmer incomes must remain at the forefront of everything we do,” said Chris Vincent, president.
This is not a short term problem
Better-paid farmers, able to finally plant new trees, will not solve the problem overnight. It can take about five years before new cocoa trees start producing pods.
This represents profits for traders and hedge funds who have built up a net long position of almost $9 billion.
Nonetheless, costs and margin pressure for chocolate companies such as Hershey remain on the rise in the weeks leading up to Easter.
Actions in a rival Mondelez International Inc. (NASDAQ: MDLZ) – owner of chocolate brands Cadbury, Milka and Toblerone – are down 5% this month. Nestlé SA (OTC: NSRGF), owner of Toll Bar, is down 8% in February.
There is no exchange-traded fund to directly track the price of cocoa, but the SPDR Consumer Staples Select Sector (NYSE:XLP) has performed reasonably well over the past few months. Since mid-October, it has gained 12.6% to $74.56.
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