Cocoa Futures for May delivery closed at $11,288 on April 18, skyrocketing 166% year-to-date and over 291% in the past year. Stocks of confectionary companies and chocolate makers are bearing the brunt of this price surge. Stocks of Hershey (NYSE:HSY), Mondelez International (NASDAQ:MDLZ), and Nestle (OTCMKTS:NSRGF) are being affected by this price spiral. Investors should keep a watch on these stocks to observe any major price swings owing to the cocoa crisis.
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HSY, MDLZ, and NSRGF stocks have declined by 28.1%, 3.4%, and 18.7%, respectively, over the past year.
Reasons for the Surge in Cocoa Prices
The Ivory Coast and Ghana are the two primary producers of cocoa, contributing roughly 70% of the global cocoa production. A series of crop diseases and severe weather conditions have hit these two regions, impacting the global cocoa supplies.
Meanwhile, consistently low prices over the last few years have hindered the farmers’ ability to engage in any new crop plantation activities.
A Bloomberg report mentioned that Nigeria is set to witness one of the most colossal flooding in the main cocoa-growing regions this year. This event will also impact the global cocoa supply in 2024-25, as Nigeria is the world’s fifth-largest cocoa producer.
To put these issues in context, figures from the International Cocoa Organization (ICCO) would be helpful. According to their stats, the 2023-24 season is set to see a supply deficit of 374,000 tons, rising 405% from the prior season. As per the ICCO, grindings (beans processed) of cocoa beans, a measure used to collate demand for chocolate, is estimated to fall by 4.7% to 4.78 million tons in the 2023-24 season as compared to the prior season.
Ending Thoughts
The cocoa crisis is real, and companies are rushing to bulk up their cocoa stores with the maximum amount they can. Interestingly, chocolate companies generally use hedging practices to mitigate the impact of volatile commodity prices. However, this year’s surge has been significant, with more pain expected to follow.
Some chocolate companies are able to pass on a bit of the price hike to consumers. Nonetheless, these companies continue to be under pressure as they witness declining volumes due to higher chocolate prices.
