Hershey CEO Warns 'Earnings Limited' As Cocoa Prices Hyperinflate

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by Tyler Durden
Thursday, Feb 08, 2024 - 06:00 PM

Cocoa futures in New York soared to a new record high this morning as fears of a global bean shortage worsened. Hyperinflating cocoa prices used mainly in candy could pressure companies like Hershey Co. to raise chocolate and other confectionery items at the supermarket. 

Bloomberg reports the most active cocoa futures jumped to a new record high of $5,423 a ton on Thursday, surpassing a 1977 peak of $5,379. That puts most-active futures at the highest level ever, with data compiled by Bloomberg spanning nearly seven decades. Prices have jumped 165% since September 2022

A recent ZH report titled "Cocoa Prices Hit 46-Year High As Drought Concerns Threaten West African Crops" explained cocoa prices were rising due to abnormally dry conditions across West Africa, the world's largest cocoa producer region. 

Paul Davis, the head of cocoa at major softs merchant Sucres et Denrees SA, told Bloomberg in an interview at Amsterdam Cocoa Week that global cocoa markets will be "in a very tight balance" balance for another 18 months to three years. 

Davis warned: "There is no cavalry that's coming to the rescue."

Commenting on prices this morning, Hershey CEO Michele Buck told investors in a statement in a fourth-quarter earnings report that the all-important ingredient in chocolate bars has reached "historic" levels. 

Buck warned: "Historic cocoa prices are expected to limit earnings growth this year." 

On a call with investors after the earnings report, she said, "We can't talk about future pricing ... given where cocoa prices are, we will be using every tool in our toolbox, including pricing, as a way to manage the business." 

The executive noted that if prices continue rising, the company will see that benefit later this year or in 2025. 

The next likely outcome is a rapid increase in candy inflation at the supermarket.