Candy and chocolate giant Hershey Co. is seeking CFTC approval to buy a large amount of cocoa on the New York exchange to hedge against supply problems that might linger in 2025.
According to insider information provided to Bloomberg, Hershey Co. aims to take a position that will enable it to purchase over 90,000 metric tons of cocoa from the Commodities Futures Trading Commission (CFTC).
The position represents nine times the amount currently permitted by the exchange and is a strategic move to stockpile cocoa, safeguarding against potential supply challenges that could resurface in 2025.
In 2024, strong winds and low rainfall in Ghana, coupled with harvest challenges in the Ivory Coast during the fourth quarter, caused significant cocoa supply disruptions, sparking a frantic surge in demand.
The supply scarcity also caused cocoa futures to skyrocket by 174% year-to-date in 2024, surging from $4,209 per metric ton to over $11,000 per metric ton by the end of December.
In December 2024, cocoa prices spiked over 24% month-to-date, amid concerns that created a demand panic for Christmas chocolatiers eager to stock up for the holiday season.
What to know
- Global cocoa shortages are so severe that it is now cheaper to take delivery through the New York exchange than to buy directly in the physical market.
- Hershey Co. plans to purchase an amount of cocoa equivalent to all the certified or certifiable beans currently stored in New York exchange warehouses.
- The company is stockpiling cocoa as the global market is expected to face a fourth consecutive year of supply shortages in 2025.
- Ivory Coast and Ghana, which produce over 60% of the world’s cocoa, experienced severe climate issues last year, with potential effects continuing into 2025.
- Cocoa prices are tracked through futures in the commodities market, with rising futures indicating high prices and supply concerns.
Backstory
In Ghana, the world’s second-largest cocoa producer, strong winds and low rainfall in March 2024 disrupted the harvest, driving prices up by 60% earlier in the year.
- While conditions stabilized between March and October, heavy rains in Ivory Coast’s southwestern regions in late September disrupted cocoa bean drying and delayed transport to ports, adding further to supply problems.
- With supply issues lingering into December, cocoa prices climbed to $11,300 per metric ton, a sharp increase from $9,417 per metric ton at the start of the month.
- The persistent supply imbalance, fueled by climate-related disruptions and strong seasonal demand, has likely driven prices to fresh highs.
Hershey Co.’s decision to stockpile cocoa from the exchange instead of the physical market helps hedge against potential supply issues in 2025.
The company’s shares dropped 12% year-to-date in 2024, likely due to ongoing cocoa supply challenges and bearish momentum since April 2023.