The history of Cocoa Beans goes back thousands of years with roots dating back to the Mayan and Aztec cultures of Central and South America. Once used as a currency, medicine, and a stimulant, today as a society, we have a different use case for chocolate. Modern chocolate was introduced in the late 1800’s and has now become a staple of the American discretionary diet.
Cocoa prices have been climbing due to unfavorable growing conditions in West Africa where up to 70% of the world’s cocoa supply is grown. This has pushed prices to levels not seen since the late 1970’s. Record cocoa prices ahead of Valentine’s Day won’t likely be too impactful in the short term on retail chocolate demand but will likely cause continual retail pricing pressure.
Below is a good visual representation of how skyrocketing commodities can cause headwinds for a company heavily dependent on commodities as an input for production.
Hersey’s (HSY) reported “mixed” earnings last week missing top line while exceeding bottom line Wall Street expectations. The company also guided lower than analyst expectations for full year 2024. However, keep an eye on Cocoa/HSY relationship. One day they may fall back in love instead of growing apart.
Forrest Gump’s mama once said, “Life was like a box of chocolates. You never know what you’re gonna get”. While those are wise words, they are not always true when we have charts that show us what we are going to get. But like Forrest, I am a simple man. In this case, we don’t have to add any special indicators to tell us what is happening here.
