The worsening global cocoa squeeze has taken a new turn, with US chocolate giant Hershey Co. reportedly seeking approval from the Commodity Futures Trading Commission (CFTC) to purchase a massive amount of cocoa through the New York exchange. The move highlights that cocoa cost inflation will get even more extreme in 2025.
First reported by Bloomberg, the maker of Reese's Peanut Butter Cups asked the CFTC for approval to purchase 90,000 metric tons of cocoa on ICE Futures US. Sources said this is equivalent to about 5,000 20-foot containers and more than nine times the amount the exchange allows.
"The headlines on Hershey today suggest the outlook for confectionary (cocoa) cost inflation is getting even more extreme," Goldman's Natasha de la Grense told clients Thursday morning.
In a note to clients, JPMorgan's Ken Goldman suggested that Hershey might be attempting to replicate its 2020 strategy, leveraging price dislocations to manage and reduce cocoa costs.
Still, the current hedge "don't have to be for the same reason or have the same directional impact," Goldman said.
He added: "For all we know, Hershey may very well want to buy hard cocoa because of supply concerns. We also don't necessarily believe all of 2025's cocoa needs are hedged."
In Hershey's third-quarter earnings call, CFO Steve Voskuil told analysts that the company was "well hedged" in 2024. He said for 2025: "Now you flash ahead to current pricing and you look at pricing for next year, it's a pretty significant step-up. And it's not just the cocoa side. The cocoa beans, of course, the biggest piece, but there's also cocoa butter, cocoa liquor and some of the other physical derivatives of cocoa that'll be inside that inflation."
A Hershey spokesperson told Bloomberg that the company has a" rigorous" procurement process and is "well covered" on its cocoa needs for 2025.
In markets, the most active cocoa contract rose more than 10% in early trading in New York. Prices nearly tripled in 2024 on tightening global supplies after the spread of disease and poor weather crushed harvests in West Africa.
In mid-December, Goldman's commodity derivatives analyst Hugo Fuentes told clients to "go long cocoa" as "prices are positioned for significant upside driven by structural supply deficits, under-hedged consumers, and historically low warehouse stocks."
