With increased cocoa prices worldwide, should you short chocolate stocks?

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on Feb 27, 2024
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  • This month, cocoa prices increased to historic highs - twice.
  • With chocolate companies declaring this will affect their profits, should you short chocolate stocks?
  • We weigh up the pros and cons.

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Cocoa as a commodity has soared lately.

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The cocoa price rose by more than 150% in just over a year to an all-time high of $5,874 per ton on February 8th, only to smash its own record this week with a new ATH of $6,697 per ton.

Why is the cocoa price surging?

As a result, the cocoa powder price and chocolate prices in countries around the globe have also surged.

Cocoa to remain historically high, says analyst

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According to Invezz analyst Crispus Nyaga, the cocoa price is not set to drop any time soon, due to demand remaining strong in the face of myriad supply challenges and longtime under-investment in the industry.

According to Hershey Company president and CEO Michele Buck, the cocoa price is eating into chocolate companies’ earnings.

So, should traders be shorting chocolate-making companies, even as everyone goes long on cocoa?

Two share prices to consider

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The first thing to consider is that not all chocolate companies are equal. While higher cocoa prices could drive down demand, they may not in all cases.

And, where demand remains stable, high prices could also boost revenue for chocolate companies significantly.

It’s true that the Hershey Company (NYSE: HSY) stock price is down almost 2% this year to date so far.

And yet, in spite of Buck’s dire prediction we referenced earlier, which was given at the release of Hershey’s financial results for 2023, Hershey’s stock price climbed 4% that day.

Also, Mondelēz International Inc, which owns Cadbury’s (NASDAQ: MDLZ), is down just 0.49% this year to date so far, and is actually up 12% from this time last year.

Conclusion

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Lastly, remember that Easter is around the corner – traditionally a time when lots of chocolate is bought throughout various cultures worldwide.

One thing seems certain, though: the cocoa price and price of chocolate isn’t going down any time soon.

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Cocoa Commodity Food & Beverage