Cocoa Prices Have Eggs-Ploded. Which Stocks Will Benefit?

Ben
Laidler,
global
market
strategist
at
eToro,
says
the
frenzy
around
cocoa
prices
will
not
be
felt
by
the
consumer
just
yet,
however.

“If
you
look
at
sweets
and
chocolate
inflation
in
the
UK,
it’s
up
9%
in
the
last
year,”
he
says.

“If
you
look
at
cocoa
prices,
they
are
up
230%.
So,
consumers
have
not
really
seen
the
surge
yet
and
that
is
because
the
producers
have
not
passed
it
on.”

“They
are
still
producing
chocolate
with
these
lower
price
inventories
from
six
to
12
months
ago.
The
problem
will
come
when
those
inventories
run
out
and
they
start
making
chocolate
with
the
cocoa
priced
at
$10,000.
So,
we
will
all
have
these
price
hikes
still
to
come.”  

Hershey
(HSY),
the
Morningstar
4-Star-rated
chocolate
producer,
is
feeling
the
pinch
already.
It
has
begun
to
promote
“non-chocolate”
treats
for
Easter
as
surging
cocoa
prices
threaten
margins.  

“The
chief
executive
of
the
company
[Michele
Buck]
just
spoke
about
higher
cocoa
prices,
and
he
said
it
will
limit
the
company’s
earnings
growth
in
2024,”
says
John
Plassard,
investment
specialist
at
Mirabaud
Group. 

“That
announcement
went
together
with
the
fact
that
they
announced
a
plan
to
cut
up
to
5%
of
the
workforce
because
they
want
to
slash
$300
million
in
annual
expenses.”

Plassard
is
very
pessimistic
about
Hershey
because
of
its
limited
pricing
power.
The
business
has
already
seen
a
dip
in
profitability.
Its
2023
fourth-quarter
profit
and
operating
margins
have
already
fallen
12%
and
18%,
respectively.

At
the
other
end
of
the
spectrum,
he
believes
Morningstar
2-Star-rated
Swiss
chocolate
producer
Chocoladefabriken
Lindt
&
Spruengli
(LISN)
will benefit
from
the
price
surge.
4-Star-rated
Nestlé
(NESN),
meanwhile,
will
avoid
any
detrimental
impact.

“Lindt
saw
its
sales
in
2023
jump
up
10.3%
year
on
year.
The
company
admitted
that
most
of
the
growth
came
from
price
increases.
So,
they
are
using
their
pricing
power
to
implement
the
higher
cocoa
prices,”
he
says.

“Hershey
is
more
like
what
you
would
call
fast
food.
Lindt
is
looked
upon
as
luxury.
Nestlé
is
a
much
more
diversified
business
–
they
are
not
only
selling
chocolate.
So,
they
will
feel
less
pain
from
the
rise
in
cocoa
prices.”

Nevertheless,
Laidler
now
has
his
eye
on
how
Barry
Callebaut
(BARN),
the
Swiss-Belgian
chocolate
producer –
and
the
world’s
biggest
buyer
of
chocolate –
will
cope
with
higher
bean
prices.

“The
problem
it
has
right
now
is
how
does
it
go
and
buy
all
this
chocolate,”
he
says.

“It’s
just
had
to
raise
money
to
bring
cash
in. It’s
going
to
have
to
raise
more
money
to
fund
what
is
basically
them
buying
another
harvest’s-worth
of
cocoa
at
extraordinarily
high
prices.”

Will
my
Chocolate
Bars
Get
Smaller?

For
consumers,
the
surge
will
lead
to
shrinkflation,
as
companies
use
less
cocoa
and
reduce
the
size
of
their
products.
This
has
already
been
a
visible
part
of
life
under
higher
inflation. 

Nonetheless,
for
Plassard,
despite
the
inevitable
increase
in
chocolate
prices,
he
does
not
see
consumers
shying
away
from
the
tasty
treats.
 

The
health

benefits
of
chocolate,
with
studies
showing
its
consumption
helps
to
relieve
stress,
as
well
as
growth
opportunities
in
China
and
India,
where
chocolate
has
a
low
penetration
with
consumers,
point
to
demand
continuing.
And
that
too
dims
the
likelihood
that
prices
will
return
to
normal.

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