Hershey stock took a nasty hit last week.
Check out this chart …
This is what happened to Hershey Stock (NYSE: HSY) after the company had to trim its annual revenue and profit forecasts. This, as a result of price hikes that company reps say have dampened demand for its chocolates.
Now, last month I opined about the rising costs of cocoa, and pointed your attention to this chart, which shows how cocoa futures have increased by as much as 300% over the past four years.
This, as a result of changing weather patterns that are affecting output. Here’s a snippet of that article …
… while [cocoa] prices will fluctuate from time to time, the general consensus on cocoa is that high prices are here to stay
You see, earlier this year, we saw evidence that an El Nino resulted in extremely dry temperatures in West Africa. This is where the world grows the majority of its cocoa.
This is of particular concern as changing weather patterns have affected cocoa yields so much, some analysts have suggested that they’re now permanently impaired. Not just because of this particular El Nino, either. But because of a continuation of changing weather patterns and extreme weather events that are becoming the new normal.
Now cocoa crops typically have to be grown within 10 degrees north and south of the equator. This is why the largest producers of cocoa are in Côte d’Ivoire and Ghana.
The problem is that increasing temperatures in those regions could make it harder and harder to maintain those cultivation regions.
Some have even suggested that chocolate could become completely extinct by 2050.
It is plausible that the regions once known for commercial cocoa production will see a significant reduction in yields. But rest assured, chocolate will not just disappear from the planet.
While West Africa is sure to experience some real damage to its cocoa industry, other parts of the world are in position to increase cocoa production. Particularly Ecuador and Brazil, with the latter expected to double production by 2030.
While this is reassuring for chocolate lovers, it is likely that a company like Hershey will continue to battle these high cocoa prices for the foreseeable future. How that will affect the stock is still uncertain in terms of how bad it’ll be. But looking over the past two years, higher cocoa prices have not done Hershey shareholders any favors.
The company now anticipates full-year net sales growth to be flat. Prior estimates showed 2% growth.
Forget Hershey Stock
Unfortunately, it’s nearly impossible for retail investors to directly profit from rising cocoa futures. There was the iPath Dow Jones-UBS Cocoa ETN (NYSE: NIB). But that one closed up shop earlier this year.
There is the WisdomTree Cocoa ETC (COCO), an exchange traded commodity, but that trades on the London Stock Exchange, and is not available to U.S. investors. Which is unfortunate. Because while Hershey is down 23% over the past two years, COCO is up more than 353%.
Although most retail investors in the U.S. have been unable to capitalize on the skyrocketing prices of cocoa, I still like to keep a lookout for advances in the world of cultured chocolate. Which could, down the line, offer an opportunity for more than just deep-pocketed funds and institutional investors.
If you’re unfamiliar, cultured chocolate is created in a lab using cell structures. These cell structures, by the way, are NOT affected by changing weather patterns. As well, producers can grow and harvest cell-grown cocoa in a matter of days. This, as opposed to the months and years it takes to grow traditionally.
One company that’s really taken the lead on cultured chocolate is California Cultured, which landed two major deals in 2024.
The first was a partnership with Japan’s largest chocolate company, Meiji Holdings (OTCBB: MEJHY), which boasts a market cap of more than $6.6 billion.
The second came in the form of a strategic investment from the Belgian international group Puratos.
If you’re unfamiliar, Puratos is an ingredients supplier for bakeries and the chocolate industry. It boasts 75 production units in 52 countries. Chances are, at some point in your life, you’ve eaten something that included ingredients from Purato. After all, the company has supplied ingredients to Dunkin Donuts, Starbucks, McDonalds and Walmart – just to name a few.
While I don’t believe traditional cocoa production will be completely wiped out by changing weather patterns or cell-grown cocoa, I do believe that cultured chocolate will eventually complement the chocolate industry by providing key ingredients for a lot of these chocolate companies that are desperate for cheaper cocoa.
You can read more about California Cultured here.
