The price of cocoa has soared in the past year, reaching all-time highs, which could lead to a significant increase in chocolate prices. The cost of cocoa has doubled over the past year, with the most active futures contract hitting $5,600 per metric ton. Extreme weather conditions in West Africa, the primary source of cocoa beans, have caused a crop disease and hindered production due to dry weather.
Paul Davis, the president of the European Cocoa Association, predicts that prices could rise even further to $6,000 per ton. This shortage is expected to persist for the next 18 months to three years, with no immediate solution in sight. The situation is compounded by expensive fertilizers, difficult conditions for farmers, and tough conditions for consumers.
The surge in cocoa prices is likely to have a significant impact on chocolate manufacturers, particularly those heavily reliant on cocoa. Companies like Hershey Co (NYSE:HSY) have already warned that the historic cocoa prices will impede earnings growth in 2024. Analysts have also cautioned that Hershey might face margin pressure due to soaring cocoa and sugar costs.
In its recent earnings report, Hershey reported steady fourth-quarter earnings but highlighted slow sales growth and rising cocoa costs. While the company’s sales slightly increased by 0.2% year-over-year, they missed the consensus estimate. Adjusted earnings per share remained flat year-over-year but exceeded analysts’ expectations.
As the cost of cocoa continues to rise, chocolate manufacturers may be forced to pass on these higher costs to consumers, potentially leading to an increase in chocolate prices. This situation could pose challenges for both manufacturers and consumers in the coming years.
Overall, the cocoa shortage and subsequent price surge are concerning for the chocolate industry. With no immediate solution in sight, manufacturers and consumers alike may have to brace themselves for higher chocolate prices in the near future.
