Cocoa Prices Go Bitter After Hershey CEO Spots “Demand Destruction”

Cocoa futures declined in New York following comments from Hershey CEO Michele Buck, who indicated on an earnings call with investors that signs of potential demand weakness are emerging. 

Earlier, Piper Sandler analyst Michael Lavery asked CEO Buck:

“You mentioned in – you mentioned in your prepared remarks, you’re seeing cocoa end-users adapting through reformulation. Could you maybe touch on what exactly you’re seeing there and if you are reformulating yourselves as well?”

Buck responded:

“We have been seeing some increased global demand across the market for cocoa alternatives. So we are seeing some folks who are pressured and who perhaps have the opportunity to switch to cocoa butter alternatives. Obviously, we’re — we do that where possible, but we’re pretty precious about the brands and what they stand for with consumers.”

And she continued (this is what caught the attention of the cocoa traders…): 

“Yeah, it does create some demand destruction in the market as we see others do that.” 

Bloomberg noted that Buck’s concerns about souring demand aligned with those of Mondelez CFO Luca Zaramella, who stated earlier this week that cocoa consumption is sliding in parts of the world, including North America. 

The most active cocoa futures in New York nearly doubled in the latter parts of 2024 on a bleak production outlook for cocoa farms across West Africa. Contracts fell about 5% on Thursday, hovering around the $10,000 per ton level by lunch.  

Last month, a Bloomberg report specified that Hershey was trying to gain approval from the Commodity Futures Trading Commission to purchase a massive amount of cocoa through the New York exchange. 

Panic Hedge? Hershey Reportedly Asks CFTC Approval To Buy Huge Cocoa Pile On NY Exchange https://t.co/F2dTAh0aQ4

— zerohedge (@zerohedge) January 9, 2025

“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 following the Bloomberg report. 

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.” 

Signs of demand destruction may spook the cocoa rally, and potentially, some of the first signs are materializing this week with Hershey and Mondelez.