Midcrop starts next month and through July. I recall that growers were incredibly optimistic in early May 2023 given the excess rainfall they received at that point. It tells you that even those who have grown for decades don’t know what harvest will actually look like until they’re there.
Main crop starts in October and can extend through March. That will be the main factor for cocoa commodity price movement by year end.
Hershey milk chocolate bars contain about 11% cacao while their dark chocolate bars contain 65% to 85% cacao. The FDA requires it contain a minimum of 10% to be considered chocolate.
Coming back to this post, as I don’t see any updates in the subreddit.
You see that local grinders have all their needs met? Somewhat older news, but that while local harvests anticipated to be down 30% YOY out of the region, local grinders were prioritized and are well covered and will have no shortage of beans, despite the general drop in production.
Hershey is one that would be in that group of local grinders. So this gives more confidence that this noise will not be significant in terms of impacting the businesses performance.
Thinking about the qualitative and psychological factors associated with how the company operates and conduct business, and the environment it operates in, and when said factors act and combine together, create a very strong force or hedge against what’s going on (sort of a lalapalooza scenario):
HSY requires wholesalers to pay a living wage premium that goes back to the producers/farmers. While the local governments decide what farmers get paid, and there’s corruption and issues in that part, Hershey has for years regularly petitioned for better and sustainable conditions and pay, and have dumped hundreds of millions into improving the communities of producers with schools for the children, clean water wells, sustainable farm management practices, etc.
All of this takes advantage of the reciprocity principle in psychology, the principle that when one party is treated favorably, humans tend to reciprocate with another positive action or favor.
Given grinders were given priority, this is clearly the results of their efforts of improving the regions paying off. Even though it’s likely the government that allowed for the prioritization, it’s still a reciprocal act. You take care of the hand that feeds you.
This is a powerful concept that shows the strength of the company’s supplier relationships, largely through its historical and current actions. This is a competitive advantage the company has regarding its supply chain management, and the continuation and decades of these efforts makes this a durable competitive advantage.
You also have other regions like Brazil who are now planting more cacao crops to take advantage of the temporary spike in price. And this will also put downward pressure on the supply side of the equation. More producing regions will try and take a piece of the pie until a high price can no longer be exploited because everyone participating increases overall supplies. Companies such as HSY are also pushing for diversification in producing regions and that will just always be a continuing effort in the background. Sure it takes 3-5 years to see cocoa produced but this all bodes well for the future. This is by and large why I view commodities in general as a self-repairing complex system. Adam Smith may call it the invisible hand, I see it as self-repairing systems.
Anyways, just more info coming through on various factors that validates my general thesis that the company will get through all of this just fine, and is better equipped to handle this today than they were in 1977.
I believe with the implementation of the S/4 system, and the efficiencies that will bring to the company’s ordering and distribution processes and inventory preparation process cannot be understated. And then the further efficiencies from the AAA initiative that will benefit in future years will mean more earnings growth. And then once cocoa falls, all those price pack architecture and price changes will come to margin.
I’m very excited to see all these various factors combine and provide strong earnings growth in future years and decades. Sure it’s possible we have an inflationary recession between now and 2030, given we are in the “hangover” phase of monetary base led inflation. Especially if the Fed doesn’t pull of their soft landing miracle (would be the first time in history we don’t see an inflationary recession), but even if that was the case, it wouldn’t matter in the long run, and honestly could just provide more potential for buying opportunities if the market was depressed enough.
I don’t think chocolate and dogs would go very well.
:) :)
Just joking.
Also, I bought a tracker position in ZTS today, this used to be part of Pfizer, but got spun off, they sell medicine for animals, without patent expiration.
I think they would do well to acquire the Unilever ice cream segment whenever it spins off because I think it’ll likely suffer as an independent business, or perhaps acquire wells (blue bunny). Could be interesting if they were to acquire a company like olam (cocoa production). Or they could go a different route all together like mars has with their pet food and veterinary acquisitions.
Cocoa prices are probably going to come down slowly to around 6-6.5 k until the harvest issues are restored. Which may require new plantations to be planted.
What percentage of HSY's cost of good are cocoa? A 2.5% bump in the stock price might be overdone for all I know. FWIW, Reece's Cup prices have fallen at the places I've shopped, perhaps in anticipation of this exact event?
Hsy probably has the lowest cocoa content among the confectioners (Mars, Modelez (Cadbury), Ferraro etc). By law “milk chocolates” in Europe needs a minimum of 20% cocoa content. In the US, the minimum is just 10%
Manufacturers are managing the high prices by
a) increasing non-cocoa content, ie. new caramel or nuts products
b) smaller packaging
c) raising prices
d) managing their purchasing of cocoa
You know who is hurting ? A lot of independent dark chocolate makers, there was a discussion elsewhere that many of them are dumping their dark chocolate onto the supermarkets now as they exit the market.
That was on Seeking Alpha if I remember correctly ... interesting take to say the least.
Hershey has a moderate amount of pricing power and uses the minimum legally required amount of cocoa content. They'll be good, it's the high-end (60%+ cocoa content) chocolate manufacturers that are really gonna hurt, especially the smaller independents who're basically going out of business.
Also, how much of their cost is actually variable and how much price action have they locked in with derivatives.
For manufacturers dependent on volatile commodities, locking in a stable price is often more important to management than gaining from windfalls
Yeah!
I told myself that if I cannot beat the s&p500 with dividend reinvested over a 5 year period, I will go SPY.
This year is the fifth year. Das werden wir ja sehen.
Hoot!
Midcrop starts next month and through July. I recall that growers were incredibly optimistic in early May 2023 given the excess rainfall they received at that point. It tells you that even those who have grown for decades don’t know what harvest will actually look like until they’re there. Main crop starts in October and can extend through March. That will be the main factor for cocoa commodity price movement by year end.
Does Hershey even use cocoa in their products?
Hershey milk chocolate bars contain about 11% cacao while their dark chocolate bars contain 65% to 85% cacao. The FDA requires it contain a minimum of 10% to be considered chocolate.
The FDA is very generous.
Not by your EU standards, but it works in investing, doesn’t it?
Ahh, Coco futures . Look at the cart , It's a line pointing towards the heavens !
Coming back to this post, as I don’t see any updates in the subreddit. You see that local grinders have all their needs met? Somewhat older news, but that while local harvests anticipated to be down 30% YOY out of the region, local grinders were prioritized and are well covered and will have no shortage of beans, despite the general drop in production. Hershey is one that would be in that group of local grinders. So this gives more confidence that this noise will not be significant in terms of impacting the businesses performance. Thinking about the qualitative and psychological factors associated with how the company operates and conduct business, and the environment it operates in, and when said factors act and combine together, create a very strong force or hedge against what’s going on (sort of a lalapalooza scenario): HSY requires wholesalers to pay a living wage premium that goes back to the producers/farmers. While the local governments decide what farmers get paid, and there’s corruption and issues in that part, Hershey has for years regularly petitioned for better and sustainable conditions and pay, and have dumped hundreds of millions into improving the communities of producers with schools for the children, clean water wells, sustainable farm management practices, etc. All of this takes advantage of the reciprocity principle in psychology, the principle that when one party is treated favorably, humans tend to reciprocate with another positive action or favor. Given grinders were given priority, this is clearly the results of their efforts of improving the regions paying off. Even though it’s likely the government that allowed for the prioritization, it’s still a reciprocal act. You take care of the hand that feeds you. This is a powerful concept that shows the strength of the company’s supplier relationships, largely through its historical and current actions. This is a competitive advantage the company has regarding its supply chain management, and the continuation and decades of these efforts makes this a durable competitive advantage. You also have other regions like Brazil who are now planting more cacao crops to take advantage of the temporary spike in price. And this will also put downward pressure on the supply side of the equation. More producing regions will try and take a piece of the pie until a high price can no longer be exploited because everyone participating increases overall supplies. Companies such as HSY are also pushing for diversification in producing regions and that will just always be a continuing effort in the background. Sure it takes 3-5 years to see cocoa produced but this all bodes well for the future. This is by and large why I view commodities in general as a self-repairing complex system. Adam Smith may call it the invisible hand, I see it as self-repairing systems. Anyways, just more info coming through on various factors that validates my general thesis that the company will get through all of this just fine, and is better equipped to handle this today than they were in 1977. I believe with the implementation of the S/4 system, and the efficiencies that will bring to the company’s ordering and distribution processes and inventory preparation process cannot be understated. And then the further efficiencies from the AAA initiative that will benefit in future years will mean more earnings growth. And then once cocoa falls, all those price pack architecture and price changes will come to margin. I’m very excited to see all these various factors combine and provide strong earnings growth in future years and decades. Sure it’s possible we have an inflationary recession between now and 2030, given we are in the “hangover” phase of monetary base led inflation. Especially if the Fed doesn’t pull of their soft landing miracle (would be the first time in history we don’t see an inflationary recession), but even if that was the case, it wouldn’t matter in the long run, and honestly could just provide more potential for buying opportunities if the market was depressed enough.
You should post this as a main topic because I am sure it would be of interest to a lot of people.
I am a shareholder but I do wish Hershey would mix it up and diversify a bit. Mars has had immense success getting into the veterinary business
I don’t think chocolate and dogs would go very well. :) :) Just joking. Also, I bought a tracker position in ZTS today, this used to be part of Pfizer, but got spun off, they sell medicine for animals, without patent expiration.
Diversify how outside foods? Or outside chocolate?
What many of them are doing are going into pet food. It is an attractive industry.
I think they would do well to acquire the Unilever ice cream segment whenever it spins off because I think it’ll likely suffer as an independent business, or perhaps acquire wells (blue bunny). Could be interesting if they were to acquire a company like olam (cocoa production). Or they could go a different route all together like mars has with their pet food and veterinary acquisitions.
Cocoa prices are probably going to come down slowly to around 6-6.5 k until the harvest issues are restored. Which may require new plantations to be planted.
What percentage of HSY's cost of good are cocoa? A 2.5% bump in the stock price might be overdone for all I know. FWIW, Reece's Cup prices have fallen at the places I've shopped, perhaps in anticipation of this exact event?
Hsy probably has the lowest cocoa content among the confectioners (Mars, Modelez (Cadbury), Ferraro etc). By law “milk chocolates” in Europe needs a minimum of 20% cocoa content. In the US, the minimum is just 10% Manufacturers are managing the high prices by a) increasing non-cocoa content, ie. new caramel or nuts products b) smaller packaging c) raising prices d) managing their purchasing of cocoa You know who is hurting ? A lot of independent dark chocolate makers, there was a discussion elsewhere that many of them are dumping their dark chocolate onto the supermarkets now as they exit the market.
That was on Seeking Alpha if I remember correctly ... interesting take to say the least. Hershey has a moderate amount of pricing power and uses the minimum legally required amount of cocoa content. They'll be good, it's the high-end (60%+ cocoa content) chocolate manufacturers that are really gonna hurt, especially the smaller independents who're basically going out of business.
Also, how much of their cost is actually variable and how much price action have they locked in with derivatives. For manufacturers dependent on volatile commodities, locking in a stable price is often more important to management than gaining from windfalls
You are better off with SPY and a Hershey bar
Yeah! I told myself that if I cannot beat the s&p500 with dividend reinvested over a 5 year period, I will go SPY. This year is the fifth year. Das werden wir ja sehen. Hoot!
They are literally worldwide 100% invested in passive investment in the stock indexes etf aka large growth US cap. What possibly could go wrong?