Cocoa prices are still pushing aggressively higher – and may still have room to run.
All thanks to harsh weather conditions, black pod disease, swollen shoot virus, underinvestment, and supply.
From here, depending on cocoa grindings, which result “from bean processing and are a measure of demand, will be one key factor likely to determine whether prices have any further upside,” say analysts at Citi, as quoted by CNBC. If cocoa grindings only marginally subside (as was the case in 4Q′23) and industry statements imply limited consumer pushback, then traders could quickly target $11,000-12,000/t.”
In addition, the International Cocoa Organization forecasting a deficit of 374,000 tons for the 2023-24 season from 74,000 tons prior, added CNBC.
With that, investors may want to avoid related stocks like Hershey (HSY) and Nestle (NSRGY).
Hershey, for example, recently warned that historic cocoa prices could limit its earnings upside for the year. Analysts at Morgan Stanley also downgraded it to an underweight rating. The firm expects for softer demand, and higher cocoa prices to weigh on 2025 profits.
However, once all of the chaos is over and done with, we can buy on weakness.
