Hershey drove a record spike in cocoa prices after reportedly sourcing beans from the futures market instead of physical sellers
- Hershey's move into
cocoa futurestrading pushed the market into chaos this month and boosted prices to record highs.
- The candy producer bought
cocoabeans through the ICE Futures exchange in mid-November, Bloomberg reported Friday.
- The trade allows Hershey to obtain cocoa at lower prices, as
chocolateproducers typically buy from physical suppliers who charge various premiums.
- The trade was so big it lifted December-delivery contracts as much as 13.4% from November 13 to November 16. It also placed December contracts at a record-high premium over the next contract.
- Watch cocoa trade live here.
Hershey threw the
The candy producer bought cocoa beans through ICE Futures exchange in mid-November, Bloomberg reported on Friday. The move marks a shift from the deals with physical sellers commonly used to supply beans. While deals with middlemen make up the bulk of global cocoa purchases, procuring beans through futures trades allows Hershey to avoid typical premiums.
Prices have continued to rise after December-delivery futures expired. Contracts for March delivery jumped as much as 2.3%, to $2,774 per ton, on Monday, the commodity's highest level since late February.Hershey's move to futures trading comes just before two major cocoa exporters implement a new premium on beans. Ghana and Ivory Coast placed a $400-per-ton premium — known as the Living Income Differential — on their beans starting in October. Other premiums for sustainability and quality can also be levied on cocoa depending on several factors.
Several chocolate producers agreed to pay such charges to improve living conditions for cocoa farmers, but the coronavirus pandemic and its hit to chocolate demand has since left companies looking to cut costs. By turning to the futures market, Hershey can avoid the premiums and buy cocoa at lower prices.Still, a Hershey spokesperson told Bloomberg the company continues its "substantial cocoa sustainability work" to combat poverty and deforestation. Hershey continues to pay the Living Income Differential and invest in training for farmers to diversify their crops, the spokesperson added. Now read more
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