(Bloomberg) -- Cocoa futures surged, reversing losses from the prior session, on news that chocolate maker Hershey Co. is seeking permission for a large purchase through the New York exchange.
The most-active contract rose as much as 10.1% in New York on Thursday. Prices had fallen as much as 7.7% on Wednesday after Bloomberg reported that the maker of Reese’s Peanut Butter Cups wants to take a position that will allow it to purchase more than 90,000 metric tons of cocoa on ICE Futures US, citing people familiar with the matter.
The market has been trying to assess the reasoning behind Hershey’s request to the Commodity Futures Trading Commission, which equates to about 5,000 20-foot containers. That’s more than nine times the amount the exchange currently allows.
The move signals a nervousness among cocoa buyers about tightening supplies in the physical market, according to market veteran Marc Donaldson, former managing director of Asia Pacific at Barry Callebaut AG.
While bean arrivals at ports in top grower Ivory Coast are still ahead of last year, they have slowed down in recent weeks, adding to fears the market is set for a fourth year of supply shortages. Dwindling global stockpiles are also putting pressure on both buyers and chocolate makers.
“It looks as though the crop will stop coming in very rapidly now,” said Donaldson. “And Hershey decided that the best way to get some physical stock was to go and buy off the New York terminal, which is what they did before.”
JPMorgan analysts including Ken Goldman said Hershey could be trying to replicate what it did in 2020 when it took advantage of price dislocations to curb cocoa costs, though that deal “did not have much to do with underlying supply-and-demand dynamics.”
Still, the current efforts “don’t have to be for the same reason or have the same directional impact,” the analysts said. “For all we know, Hershey may very well want to buy hard cocoa because of supply concerns. We also don’t necessarily believe all of 2025’s cocoa needs are hedged.”
The chocolate-making ingredient ended 2024 as the top-performing major commodity, its massive annual gain of more than 178% driven by supply fears and market volatility. The rally has been fueled by a series of poor harvests in Ivory Coast and Ghana, where the majority of the crop is grown.
The record prices have thinned out liquidity to the lowest in over a decade, as margin calls climbed and positions became increasingly pricey to hold. That low futures liquidity has added to the wild swings, with prices moving more than a thousand dollars on some of the most volatile trading days.
--With assistance from Ilena Peng.
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