US-based confectionery giant Hershey remains tight-lipped on potential cocoa-linked pricing beyond this year’s hedging contracts as the commodity continues to trade at record highs.

During the discussion of the confectionery and salty snacks maker’s first-quarter results, President and CEO Michele Buck faced a barrage of questions about cocoa. The company saw an 8.9% increase in sales, driven by an inventory build-up resulting from the implementation of a new enterprise resource planning (ERP) system.

Buck reiterated her earlier assessment that cocoa prices will continue to be inflationary through 2025, even as they dipped to approximately $8,000 per tonne. Nevertheless, this price point remains historically high, despite the drop from the peak of $12,261 reached in April.

“In the midst of our 2025 planning, it’s premature to delve into potential financial scenarios or impacts. For competitive reasons, we won’t be disclosing our hedging policies or pricing strategies,” remarked Buck during the discussion of the quarterly results ending on March 31st.

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“However, we maintain confidence in the long-term prospects and the strategies we possess to mitigate inflation and safeguard our margins in the long run.”

At least for 2024, Buck assured that Hershey has secured its cocoa supply with locked-in hedging contracts.

“The current market is experiencing influences beyond simple supply and demand dynamics. Factors such as diminished liquidity, emerging regulations, and speculative market activity have collectively propelled us towards the record-high prices we’re witnessing,” she elucidated.

“We’ve established robust processes to guarantee supply continuity and maintain clear insight into our costs. With solid coverage for 2024, we anticipate that recent volatility will not impact our financial projections for the year.”

The sales growth forecast remained within the 2-3% range for fiscal 2024, with Finance Chief Steve Voskuil indicating that Hershey’s gross margin would decline by approximately 200 basis points due to cocoa and sugar inflation outweighing net price realization and supply chain productivity improvements.

In the first quarter, that measure decreased by 170 basis points to 44.9% on an adjusted basis.

During a Q&A session, the CEO was queried about her thoughts on the factors behind the decline in cocoa prices following the peak in April.

“I believe the decline primarily underscores the immense volatility prevalent in the marketplace,” responded Buck. “As of yet, there are no significant new signals concerning supply and demand that warrant attention.”

She further remarked, “Perhaps there are early indications regarding the mid-crop, suggesting that much of the decline may be influenced by non-supply-demand economic factors, such as speculator activity and regulatory considerations we’ve previously discussed.”

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When queried about the potential price impact and strategies regarding cocoa derivatives like cocoa butter, Voskuil provided additional insight.

“While cocoa is the main focus, there is also an increase in its derivatives,” he clarified. “As cocoa itself is inflationary, we won’t remark on the percentage increase in relation to price increases for cocoa.”

Regarding sourcing options for 2025, Voskuil emphasized, “Clearly, the hedging program and financial aspects are one approach to address this, and on the supply chain side, ensuring we have diverse sourcing is another.”

“Over the years, we’ve made significant efforts to diversify our supply chain footprint,” he noted. “Undoubtedly, reflecting on the past few years, we will persist in advancing this diversification. This provides us with flexibility in our sourcing approach.”

Last week, Dirk Van De Put, CEO of Hershey’s peer company Mondelez International, faced similar inquiries regarding cocoa prices as the Cadbury chocolate owner released its first-quarter results.

“It’s evident that record costs for cocoa ingredients and the ensuing price increases for consumers and customers are creating a lot of conversation,” he stated. “Chocolate volume is still growing despite this short-term headwind, and we are still structurally advantaged with large opportunities ahead in this growing category.”

Van De Put also mentioned that Mondelez has hedging coverage for 2024 and is “well-prepared for 2025.”

Meanwhile, Buck underscored the importance of cocoa to their long-term business resilience and success, highlighting their commitment to dedicated resources and substantial investments to ensure a resilient supply chain for the future.

She was prompted to comment on statements made by Mondelez CFO Luca Zaramella last week, where he suggested that prices “are the result of a series of accidental circumstances that over time we believe should go away.”

In response, Buck stated, “In general, our opinions of the factors that have shaped the market are fairly in line with what that sizable rival previously stated. Upon reflection, we believe that during the previous few months, prices have been impacted by both transitory and permanent factors.

The Hershey chief elaborated, “It indeed began with adverse weather conditions affecting crops and subsequently raising supply concerns. However, as we’ve previously noted, it extends beyond mere supply and demand dynamics. Factors such as regulatory actions, like the EU deforestation regulation, market speculation, and diminished liquidity, also play significant roles.”

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