Wednesday, JPMorgan reiterated a Neutral rating and $171.00 price target on Hershey (NYSE:HSY) stock. The firm's analyst commented on recent reports that Hershey is seeking approval from the U.S.'s top derivatives regulator to purchase an unusually large quantity of cocoa.
The chocolate manufacturer has requested the Commodity Futures Trading Commission (CFTC) to allow it to buy over 90,000 metric tons of cocoa on ICE Futures US, an amount more than nine times the current limit set by the exchange.
Following the news, Hershey shares experienced a downturn, while the next-month cocoa futures saw a significant increase. Initially, JPMorgan viewed the company's request with concern, interpreting it as a possible sign of worry about sustained high cocoa prices or potential supply risks. However, after a conversation with Anoori Naughtion, Hershey's Sr. Director of IR, the firm's concerns were somewhat allayed.
The discussion, which was general due to Hershey's quiet period, indicated that the company is well covered for cocoa into the current year and does not foresee changes in the supply-demand dynamic that would justify a higher futures curve. The company's past behavior, including a similar request to the CFTC in 2020, suggests Hershey might be looking to take advantage of price disparities to reduce its cost of goods sold (COGS).
Moreover, Hershey's request to the CFTC pertains to the physical acquisition of cocoa rather than futures contracts, hinting at a potential strategy to mitigate higher futures prices by purchasing cheaper physical cocoa. The company also emphasized its ongoing due diligence as a means to potentially generate savings.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.