Cocoa Grindings Crush Estimates, Chocolate Stocks Rise: Is Hershey A Buy?

A new Bloomberg survey found that third-quarter cocoa processing in Asia and Europe exceeded estimates, signaling a potential demand recovery as lower bean costs improve processing margins. The rebound follows a period of record-high cocoa prices that sparked demand destruction among consumers.

Asian processing soared 29% in the third quarter to its highest quarterly level since 2011, according to the Cocoa Association of Asia. In Europe, grindings rose 3.2% from one year ago, marking the region’s first quarterly year-on-year increase since 2024, according to the European Cocoa Association.

New York cocoa futures rose .5% on Thursday to about $5,762 a ton, roughly 157% above this year’s low of $2,243. Despite the rebound, prices remain more than 50% below the $12,000 levels reached at the height of the cocoa shortage in late 2024

“The market was already trending in a bullish direction and this will add to the sentiment,” said Daryl Kryst, senior vice president of OTC commodities at StoneX, adding that weather and supply risks in West Africa linger.

Chocolate stocks have also rallied over the past five days, led by Nestlé and Barry Callebaut, up 6.62% and 6.60%, respectively. Mondelez gained 5.71%, Lindt rose 5.38%, and Hershey added 3.61%.

“Some chocolate companies have been saying that they intend to rebuild volume sales and to focus on volume sales growth,” said Rabobank analyst Oran van Dort. “And if that’s the case, then this increase in European grindings could be an element of that in preparation.”

Lower bean prices this year have improved margins and encouraged activity after the 2024 price spike forced chocolate makers to change recipes and consumers revolted against expensive candy bars. Still, CoBank economist Billy Roberts pointed out that the rebound partly reflects weak comparisons following earlier declines.

Processing strength has yet to translate into a sustained recovery in chocolate demand. A key test will be the “October/Halloween” period, which Deutsche Bank consumer staples analyst Steve Powers highlighted as an important demand signal for Hershey. 

“September consumption and share trends were softer than expected, raising the importance of October/Halloween performance in assessing both near-term holiday prospects and the credibility of HSY’s expected volume/share improvement into FY27,” Powers wrote in a note on Wednseday.