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Why Hershey and Mars Should Not Fear Cocoa Price Surges

NEW YORK (TheStreet) –– With cocoa prices on the rise since 2013, most U.S. confectioners have started to hike prices of chocolate bars and candies. It is unlikely that these higher prices will translate into lower demand, though. Widespread chocolate cravings should allow chocolatiers to shift higher cocoa costs to consumers without seeing a considerable drop off in sales. Just look at Chipotle Mexican Grill (CMG - Get Report) as an example of how this works.

Mars Chocolate North America, the maker of M&M's and Snickers,  said on Wednesday that it planned to raise prices by an average of 7% "to offset rising costs," its first increase in three years. The price hike by Mars follows Hershey's  (HSY - Get Report), the No. 1 candy maker in the United States, which said last week that it too would raise prices on chocolate, up close to 8%, due to soaring commodity costs.

The iPath DJ-UBS Cocoa TR Sub-Index ETN  (NIB), a funds that gives investors exposure to the Dow Jones-UBS Cocoa Sub Index and that consists of one future contract on the commodity if cocoa, has experienced a meteoric rise since the beginning of last year. Increased demand for cocoa and supply concerns in West Africa have led commodity traders to bid prices up.

NIB Chart

NIB data by YCharts

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