(Bloomberg) -- The sudden and sharp rise in cocoa prices this year is taking a toll on chocolate stocks across the world as investors scramble to assess the impact that confectionery companies could face if costs of the key ingredient remain elevated.

Cocoa futures have more than doubled in 2024 and soared above an unprecedented $10,000 a metric ton this week. The commodity has even managed to best the dazzling performance of artificial-intelligence darling Nvidia Corp., and it even became more expensive than copper.

That’s bad news for companies like Nestle SA and Hershey Co. While manufacturers buy beans months ahead of time, Wall Street anticipates these companies could struggle to pass the higher costs on to consumers to defend their profit margins if cocoa prices remain high.

“Pricing power has its limits,” said John Plassard, a director at Mirabaud Group. He adds that the meteoric rise in cocoa prices “will undoubtedly affect the margins and sales of all producers in the industry.”

Chocolate-related stocks around the globe are already feeling the heat. Switzerland’s Nestle, Cadbury and Milka chocolates maker Mondelez International Inc., and Barry Callebaut AG, the world’s largest producer of bulk chocolate, have all declined this year.

Cocoa’s surge is driving input inflation among these companies and chocolate makers need higher pricing this year than what analysts currently assume in order to limit the margin impact. For instance, Bloomberg Intelligence estimates cocoa costs make up about 10% of Lindt & Spruengli AG’s sales and typically take 6-12 months to filter through due to hedging, including stocks bought at lower prices.

Meanwhile, Wall Street is the least bullish it’s been on Hershey in years. BNP Paribas Exane was the latest to downgrade the stock, cutting its rating to neutral on Tuesday due to the recent surge in cocoa prices. Analyst Max Gumport reduced his 2025 adjusted earnings per share estimate for Hershey by 9% given the higher costs.

Bad weather and disease have hurt the cocoa crop in West Africa, where most of the commodity is grown. Additionally, underpaid farmers in the Ivory Coast and Ghana lack the incentive to expand their output and new European Union regulations stand to add to costs for manufacturers.

“It’s not great to be a chocolate producer right now,” said Evgenia Molotova, senior investment manager at Pictet Asset Management. “It depends a lot on weather and disease, but this year the harvest is severely affected, so these stocks’ decline probably has further to go.”

However, it’s a problem some packaged-food have managed to tackle in recent years, say some investors. 

Mondelez should be able to pass on higher prices to consumers, said Kevin Dreyer, co-chief investment officer of value at Gabelli Funds, which owns shares in the company. He said Mondelez handled the inflationary environment of the last few years “as well as anyone in the food industry.”

And, premium chocolate producers like Lindt are better positioned to avoid steep declines in product volumes than mass chocolate makers like Hershey, and they have strong pricing power, according to Martin Lehmann, chief executive officer of 3V Asset Management in Zurich.

“Lindt is more of a quality, luxury name, people are willing to spend more, particularly in the gifting season,” he said.

Still, others think the underlying pressures on the chocolate industry will remain for some time. 

After correctly predicting recent highs, Citigroup analysts also said prices could remain elevated until the second half of 2025. And Barry Callebaut, which is down about 9% since the start of the year, said it expects acute cocoa shortages to persist into next season.

--With assistance from Michael Msika and Janet Freund.

©2024 Bloomberg L.P.