Cocoa Prices, Doughnuts, Airplanes, and Reddit’s IPO

Editor’s Note: What a week. And it’s only Wednesday!

Anyway, let’s get to it.

Cocoa Prices Hit All-Time High

Cocoa futures for May delivery have risen by 3.9% to $10,030 per metric ton. This is the first time prices for the commodity have crossed the $10,000 line. Year to date, cocoa futures have risen by nearly 140%.

Although cocoa originated in the Amazon Basin, about 70% of the world’s supply currently comes from West Africa — in particular, the major producers are Ivory Coast and Ghana.

Heavy rains, heat, and black pod disease have severely impacted cocoa farming in these countries.

“As these two leading producing countries supply about two-thirds of global cocoa beans, any change in their production tends to have a significant impact on the cocoa market,” a report from the International Cocoa Organization (ICCO) said.

According to the ICCO, this season, cocoa deliveries to ports in Ivory Coast and Ghana have dropped by 28% and 35%, respectively, on a year-over-year basis.

These record cocoa prices have caused earnings problems for chocolate companies such as Hershey (NYSE: HSY). In the fourth quarter, Hershey’s reported a net income decline of roughly 12% compared to the year-ago quarter. In addition, the candymaker is expecting flat earnings growth for all of 2024 thanks to high prices.

Krispy Kremes and Golden Arches

Shares of Krispy Kreme (NSDQ: DNUT) soared on Tuesday after the announcement that McDonald’s (NYSE: MCD) will sell the chain’s doughnuts in restaurants across the U.S.

McDonald’s will start adding Krispy Kreme products to select restaurant menus during the second half of the year. However, doughnuts are expected to be available at McDonald’s locations nationwide by the end of 2026.

The process will take so much time because, in order to meet the demands of the partnerships, Krispy Kreme will need to more than double its distribution.

Krispy Kreme operates on a “hub and spoke” distribution model in which its factories and stores make fresh doughnuts every day that are sold at nearby retail locations such as convenience stores, grocery stores, etc.

According to Krispy Kreme’s latest numbers, the chain currently delivers doughnuts to roughly 6,800 retail locations. McDonald’s currently operates about 13,500 locations in the U.S., with plans to open a further 900 restaurants across the country by 2027.

Krispy Kreme CEO Josh Charlesworth told CNBC yesterday that the company can likely “service about 6,000 restaurants with [its] existing infrastructure.”

He also said that the push to rapidly expand its distribution for the McDonald’s arrangement will also help Krispy Kreme place its products in a broader range of stores. Some grocery chains prefer to buy from nationally distributing companies, rather than local ones.

“That means that the overall efficiency and productivity of our distribution network will significantly improve over time, not just because of all those local deliveries,” Charlesworth said.

McDonald’s will become Krispy Kreme’s exclusive fast-food partner here in the U.S.

McDonald’s has long tried to better compete with coffee chains such as Starbucks (NSDQ: SBUX) and Dunkin Donuts. That has come to include the limited rollout of a beverage-focused spinoff chain, CosMc’s. The fast-food giant expects to open 10 CosMc’s locations in 2024.

However, because doughnuts pair so well with coffee, the fast-food chain is no doubt hoping that this will majorly boost coffee and breakfast sales at its traditional locations.

A Shakeup in Seattle

Amid the quality control scandal going on at Boeing (NYSE: BA), the company announced a management shakeup this week.

At the end of the year, CEO Dave Calhoun will resign. In addition, Boeing Board Chair Larry Kellner will also step down, handing over his reins to Director Steve Mollenkopf at the company’s annual meeting in May.

Boeing Commercial Airplanes President and CEO Stan Deal also resigned yesterday, effective immediately. Chief Operating Officer Stephanie Pope has taken his place.

Boeing already faced scrutiny back in 2019 when two of its 737 Max 9 were involved in fatal crashes within roughly five months of each other. That led the U.S. Federal Aviation Administration (FAA) to ground the jet model for more than a year.

However, the newest scandal started at the beginning of January, when a door plug blew off of a Max 9 plane owned and operated by Alaska Airlines (NYSE: ALK) during a flight.

“As you all know, the Alaska Airlines Flight 1282 accident was a watershed moment for Boeing,” Calhoun wrote in a memo to Boeing employees yesterday. “We must continue to respond to this accident with humility and complete transparency. We also must inculcate a total commitment to safety and quality at every level of our company.

“The eyes of the world are on us, and I know we will come through this moment a better company, building on all the learnings we accumulated as we worked together to rebuild Boeing over the last number of years.”

How Reddit’s IPO Stacks Up

Last week, social media company Reddit (NYSE: RDDT) held its initial public offering.

Opening at $34 — which was at the high end of the company’s targeted range — Reddit shares jumped as high as $57.80 last Thursday before settling back at $50.44.

But Reddit’s first-day gains north of 48% pale in comparison to some of the other Big Tech IPOs. That includes eBay (NSDQ: EBAY), which enjoyed a surge of more than 163% in its first day back in 1998. Take a look:

Infographic: How Reddit's IPO 'Pop' Compares Historically | Statista You will find more infographics at Statista

P.S. Don’t miss out on the cryptocurrency boom. The gap between traditional and digital markets is narrowing, as Bitcoin (BTC) soars to new heights.

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It’s clear that every portfolio should contain crypto assets. However, you need to be informed, to make the right choices. Direct investments in crypto coins or crypto-linked ETFs can be volatile.

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