Is Cocoa The New Copper & Coal?

Cocoa prices have been rising.

The two exchange-traded funds for the commodity, iPath Cocoa NIB and iPath Pure Beta Chocolate CHOC, are rising in recent market action. Users such as Hershey Foods HSY and Tootsie Roll TR are falling.

Both iPath Cocoa and iPath Pure Beta Chocolate are up for the last week, month, quarter, six months and year of market action.

By contrast, the end users of cocoa, such as Hershey, Tootsie Roll and Mondelez International MDLZ, among others, have not fared as well. Hershey and Tootsie Roll are both down during the same time period. Mondelez has been in a downward trend since the end of July.

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Soaring cocoa prices are squeezing the margins for these companies and others, so shareholders are feeling the pain.

This could be a permanent market condition, as China is increasing its consumption of cocoa. China drives the price of cocoa, much like the country does for copper, coal, oil and many other commodities. Unlike an energy company owning oil or coal assets, when the price rises for cocoa, the end users suffer.

Both iPath Cocoa and iPath Beta Chocolate are trading near 52-week highs.

There certainly is no weakness in the price action of the stocks based on the technical indicators. Volume and gains remain steady. If that continues, so might the pain for shareholders of Hershey, Tootsie Roll, Mondelez and others vulnerable to the price of cocoa.