Commodity Watch: Tariffs, Treats and Trouble Ahead?

<div class="grid grid--33-66-col"><div class="col"><img loading="lazy" src="/getContentAsset/061c994a-a452-418f-bfa0-f2cf3cf5c577/cb87803a-320c-480f-ab75-7b9029eaaf79/Ahmad-Al-Sati-new.png?language=en" alt="Ahmad Al Sati - insights" title="Ahmad Al Sati - insights" style="width: 180px" class="fr-fic fr-dii"></div><span style="font-size: 12px"><div class="col"><strong>AHMAD AL-SATI<br></strong>PORTFOLIO MANAGER<br><br><p>Ahmad is the President and Portfolio Manager for Gemcorp Capital Advisors LLC, based in New York.&nbsp;<br><br>Ahmad has spent most of his career in the global credit markets. Prior to Gemcorp, Ahmad was President of Pandion Mine Finance and RiverMet Resource Capital, LP - a fund focused on investing in precious metals, where he was responsible for managing the investments and the day-to-day operations of the registered investment adviser.&nbsp;</p></div></span></div><hr><p>The Tootsie Roll is on fire. The price of the popular chocolate-caramel candy (with 64 million pieces made every day) is up over 30% from last year. The Tootsie Roll is not the only one. Confectionery prices are up across the board. The price of a 100-piece variety bag of Halloween candy, for example, is up around 80% since 2020 (according to FinanceBuzz) far outpacing overall US inflation during the same period.</p><p>Cocoa shortages were a major driver of higher prices. Cocoa, the primary ingredient in chocolate is down from its all-time high but is still almost three times its pre-2020 levels. But tariffs did not help. Existing tariffs add between 10% (Ecuador) and 21% (Ivory Coast) to the cost of imported cocoa. Meanwhile, imported chocolate from the European Union or Switzerland is subject to 20% and 31% tariff rates, respectively. Non-chocolate candies have also been impacted. Sugar in the US is still subject to a quota system above which a 15% tariff is applied. The US also imposed an 80-108% tariff on aluminium foil, which is key to packaging candy.</p><p>This Halloween, 79% of consumers expected prices to rise. And they did. Candy prices were up and so were costume prices, up 11%. Consumers are now expected to spend a record this Halloween approximately $2 billion, or 17% more than they spent last year. At the same time companies are being negatively impacted by the increased costs. Last week, Hershey estimated $170 million in increased tariff related expenses and the internet is full of anecdotes about US candy businesses seeing their margins vaporised by tariffs.</p><p>The impact of the 2025 tariff may not have been fully realised. The US economy is like a very large system of interconnected pipes. It may take some time for water to fully flood the system and by the time it does, it might be too late to reverse its impact. Commodity heavy businesses that rely on international trade (as you can’t grow enough cocoa or sugar in the US) are perhaps best suited to reveal the early impacts of the new economic regime across the US economic plumbing. They may also exacerbate some of the risks. Given their dependence on market inputs and low margins (unlike the features of the Mag 7), as their costs increase, they must transfer increased costs to customers. Increased prices mean stickier inflation across the economy. If inflation is stickier, interest rates will likely be higher and disposable incomes likely lower for the US consumer, with adverse economic effects.</p><p>Higher inflation and higher rates also ultimately impact businesses depending on financing their supply chain. With margins squeezed and interest rates elevated, they may revert to layoffs and bankruptcies with cascading effects across the economy.</p><p>These fissures are almost imperceptible today. Perhaps lower rates or higher AI spending (plus increased productivity) may cement over them and push the economy forward. But parts of the economy are flashing warning signs that something just ain’t right.</p><p><br></p>