Hedge or Mortgage? Hershey's 1920 Sugar Crisis Through a Modern CFO's Eyes

🏛️ Hershey, Pennsylvania. May 1920.

The factory town smells of chocolate, as it always does. But in the finance office, one number matters more than any other: the price of sugar.

During the war, sugar was scarce. That was one reason Milton Hershey began investing in Cuban sugar plantations in 1916. The lesson was simple: never run out.

Now the war is over, and the shortage isn't. Government control over sugar ended on March 1. Through 1919, raw sugar in New York had been held at about 7.3 cents a pound. On May 19, 1920, it reached 23.57 cents, more than three times the price a year earlier.

For a company that knew what running out felt like, securing supply felt like prudence.

📜 What happened next

Sugar didn't stay at the top. By November it had fallen below the old controlled price, and the collapse ran through producers, traders and banks, especially in Cuba.

Hershey was caught in it. The company suffered heavy losses on sugar futures; historian Thomas Winpenny reports estimates from $2.5 million to $7 million. Milton Hershey had to mortgage the company and accept a "watchdog representative" of National City Bank inside the business, according to the Hershey Community Archives. It took until June 1922 to be free of the obligation.

That spring, the signals pointed both ways. Supply was still short. But high prices were drawing out new sugar, the Cuban crop was coming to market, and some producers were holding stock back on borrowed money. It was all there, scattered across newspapers, broker letters and telegrams.

🤖 Now change one thing.

Same company. Same May morning. Same shortage, same uncertainty. Sugar will still crash in the autumn.

But give the finance leader the tools of a 2026 FP&A team. From here on, this is a thought experiment, and every company number is illustrative. And the AI doesn't know the crash is coming. No one does.

🔎 "Sugar is at 3.2 times last year's controlled price, and the signals conflict. Committed sugar covers 26 weeks of production: $5.72M at today's price. Eight weeks would be $1.76M."

Then finance puts a dollar value on being wrong. At 1 million pounds a week:

• 💵 If sugar falls back to about 7 cents, 26 weeks bought at 22 cents loses $3.9M. Eight weeks loses $1.2M.
• 💵 If it rises to 30 cents, 26 weeks gains $2.1M. Eight weeks gains $0.6M.
• 💵 The extra 18 weeks of protection ties up another $3.96M of cash or credit.

That last line is the one that matters. A company can be right about needing sugar and still create a liquidity crisis. That's how a hedge becomes a mortgage.

🎯 The meeting

Picture the oak table: the founder, purchasing, the plant manager, sales, finance. Ledgers, a broker's letter, a bowl of raw sugar. And one object that doesn't belong in 1920: a screen showing price, cover, cash and credit together.

Nobody asks where sugar will trade in November. They ask how much protection they really need, how much cash each option consumes, and how much of the company they're willing to bet on the answer. Buy 26 weeks. Buy 8 and stage the rest. Cap commitments above a set price. Arrange credit before committing, not after.

They might still buy heavily. The shortage was real. But it would be a balance-sheet decision, not just a purchasing one.

Finviq moment: We can afford to be wrong about the commodity. We cannot afford to be wrong at this position size.

AI couldn't have stopped the shortage, the speculation or the crash. What it could plausibly change is the size of the damage, and how much time management had to act.

🏢 Back to 2026

The commodity has changed. The mechanism hasn't.

Cocoa crossed $10,000 a ton for the first time in March 2024. On September 30, 2026, it was around $5,370, down roughly a fifth in a month. Near-term stocks look comfortable, while forecasts for next season's West African crop are weaker. Prices falling, signals conflicting. Sound familiar?

🎯 What I would ask my finance team Monday morning

1. For each key ingredient, how many weeks are fixed today, and against what limit?
2. If its price moved 30% either way, what happens to margin and to what we've already committed?
3. How much cash and credit do our current positions tie up, and how much would the next purchase add?
4. Who can commit us to a forward purchase without finance seeing the scenarios first?

💬 If your most important ingredient fell 50% next quarter, would your forward commitments look like a hedge, or a mortgage?