EDUCATORS’ PERSPECTIVE
Museum of American Finance
Stock certificate for 100 shares in the Cuban Cane Products Co., dated April 15, 1931. Central Hershey sugar bag.
Concord factory and the town that would eventually bear Hershey’ s name,“ an audacious gamble, especially when one considers that the product he planned to produce and sell in order to recover his investment was not yet perfected.”
Gambling was an activity that Hershey particularly enjoyed. D’ Antonio wrote,“ Somewhere in the world beyond Lancaster he learned to gamble— on cards, casino games and horses— and it became a lifelong interest.” Hershey’ s gambling activities occurred out of sight of the prying eyes in Hershey, Pennsylvania. According to D’ Antonio, trips to New York with his wife Kitty often included commodities trading,“ betting on the future price of cocoa beans for example.” This mixture of business and pleasure would not bode well for Hershey, especially after he decided on a move to vertically integrate his business by growing and producing sugar in Cuba.
Hershey first ventured to Cuba in January 1916, a few months after his wife passed away. A World War I-induced sugar shortage 1 increased sugar prices and led Hershey to look for ways to keep his company supplied with this key ingredient. Cuba looked promising to him, and after that first crucial visit, he began acquiring sugar cane fields in the northern part of the island. He built a huge state-ofthe-art sugar mill and an electrified railroad system that linked his remote sugar cane operation to ports in Havana and Matanzas. He also built a company town, known as Central Hershey, for his workers. Hershey used a house on his Rosario sugar plantation as his personal residence during his frequent visits to Cuba to oversee his sugar investments. By all accounts, Hershey loved Cuba and enjoyed the night life and the casinos of Havana. As sugar prices soared, Hershey’ s big gamble in Cuba seemed to be paying off.
The sugar mill produced 31.7 million pounds of sugar in 1920. Sugar production increased every year, and by 1952, 213.6 million pounds were produced. Historian Thomas R. Winpenny wrote that for Hershey,“ The decade [ of the 1920s ] began with a major technological achievement and a grinding financial disaster.” The disaster began when the price of sugar collapsed from a high of about 22 cents a pound in May 1920 to 1.3 cents a pound on January 19, 1921. In hindsight, the price drop was to be expected. With the end of World War I in late 1918, global sugar production began to recover.
Though Hershey was heavily invested in sugar, his 1920 Cuban production was not
enough to meet the needs of his Pennsylvania factory. So, he turned to the futures market to secure his additional sugar needs. Convinced that the price drops were temporary, Hershey began buying futures contracts for massive amounts of sugar at delivery prices as high as 26 cents per pound. The chocolatier believed that at maturity, his futures contracts would enable him to pay less than the market price for sugar.
D’ Antonio commented,“ This confidence in the face of risk was consistent with a man who loved to gamble with his own money and his business.” Hershey could have taken a small loss on his futures positions and walked away, but he held on until the contracts expired and he was forced to take delivery at prices far above the spot price of about five cents a pound. According to historians Katherine Shippen and Paul Wallace, Hershey lost over $ 2.5 million on his futures trades, resulting in a net loss of $ 395,739 for the company, leaving it in a financially precarious position.
National City Bank of New York, which was heavily involved in financing Cuban sugar interests, rescued Hershey with a $ 20 million bond issue and a $ 10 million mortgage on Hershey property. However, the bailout came with the installation of a meddlesome National City Bank overseer
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