(Bloomberg) -- Coffee futures fell for a third day as the market digested a wave of US tariffs against the world’s top producers.
Prices have slumped, following the broader commodity index lower, as tariffs are expected to depress demand. The most-active contract for premium arabica coffee dropped as much as 4% in New York, while the cheaper robusta variety declined as much as 4.1% in London.
That comes after the US placed hefty levies against the biggest robusta producer, Vietnam, as well as tariffs on key arabica shippers Brazil and Colombia. The fees will likely be passed onto US coffee drinkers, who have already seen pricier cups as commodity costs soar on the back of harvest shortfalls. Still, futures will continue to be “primarily influenced by supply concerns in key regions, despite an anticipated drop in US demand due to import reliance,” analysts from BMI, a unit of Fitch Group, said in a note.
Coffee prices are getting “caught in the general risk-off liquidation” across commodity markets as hedge funds unwound long positions, said Tomas Araujo, a trading associate at StoneX Group Inc. But he sees tariffs fundamentally supporting higher prices.
Beans already delivered or en route to the US ahead of tariffs will now likely be diverted for roasting, keeping inventories in futures exchange warehouses tight and supporting higher market prices, he said. More exports from the new Brazil crop and other Central American countries like Peru and Colombia aren’t expected until the summer, and those shipments may also flow more instead to stockpiles in Europe depending on trade policies then.
“Right now, I still think the only way for the market to go is up,” Araujo said. “Whatever’s already in destination becomes really valuable and there’s going to be less and less coffee being shipped from these origins that just had harvest over the next three months, until we get to the new crops.”
Some Central American growers that just finished harvests are looking to ship to other markets like the European Union and China, said Juan Luis Barrios, a third generation coffee grower in Guatemala and a former president of the country’s national coffee association. About 40% of the country’s exports are destined for the US.
“There’s going to be a push — I’m going to do it actually, I already started — trying to increase sales to other markets and not be so dependent on the US,” Barrios said.
Growers in top coffee grower Brazil, however, are in a “privileged position” and could see increased demand as the country only faces 10% tariffs, said Thiago Cazarini, a coffee broker in the country. Vietnam faces a steeper 46% tariff rate that could leave the US more dependent on Brazilian arabica and robusta beans.
Meanwhile, the most-active cotton contract extended the prior session’s declines, dropping as much as 6.2% to the lowest price since July 2020 on fears that demand from key buyers China and Vietnam will slow. Cotton futures are also being pressured by falling prices for crude oil, which is used in the production of synthetic fabrics.
--With assistance from Dayanne Sousa.
