Any market or trading views are in no way are to be considered investment advice.
Market Recap
July brought significant turmoil for U.S. coffee roasters, driven by political headwinds and tariff escalation. President Trump's tariff announcements reshaped market dynamics:
July 2: 20% tariff imposed on Vietnamese coffee imports, undermining their competitiveness relative to Brazil (10% tariff).
July 9: Escalation with a 50% tariff on Brazilian coffee (effective Aug 6), citing the "witch hunt" prosecution of former Brazilian President Bolsonaro. Notably, coffee was excluded from sector exemptions granted to aircraft, energy, and OJ.
U.S. Commerce Secretary Lutnick hinted at possible exemptions for goods not domestically grown, yet no concrete steps have emerged. Brazil's President Lula plans a WTO appeal, largely symbolic given the WTO’s declining efficacy.
Legal Developments
The legality of Trump's tariffs, based on the 1977 International Emergency Economics Power Act (IEEPA), faced scrutiny:
July 31: Court of Appeals for the Federal Circuit (CFAC) began oral arguments, following a stay on the Court of International Trade’s ruling that declared tariffs unlawful.
Supreme Court review anticipated in early 2026. Central issue: Article 1, Section 8 of the U.S. Constitution reserves tariff authority to Congress; IEEPA lacks explicit mention of tariffs.
A negative Supreme Court decision could invalidate existing tariffs, restarting negotiations and increasing uncertainty.
Market Dynamics
Tariff-induced uncertainty has shifted buying patterns among U.S. roasters:
Larger entities cautiously shifting from Brazilian coffee to alternative milds and stocklots, albeit hampered by scale and strict flavor profiles.
Immediate options are limited; non-Brazil ICE Arabica certifications (~600k bags) and Peruvian coffees may serve as interim substitutes.
Long-term tariffs could lead to increased Brazilian deliveries to ICE.
Impact on Global Supply & Demand
Tariffs unlikely to affect global supply-demand balances significantly.
Differentials and destinations impacted, but no demand destruction anticipated.
Economic pressure likely to increase consumption of robusta-heavy blends.
ICE certified stocks dropped significantly:
Total July decline: -70,552 bags; Brazilian certs: -65,708 bags.
Macro & Financial Updates
Brazil’s Copom left SELIC rate unchanged at 15%.
USD/BRL: R$5.43 (June 30) weakened to R$5.60 (July 31).
COT Positioning
LDN Managed Money significantly increased net shorts (+7,458 lots, approx. 1.24M bags).
NY CIT options static over 5 weeks; non-commercial spread positions up 25% (+14k).
CIT futures/options open interest rose by 16.6k lots to 200.4k lots.
Looking Ahead
Near-term volatility could increase if NY futures sell-off and implied volatilities decline in late August, offering strategic entry ahead of Brazil’s critical flowering period (Sep-Oct).
Quality concerns over Brazil’s 25/26 arabica crop and minor hail damage (~100-250k bags) in Sul de Minas noted, though not deemed significant.
In short: The U.S. coffee market faces continued uncertainty driven by political risks and tariff disputes. Short-term shifts in buying behavior are likely, with longer-term market adjustments contingent on legal outcomes and tariff permanence.
Arabica Curve Structure - 31st Mar vs 31 July 2025
Robusta Curve Structure - 31st Mar vs Jul 31 2025
