Aug 1 Brazilian Import Tariff: Coffee Carve-Out?

COFFEE

The August 1 deadline for the imposition of the 50% tariff on Brazilian imports is tomorrow, which is drawing the attention of the coffee industry as the US imports roughly one-third of this coffee from that country. Reuters reported that the US Congressional Coffee Caucus has been lobbying for coffee to be excluded from the tariff. The US Commerce Secretary said yesterday that commodities not grown in the US (like coffee) could be exempted. Reuters also reported that Brazil’s government has asked the US to exclude food products, as well as Embraer’s aircraft, from the tariff. The request was reportedly the main topic of recent discussions between Brazilian and US officials. Cooxupe, Brazil’s largest coffee co-operative, said on Tuesday that its farmers had harvested 67.1% of their expected 2025 crop as of July 25, up from 59% in the previous week but below the 75.2% reported at the same time last year. Late last week, Safras & Mercado reported Brazil’s harvest was ahead of the average, having reached 84% of the planted area as of July 23, up from 81% a year earlier and the five-year average of 77% for this time of year. World Weather Service reported that mild to warm weather is expected in Brazil’s coffee production areas over the next 7-10 days. Below normal rainfall is expected in coffee production areas of Vietnam. Many areas in Indonesia should see beneficial rain that would improve crop and soil conditions.  ICE certified stocks fell 8,484 bags yesterday to 791,842, the lowest since April 16.

A carve out for coffee in the Brazilian tariffs would likely be supportive to prices, as it might ease concerns about reduced demand due to higher prices and Brazil roasters having to search for new buyers.

SUGAR

The UNICA report on Brazilian Center South sugar production for the first half of July could be released tomorrow. The dry conditions this month has the trade looking for a recovery in output from June. A survey of analysts conducted by S&P Global has production at 3.3 million metric tons, up 12.5% from last year. This would put cumulative production for 2025/26 at 15.6 million tons, down 9.7% from a year ago. Sugarcane crushing is expected to come in at 48.3 million tons, up 11.3% from year-age. At the end of June, cumulative production was down 14.3% from a year ago. A monsoonal disturbance promoted heavy rain at times in portions of eastern and central India during the past week, and localized flooding was noted. However many areas in southern India remain too dry for ideal crop conditions.

The UNICA report could be the driver in the sugar market over the next few days, as the trade is counting on a recovery in Brazilian production after the poor performance in June.

COTTON

December Cotton is lower this morning and close to taking out the July low. As we move through the growing season, potential threats to the US crop diminish. The cotton market is also seeing pressure from weaker grain and soy prices due to good growing conditions in the Midwest and from residual strength in the dollar. The dollar hit its highest level since June 23 yesterday and looks poised to take that out today. The stronger dollar makes US cotton less competitive on the world market. Keep in mind that in July the dollar index reached its lowest level in more than three years and it is still historically low. Other factors are contributing to the slow pace of US exports, such as ample global supply, competition from Brazil, the loss of the Chinese market, and an uncertain economic outlook. US crop conditions slipped a bit this week but they remain well above average for this time of year. US new crop export sales are have had the slowest start since 2014/15.

COCOA

September Cocoa is higher this morning but inside yesterday’s range. The market reached its highest level since July 1 yesterday but came up short of taking out the 50-day moving average, and that line could be a key area to focus on today. Ivory Coast growers expressed some concern this week over a lack of heat and rainfall, but there were others who said the main crop was developing well. World Weather Service expects the rains to stay north of the key growing areas of Ghana and Ivory Coast through the first half of August,  which is normal for this time of year. Rain will fall more routinely in Nigeria and Cameroon with periodic light to moderate rainfall with some areas of heavy rains. There has been no widespread weather concern, but traders appear guarded. ICE certified stocks fell 12,739 bags yesterday to 2.339 million. Stocks have declined 28,830 bags in the past five sessions.

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