- Tariffs on Brazilian coffee shipments to the US are set at 50 per cent
- Coffee futures have surged 30 per cent this month, nearing record highs
- Price hikes may impact volumes by low to mid-teens, says Smucker CEO
Consumers already shelling out more for their morning cups of coffee can't catch a break, as tariffs fuel price hikes and put futures markets on track for the biggest monthly gain in over a decade.
JM Smucker Co., owner of the Folgers and Cafe Bustelo brands, said on Wednesday it plans to hike coffee prices in early winter to keep up with increased tariffs. That's just the latest sign that consumer prices for roasted coffee will likely keep topping records because of levies on shipments from Brazil, the world's biggest coffee producer.
Roasters had already been passing along higher costs when crops in top growers Brazil and Vietnam shrank since last year. Tariffs are now adding to the pressure, with shipments to the US from Brazil facing levies of 50 per cent.
Roasters have largely been reluctant to commit to tariff-related price increases for fear that consumers will pull back spending. And some roasters have a cushion with existing inventories lasting partly into the fall. Some of those beans were brought in under the prior 10 per cent tariff rate, and Brazilian beans currently in transit and entering the US before Oct. 5 are also not subject to the 50 per cent fees.
But companies are indicating that price hikes may have to follow suit if levies remain in place.
Keurig Dr Pepper Inc. Chief Executive Officer Tim Cofer said in late July "there's no doubt" there will be challenges for the US coffee segment as tariff impacts "will become prominent" in the second half of the year. Chris Pledger, chief financial officer of private-label maker Westrock Coffee Co., said earlier this month that "these added costs are ultimately passed through to our customers."
Smucker already raised prices in both May and August. That has allowed for net sales growth even as volumes drop, and the latest increases because of tariffs are likely to have a volume impact "in the low- to mid-teens," Chief Executive Officer Mark Smucker said on the earnings call.
Futures contracts for arabica coffee, the premium variety favored by most US roasters, had cooled to the lowest in more than eight months at the beginning of August. But tariffs on Brazil shipments have since helped propel markets back toward records, with the most-active contract surging 30 per cent this month. If that holds, it would mark the biggest monthly gain since 2014.
