Coffee Memo | Headline Edition: Tariff Updates
Episode Summary
Tariffs are in the news so Rob breaks down what's happening and, more importantly, what's not happening with coffee tariffs.
Episode Notes
- Although it's been announced that reciprocal tariffs on coffee are no longer in effect as of Friday, November 14th at 12:01 am, punitive tariffs, like those being applied to Brazil and India, remain in place for now.
- So, the tariff on Brazilian coffee has gone from 50% to 40%.
- Coffee tariff news continues to evolve and is worth watching.
- Refunds from the government are unlikely.
- There are some positive signs that the punitive tariffs on Brazil might also end but nobody really knows what will happen.
- The market did not react bearishly to the rollback on coffee tariffs as some might have expected.
MIKE FERGUSON: This is the Exchange Coffee Podcasting Network. Coffee people talking to coffee people about coffee and things coffee adjacent. This episode of Coffee Memo is brought to you by Covoya Specialty Coffee, where coffee is always a collaborative voyage.
Welcome to Coffee Memo with Rob Stephen, a podcast where we talk about coffee industry news and current affairs.
This is a special edition of Coffee Memo because coffee is in the news. It's those galldang tariffs, the reciprocal sort, of course, not the punitive. And there is a lot of information out there, some of it good and some of it something else. So, Rob is going to sort through what's happening and perhaps more importantly, what's not happening and the largest bucket of all, what we don't know.
So Rob, I've got an interesting fact for you. The word tariff, like the word coffee, came down to us from the Arabic.
ROB STEPHEN: Hmm, as in, Arabica?
MIKE: No, Ke'uwa would be the coffee in Arabic originally. But I think the original for tariff was tarif. But I mention that because right now that's the only thing I'm willing to say about tariffs.
ROB: I probably have more to say about this. So, we could do that. So, let's see. Today's date is Monday, November 17th. And it is the first business day after tariff craziness, where tariffs were summarily mostly canceled, which was crazy. So, Friday, five o'clock, I was getting ready to leave the office and we were sort of packing up and saying pleasantries. And all of a sudden I got a text from one of our traders who had been checking the news and said, hey, look at this. There was this very long rambling executive order that was linked, which had a lot of words on it. And I was trying to find some sort of summary of what had happened. And I knew that a whole bunch of tariffs on coffee had been rolled back, but I didn't really know exactly what had happened. And so, I spent the weekend reading this thing, which, please let me explain it to you so you don't have to. It was probably better in the original crayon. But, the sum of it was that the reciprocal tariffs on coffee across the board were removed. So, let me refresh everybody what a reciprocal tariff is. So, a reciprocal tariff is a amount that is levied on imports from another country where the purpose for it is to say we are rectifying a trade imbalance. So, the trade imbalance basically means that our products are tariffed if you look at it equivalently, at least in the way that the analysis goes. I don't know if it's a true statement or not. But because of the trade imbalance, we are going to levy a tariff on your goods to even the playing field. So that's ostensibly the reason for it. And it was put blanket on things from all these various countries. Most countries had a 10% rate. Some people had higher rates, like Costa Rica and Papua New Guinea and all sorts of other countries had different rates. All of the reciprocal rates on coffee were canceled as of Friday.
MIKE: All of them?
ROB: All of them.
MIKE: Even Brazil?
ROB: Brazil had a 10 % reciprocal tariff. And it had a 40 % punitive tariff. Yeah because of the fight between Trump and Lula.
MIKE: The spanking is still in place.
ROB: Yes, and so and India has a 25% tariff, I believe based on their buying of Russian oil. And so that is also still in place Then, there was the question of, well as of when? And it turned out to be basically as of midnight the night before, so anything that had landed in the last day you could get a refund on but anything prior to that, no refunds. So, there was a lot of questions today about, will there be refunds? And the answer basically is no. Having said that, there is going to be a case at some point coming before the Supreme Court about whether or not the tariffs were legal to implement in the first place. I would not put a lot of stock in that and a lot of hope, as in, our money's coming back when that happens…
A) It's a conservative majority on the court. B) The fact that it's billions of dollars that would have to be refunded is probably not the kind of thing that's gonna happen. And third of all, he can just turn around and do it another way if he wants to. There's a bunch of other statutes that he could use. So, my general read on the situation is the tariffs that we've paid are sunk cost. Now, if it changes, that'll change. But even then, that will be a very slow process. Everyone's got to fill out paperwork for every single container they imported. It's got to go through all the necessary channels. I don't imagine there'll be sort of staffing levels to make that go quickly. So, it'll be a while if that happens.
MIKE: We've spent a lot of time, and by we, I mean you and Charley and that side of the team, piecing together a puzzle to handle tariffs. It seems to me that pulling that puzzle apart is going to be just as hard as putting it together was.
ROB: Well, that's an interesting point. So, it's sort of like what I said about roasters who are suddenly subject to complying with the EUDR. I have to say that from an operational standpoint, it made us better because when we started this, when we first heard the ancient Arabic word ‘tarif,” we did not have a field for tariffs in our ERP, in our trading software. And so, we had to go through and make all sorts of adjustments in terms of where do we even put this? How do we account for it? How do we track it? How do we put it into our pricing? All sorts of things. And so, the amount of read analysis of the business and re-engineering of the business made us better. You know, it's good. I would rather not have done it. But if there ever is sort of a cake to unbake, we know how to do it because we put it together. But I do think at this point it is like trying to get eggs out of a cake. I mean, they're kind of in there pretty good. Yeah.
So there's... There's all that, I think that with the 40% thing on Brazil, that's the last Jenga piece to pull before the whole thing falls, right? And nobody knows. I hear good things. If you sort read through the paper and you read all the commentary and you sort of watch the talking heads and listen to what the messaging is, you hear one interview after another, you hear the same things over and over, that's the message that everyone's on message and the message is generally friendly. Like we're talking and things are gonna be okay and you know that kind of thing. you know I think we're all sort of cautiously or nauseously optimistic that the Brazil tariffs will eventually go away but, no one can say for sure and nobody can say when. So, we're not rushing out to buy lots of Brazil coffee and I doubt anybody else is at this point. So, it does still create this imbalance you know 30/40% of the world's coffee is still basically economically prohibited from coming here. So, that's not going to help fill up the certified warehouses, which we just learned about. I was under the impression that the market would react bearishly to this news, meaning that the prices would come down. More coffee will be available at lower prices, and that will spark demand because the prices will come down. And I thought, OK, so the market's going to tank this morning.
So, I got up at four in the morning this morning to stand in front of or sit in front of the screen with a cup of coffee and trade against that. And to my surprise, the market opened and went up, which just lets you know that none of us know what's going on. Anyone who thought that today was a great day to put in their fixation and, well, the market will go down. They were not happy. Yeah. Yeah. So, it was an interesting trading day.
But really, all I wanted to say for today was this is a good time to keep your head on a swivel. There's a lot of uncertainty. This 10% reduction in tariffs, or in some cases more for some of the countries that had higher reciprocal tariffs, is a really good thing. And it can only help. It's going to help coffee come in. It's going to help roasters. They're going to pay less. It's going to help the trade with credit, because 10 % of their money won't be tied up in customs bonds and tariffs and all sorts of stuff like that.
That's a good thing, but there's still a couple of big pieces to unlock, and we still don't know when they are. Anytime we have uncertainty, what happens to the price?
MIKE: Well, volatility.
ROB: Volatility for sure, right? And so I think that still crazy days ahead. But what I would say is that talk to your trader. We have meetings now all the time to talk about these things, so everyone's on the same page. Watch the news. Pay attention, if you have a keyword alert, it's a good time to put that in. One of the things that we learned during this one was don't trust the initial analysis, or don't rely on it, I guess. Maybe not don't trust it, but don't rely on it, because the first reading of it made it look like all terrorists were gone, ding dong, the witch is dead. And after a much more careful reading and a careful reading of the follow-up document that was released basically to clarify what was scribbled on the first one, we learned that the Brazil punitive tariffs were still in place, for example, which drastically changed the impact. Yeah. So, you just want to sort of be careful, ask questions, and be careful out there.
Cool. Thanks, Mike.
MIKE: Thanks.
