- S&P 500 futures are ticking upward this morning, but Starbucks’ stock is underperforming the market owing in part to an incoming 50% U.S. tariff on Brazilian coffee. Analysts estimate a 3.5% annual cost increase for the company, reducing earnings. While U.S. coffee prices rise, the impact on Brazil is small, and global coffee prices are falling, benefiting other markets.
S&P 500 futures are up 0.23% this morning, after the index closed down 0.49% yesterday. The blue-chip ranking has gained 7% year to date and remains near its all-time high, but there is one major name that isn’t benefiting from the risk-on attitude on Wall Street right now: Starbucks.
SBUX is down 1.15% year to date, and is down 8% over the past five trading sessions. It is not difficult to figure out why. President Trump is sitting on the stock. Or rather, his 50% tariff on Brazil—the world’s largest producer of coffee—isn’t investors’ preferred cup of tea.
On its Q2 earnings call, the company reported a 2% decline in same-store sales, even as per customer sales rose 1%. That suggests coffee price increases are already percolating through the company.
Starbucks’ costs could rise 3.5% annually, according to TD Cowen analyst Andrew Charles. That would wipe two cents a share off Starbucks’ earnings, Charles said.
The U.S., of course, grows close to zero coffee. Thus the tariff on Brazil will result solely in price increases for American coffee drinkers.
Counterintuitively, it won’t hurt Brazil that much. Goldman Sachs projects that the Brazilian economy will still grow by 2.3% this year.
The rest of the world is likely to benefit. There are plenty of markets for coffee. If U.S. demand goes down, the extra supply for foreign customers is likely to depress price growth.
That’s already happening. Global arabica coffee futures have declined by 30% this year and currently sit at around $2.96 per pound. In sum, coffee in America is getting more expensive, but for everyone else it’s getting cheaper.
That dynamic—that the tariffs are going to hurt global economies less than first thought and may contain advantages for some foreign markets—goes some way to explaining why markets are largely up across Asia and Europe this morning.
Here’s a snapshot of the action prior to the opening bell in New York:
- S&P 500 futures were up 0.2% this morning, premarket, after the index closed down 0.49% yesterday.
- STOXX Europe 600 was flat in early trading.
- The U.K.’s FTSE 100 was up 0.18% in early trading.
- Japan’s Nikkei 225 was up 0.6%.
- China’s CSI 300 was up 0.24%.
- The South Korea KOSPI was flat.
- India’s Nifty 50 was down 0.23%.
- Bitcoin sank to $113.9K.
Correction: This post was updated to reflect the fact that coffee prices are sold per pound, not by the tonne.
