(Updates with Starbucks' ( SBUX ) comments on coffee prices)

*

US roasters face higher costs due to 50% tariff on

Brazilian

coffee

*

Roasters cancel orders, explore alternatives amid rising

coffee

prices

*

Trade talks underway after Trump-Lula meeting at ASEAN

Summit

*

US consumers face price spike of more than 40%

By Marcelo Teixeira and May Angel

NEW YORK, Oct 30 (Reuters) - Coffee roasters in the

United States are plowing through their stockpiles as they await

the outcome of ongoing U.S.-Brazil trade negotiations, talks

that could determine whether they have to pay much higher prices

for alternative sources of coffee.

Brazilian coffee, which accounts for a third of the beans

consumed by the world's largest coffee consumer, has been priced

out of the American market since August when the administration

of U.S. President Donald Trump imposed a 50% import tariff on

Brazil's beans, in a case that mixed trade with politics.

Trump has accused Brazil's Supreme Court of unfair treatment of

his ally, former President Jair Bolsonaro.

The trade tariff on coffee among other Brazilian goods was

widely viewed as punishment of the government of leftist

Brazilian President Luiz Inacio Lula da Silva, Bolsonaro's

successor. Bolsonaro was later found guilty of organizing a coup

plot.

So far, the steep duty has caused havoc in the $340 billion U.S.

coffee industry, leaving importers with stranded cargoes of

Brazilian coffee, roasters paying a fee to cancel deliveries and

consumers spending as much as 40% more for their morning brew.

Stockpiles are expected to be at minimal levels by December,

increasing the pressure on roasters and coffee chains to find

replacements at prices that would still allow them some profit.

Some roasters had to pay the 50% tariff on shipments of

Brazilian coffee that were already booked when the new import

tax was announced. Others are shipping coffee meant for the

United States to other countries to avoid the tariffs.

"The thing about this tariff is that it is not about

reciprocity or trade, it is punitive, it is political, and

personal. It is between Trump and Lula," said Steven Walter

Thomas, the owner of U.S. importer Lucatelli Coffee. "Brazil is

not paying it, I am - me and my clients."

REDIRECTING SUPPLIES TO CANADA TO AVOID US TARIFFS

Lucatelli Coffee loaded $720,000 worth of Brazilian coffee

when the new tariff was already in effect.

When the coffee arrived, the company stored it in

Jacksonville, Florida, in a bonded warehouse, where cargo can be

kept temporarily without incurring import taxes. But if

Lucatelli decides to sell it in the U.S., the 50% import tax

will be due.

Thomas, whose clients include mid-sized restaurant chains

including Florida's Brooklyn Water Bagel Company, said he is

sending some of that Brazilian coffee to Canada, paying heavy

additional transport costs but avoiding the 50% U.S. tariff.

"It is a catch-22: wait and hope for a trade agreement or

take a blood bath on the logistics to redirect the coffee

outside the United States," he said.

The surge in costs is also affecting the nation's largest

coffee chain, Starbucks ( SBUX ); the company's margins

sharply contracted

in its most recent quarter due in part to high coffee

costs, which CEO Cathy Smith said would "continue to be a

headwind at least through half a year."

PRICEY ALTERNATIVES

Several U.S. roasters came to agreements to cancel orders

for Brazilian coffee, said a trader in Brazil working for a

German coffee merchant, who asked not to be named citing a

privacy clause in his business contract.

The fee they had to pay to cancel those deals, he said, was

around $20 to $25 per 60-kg (132 lb) bag of coffee, which is

currently worth around $515.00, not including tariffs.

With that, the roasters avoided the hefty 50% import tax on

a cargo that costs about $250,000 per container, but ended up

with no coffee.

"We have stocks, but they are going fast," said Michael Kapos, a

sales and marketing executive at Downeast Coffee Roasters in

Rhode Island, who supplies small and mid-sized coffee chains and

grocery stores in the U.S. East Coast.

Downeast Coffee Roasters was among those who managed to

cancel some orders, but not all.

Contract terms say the buyer is responsible for any

additional costs, such as tariffs, that have been imposed after

a deal was made. Both sides need to agree before a contract can

be canceled, which can be difficult if a cargo has already been

loaded.

The company is tasting other coffees that could replace

Brazilian beans in their blends, Kapos said, but that would

cost more.

Prices for alternatives to Brazilian coffee including Colombian,

Mexican or Central American beans have gone up by as much as 10%

since the U.S. first announced the tariff on July 9 due to

increased demand while prices for Brazilian beans have fallen

around 5%.

U.S. roasters are avoiding Brazilian beans as much as they can,

said a European coffee dealer working for a large international

trade house, who also requested not to be named.

"We see, of course, less coffee leaving Brazil and going to

the U.S., it is very clear, and roasters are using up every bag

they have," the trader said.

COFFEE BOOSTING U.S. INFLATION

Retail coffee prices in the U.S. have been rising steadily

since last year when global coffee prices gained 70%, and are

set to rise further due to the supply tightness.

Ground and roasted coffee prices at grocery stores in the U.S.

rose 41% in September from a year ago to an average $9.14 per

pound, according to Bureau of Labor Statistics data, helping to

fuel local food inflation.

Part of that price increase has to do with benchmark coffee

prices going up due to a supply tightness caused by smaller

production after weather woes, and part is due to the tariffs.

Arabica coffee futures on the ICE exchange recently

traded near an all-time high.

Consumers have taken notice.

"I'm not looking too much into the brands anymore. I'm going for

the deals," said Sherryl Legyin, 52, a cashier from North

Bergen, New Jersey, while perusing a supermarket coffee aisle on

a recent October day.

"I like this one," said travel agent Yasmin Vazquez, 40,

showing a small package of Nescafe instant coffee. "It used to

be $6 or $7, but now it is selling for $11. And it seems it has

gotten smaller," she said.

Traders believe the level of stocks in the U.S. will get

critical around December.

"I think they have around 4 million bags of stocks right

now. By December it will be 2.5-3 million, which is close to

minimal levels," the European trader said.

The U.S. uses around 25 million 60-kilo bags per year, and

Brazil typically supplies about 8 million of those bags.

Brazil's President Lula said this week he was optimistic about

prospects for a trade deal with the U.S., adding it could happen

"faster than anyone thinks."

Trump, however, said: "I don't know if anything's going to

happen, but we'll see".

In the meantime, the price of a cup of coffee in the U.S.

is likely to stay high.

​