By Maytaal Angel

LONDON, Dec 4 (Reuters) - Global coffee prices have

soared to their highest in nearly 50 years due to poor weather

in Brazil and Vietnam, forcing roasters such as Nestle

to raise prices and consumers to hunt for cheaper brews amid the

cost of living crisis.

Spiking prices will benefit farmers with the crop this year,

but challenge traders who face crippling hedging costs on

exchanges and a scramble to receive the beans they pre-bought.

WHAT DRIVES PRICES?

Production problems linked to bad weather in Brazil and

Vietnam have seen global supplies lagging demand for three

years. That has left stocks depleted and driven

benchmark ICE exchange prices to a peak of $3.36 per lb.

Last time coffee traded that high was in 1977 when snow

destroyed swathes of Brazil's plantations. However, the shock to

consumers was much bigger back then. If adjusted for inflation,

$3.36 per lb in 1977 would be equivalent to $17.68 today.

Experts are meanwhile predicting yet another year of

lacklustre coffee output.

Brazil, which produces nearly half the world's arabica -

high-end beans used primarily in roast and ground blends -

experienced one of its worst droughts on record this year.

Although rains finally arrived in October, soil moisture

remains low and experts say the trees are producing too many

leaves and too few of the flowers that turn into cherries.

In Vietnam, which produces some 40% of the robusta beans

typically used to make instant coffee, a severe drought earlier

this year was followed by excess rains since October.

Consultancy StoneX sees Brazil's arabica output falling

10.5% to 40 million bags next year, offset somewhat by higher

robusta output, thus cutting the country's overall crop by 0.5%.

In Vietnam, the crop could shrink up to 10% in the year by

the end of September 2025, adding to the global robusta

shortage.

WHY ARE TRADERS WORRIED?

Brazil-based traders Atlantica and Cafebras are seeking

court-supervised debt restructuring due to coffee price surges,

crippling hedging costs and delivery delays.

Court-supervised debt restructuring precedes bankruptcy if

the negotiation is not successful.

Traders who buy beans from Atlantica and Cafebras typically

take short positions in the futures market to hedge their

physical market exposure.

Fearing they might no longer get their physical coffee from

Atlantica and Cafebras, many traders are closing out what have

become loss-making short futures positions.

Closing out short positions involves buying or going long

futures, which in turn drives prices even higher.

Higher futures prices then push up margin calls or

downpayments that traders are required to pay to protect against

trading losses, thereby creating more stress in the industry.

IMPACT ON ROASTERS AND CONSUMERS

Surging coffee prices are a problem for roasters.

The boss of Nestle, the world's biggest coffee firm, was

ousted earlier this year after the board grew unhappy about weak

sales and a loss of market share due to price rises, which

prompted consumers to switch to cheaper brands.

Roasters tend to buy coffee many months in advance, which

means consumers will likely see the price spike in 6 to 12

months.

Consumers who drink out will feel less of a pinch of today's

rising prices.

Roasters like Starbucks ( SBUX ) that sell mostly to cafes

should fare better as the global coffee price accounts

for only about 1.4% of the total price of a typical $5 cup of

coffee in a cafe.