Cocoa looks a better bet than coffee, Barclays Capital has said, warning that a continued reversal of last month's jump in "overbrewed" arabica prices looks "almost inevitable" given rising production.

Attempts to justify the rally, which raised the price of arabica coffee beans by some 28% in two weeks in New York, "crumble under inspection", BarCap said.

While coffee supplies looked set to fall below consumption for a fourth successive year in 2009-10, the shortfalls had been insufficient "to dent deep stock buffers" built up around the turn of the century, when producers enjoyed a string of bumper harvests.

And global inventories look set to rebuild above 41m tonnes this year thanks to a record crop in Brazil, the world's top coffee producer, and a revival in output in Colombia, which has lost third place in global output thanks to two years of weather-damaged harvests.

"While it would be wrong to say coffee market fundamentals are not price supportive, nothing in the way of a specific fundamental catalyst exists to explain the significant price gains in June," BarCap said.

Stocks 'misconception'

The fall in stocks being held by New York's exchange to less than 2.2m tonnes, their lowest since 2002, did not justify the rally either, contrary to the belief of many analysts.

"While at eight-year lows, stocks are by no means [at] historical lows," the bank said.

In 1996, inventories "essentially fell to nil and remained below 100,000 bags through 1997", when prices hit 276 cents a pound.

"It should be noted that as the market moving into a 2m bag surplus in 1997-98, prices fell to 138 cents a pound within a year.

"In other words, the support to prices from stocks should not be overplayed."

Once evidence of a record Brazilian harvest hits the market, "it would appear almost inevitable� that we return to price levels seen pre June's rally".

Ivory Coast problems

Cocoa, however, looked set to remain "close to" $3,000 a tonne in New York, supported by the fourth deficit in world production in five seasons in 2010-11.

Output will remain constrained in Ivory Coast, the world's top producer, thanks to the political instability which is limiting government efforts to nurture a sector relying on outdated tree stock and subject to disease outbreaks.

"More than half the cocoa trees in the country are past their 30-year peak period," BarCap said.

'Story still bullish'

Meanwhile, growth in cocoa grindings, which posted double-digit increases in Europe  and North America in the second quarter, looked set to continue, albeit at a slower rate of 3% in 2010-11.

"Moving into 2011, we see the cocoa story as still bullish," the bank said.

"While the strength of the current price signal should help drive some increase in production levels in the Ivory Coast and Ghana, this dynamic will not be enough to drive the market into oversupply."

 In New York, September coffee stood 1.9% lower at 160.75 cents a pound in late deals, with cocoa for the same month up 0.1% at $2,983 a tonne.

London cocoa for September closed down 1.2% at �2,319 a tonne.