The coffee market is heading for a fall � but not a huge one, with prices set to be supported by the poor prospects for Colombia's crop.

The jump of 20% in prices of New York arabica beans over the past fortnight is an "exaggerated" response to a short-term squeeze on high-quality supplies, Commerzbank said.

"Indeed, it will soon be possible to replenish depleted stocks. A record coffee crop is expected in 2010-11, not only in Brazil as the world's largest producer, but across the globe," the bank said, noting fresh US forecasts of an 11% jump in world output.

Brazil, the world's top coffee producer which will be an "on" season of its two-year cycle, "will have a strong impact" by raising output by 27% jump to 41.8m bags.

'Well supported' 

However, expectations that Colombia's output will remain weak for a third season, hit by a hangover from poor weather, disease and replantings which have dented production at many plantations, looked set to provide a floor to prices.

The bank also noted the jump of speculators' interest in coffee. Managed funds trebled their net long position in New York coffee in week, regulatory data on Friday showed.

Friday's USDA report also noted the impact of speculators, citing "heavy short covering of the July contract, fund buying and only marginal producer selling" for the soaring prices.

Heat and drought 

The briefing estimated Colombia's output at 9.0m bags in 2010-11, a rise of some 800,000 bags on the season before, but below the levels of 12m bags achieved before weather setbacks struck.

"High temperatures and dry conditions during most of the main crop's flowering period will likely lower yields," the USDA said.

"These conditions also discouraged famers from applying fertilizers, further restraining yields."

Brazil, however, had enjoyed rainfall which had "promoted several favourable blooms", while Vietnam, the biggest grower of robusta beans, had seen "good fruit setting and cherry development."

While coffee inventories heading into 2010-11 looked "relatively tight", record world production would "boost trade and replenish ending stocks, the report said.

Arabica beans for July delivery ended  0.8% lower at 159.95 cents a pound, after touching 164.10 cents a pound earlier, their highest since March 2008.

In London, robusta beans ended down 0.3% at $1,538 a tonne.