Coffee price analysis: Falling wedge pattern readies market for a breakout

Arabica coffee price eased slightly recently while trading close to the three-week high reached in the previous session. Despite the outlook of a bumper harvest in Brazil, there are concerns over persistent rainfall and its impact on the harvesting and drying process. Besides, the high probability of El Nino has bolstered coffee prices. As a result, the benchmark Coffee C futures are a crucial point that could yield a breakout in the short term. 

Weather risk set to yield a bullish breakout

Expectations of a bumper harvest in the leading producer of Arabica coffee - Brazil sent prices tumbling to a 19-month low earlier in June. Besides, Vietnam was also set to record a surge in production of the Robusta variety.

Nonetheless, concerns that persistent rainfall may delay harvest and bean-drying in Brazil have bolstered coffee prices to a three-week high. The coffee belt in southeastern Brazil is experiencing a cold front while key coffee-growing regions in the country record moderate to heavy rainfall. This includes areas like Sao Paulo, Minas Gerais, Espirito Santo, and Rio de Janeiro. 

According to weather forecasts, the rainfall is set to ease in some of these areas as the week progresses. However, instabilities are expected thereafter. 

In its recent forecasts, the USDA’s Foreign Agricultural Service predicted that the South American country would experience record coffee production in the 2026/27 season amid optimal weather. The predicted record production of 71.9 million bags would represent a 14% increase from the previous season. Of this amount, Arabica coffee would amount to 47.5 million bags.

Even with this positive outlook, the underlying uncertainties are set to yield a bullish breakout for coffee prices. The market is particularly concerned that persistent rainfall and the possibility of El Nino will impact production and the quality of coffee beans delivered to warehouses in the region.  

Arabica coffee price technical analysis

Coffee price chart | Source: TradingView

Close to two weeks ago, the benchmark for Arabica coffee trade - Coffee C futures, hit the lowest level since November 2024. After consolidating sideways for several sessions, it has rebounded significantly to trade at a three-week high. More specifically, it has been in the green for five consecutive sessions before easing slightly early on Wednesday. 

A look at its daily trading chart signals further gains in the ensuing sessions. The formation of the falling wedge pattern supports this thesis. As seen in the chart, the bullish pattern forms when two trendlines slope downwards and appear to be converging. It is an indication that the downward momentum is weakening and the asset is gearing up for a trend reversal. 

In the near term, the falling wedge’s upper border is offering resistance to coffee price. Notably, this level coincides with the medium-term 50-day EMA at $273. 

As the bulls gather enough momentum for a breakout, the range between the resistance at $273 and the support at $262 will be worth watching. Indeed, its RSI of 53 points to sideways trading in the near term. 

The subsequent breakout will have the bulls eyeing the next target at $283. On the flip side, a move below 4260 would invalidate this thesis and offer the sellers a chance to retest the lower level of $250.