There are still optimists out there on cotton prices, suggesting bullish price action through 2019.
With northern hemisphere weather risks, speculative positioning on US-China trade, plus the physical carry of stocks, all pointing towards short-term upside in the July 2019 contract.
Rabobank sympathises with this view, and bullish price action in the next eight to 12 weeks is anticipated.
However, the key part of this is "short-term"....meaning beyond the second half of 2019, the global supply and demand balance appears more daunting.
Late 2019 brings up the subject of expanding global stocks and, from where we're sitting, the outcome isn't particularly pretty.
For primary producers, the relative price of cotton is hard to ignore - particularly as grain and oilseed prices recover from recent oversupply. This trend is identified recently through the US and, perhaps even more significantly, across Brazil.
Record yields last season for Brazil, excellent returns plus current access to the lucrative Chinese import market (unlike the US) makes cotton a firm favourite amongst growers.
So much so, CONAB suggests a 33 per cent rise in Brazilian cotton acreage in 2018/19 to a record 1.56 million hectares.
In terms of production, this could see Brazil's new season crop top 12 million bales - up five million bales in just two years, which is equivalent to Australia's national output when times are good.
Swelling output would see exports top six million bales, potentially making Brazil the world's #2 exporter after the US - beating India to the "silver medal" position later this season.
So with these acres in the ground, the questions remains - how likely will Brazil reach this 12 million bales of production?
Interestingly, the vast majority of Brazilian cotton is planted as safrinha, or second crop, generally after soybeans.
This poses higher production risks in the form of 1) a tighter seasonal timeline and 2) increased drought chances as the dry season approaches.
One example which comes to mind is Brazil's 2015/16 corn harvest, where drought during safrinha development saw corn output stifled some 20pc versus the previous year.
Therefore, it remains too early to be confident about an incoming Brazilian supply glut but, we should be in no doubt that the wheels have been set in motion.
From a global perspective, this Brazilian output, coupled with additional US acres, drives higher stocks outside of China - increasing export competition and, ultimately, softening end-of year prices.
The significance for the Australian grower lies predominately in pricing.
Not only does Brazilian cotton expansion threaten global prices, but the timing of exports will also be significant. Brazil competes in a similar export period, so these bales will compete directly with Australia for Chinese and South-East Asian demand - a factor threatening Australian premiums later in the year, if Brazilian logistics allow for such vast export expansion.
And while Australian quality remains superior - at least in fibre length and strength - Brazilian fibre comes very close.
With that in mind, we add Brazil to our list of significant cotton market risks - alongside a potential US-China trade deal, global consumption growth and destocking by the Chinese reserve policy.
Rabobank's price optimism therefore hangs on a shoestring, as we forecast price pressure on cotton futures into late 2019.
