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Takeaway: What a difference a couple of months can make.

Editor's note: This is a brief excerpt from retail sector head Brian McGough's morning research. Click here for more information on how you can subscribe.

HBI, GIL - Cotton Boom Goes Bust as Rain-Soaked Texas Crop Sets Glut

  • "Two months ago, a drought threatened output in the U.S., the world’s largest exporter, and stockpiles were heading for a two-decade low. Then came the rains in Texas, the top grower, sparking a planting surge that the government said will send inventories to a six-year high before the 2015 harvest."
  • "The 'stunning' weather reversal may boost U.S. output by 32 percent, Plexus Cotton Ltd. said in a report. Prices that in March were the highest in 25 months are now down more than any commodity this year."

'Stunning' Weather Reversal Sends Cotton Prices Down 20% - cotton

Takeaway: Cotton is down almost 20% from its YTD highs. Increased yield forecasts from the US coupled with China's decision to release some its cotton reserves, which accounts for nearly 60% of global stocks, means that the supply side of the pricing equation looks relatively healthy.

Material cost deflation should help offset labor cost headwinds facing names like (Hanesbrands) HBI and Gildan Activewear (GIL).