You're watching...
Janney Capital Markets managing director Adrienne Tennant on the USDA's report on cotton demand and how it will impact the retail sector.
Also in this playlist...
Auto-advance: ON
Auto-advance
This transcript is automatically generated
Settling are at what the latest USDA report shows that 70% up next year's global cotton demand is already reserves what does that -- cotton prices down.
On the sex despite giving a cushion to retailer still feeling the squeeze from last spring's record high cotton prices.
-- tenant is Ginnie capital markets managing director of soft line -- -- welcome to use so.
-- comes down to China let's start here.
It does come -- to China.
-- the USDA's report last week they actually increase the beginning of September reserves.
By one point seven million bell.
-- increase the production coming out of India and the -- reduced the consumption and the imports into it imports into China.
It's all that makes for an ongoing bearish look at content itself.
So I suppose the consumers want to know first and foremost is will they see a decline in retail prices especially this clothing retailers.
Say -- you have to get back a little bit there's a nine month lead time from the input of -- that -- that in the product in the stores.
Says the -- itself and started you being lower year right here in September of 2011.
So we're just starting to see those prices the cost for the retailer go down.
What I will say is last year they tried to raise prices and pass them on a consumer there are utterly unsuccessful.
To the customers not really going to see the initial price points out the door price points I should say interest -- much.
Much cheaper what about the retailers themselves will they see an improvement in margins and bottom line well -- their input costs will prove.
Absolutely what we're seeing here is two things happening one is that the inventories are remarkably -- across this offline industry.
And then you're coupling that with the with the cost deflation going down to the people that people are they in the pocket is to be good for gross margins Q3 a particularly Q4.
-- and we just showed our viewers a list of retailers which stand to benefit the most from these declining cotton prices up what 30% from the peak.
Get off 30% from the peak and likely to stay that way -- and duration of 2013.
That's that's a great thing a basket of stocks that would be really appropriate to play here.
Would be on gap Abercrombie & Fitch -- Stahl.
On an American Eagle they -- the most exposed to this cotton situation.
Outlook commodity play in novice can investing -- right now where did you give me your outlook there you pretty much stand prices will stay where they are.
Exactly so we wouldn't be short continent on obvious that -- commodity expert but this is a cut of our our look on it.
We would not be short -- here we think that the range of pricing its -- -- be between 65 and 85 cents for the next call at fifteen months through the end of 2013.
Plantings come out in September you will not have a good look at the supply demand picture until September of next year.
And what we're expecting it is.
Obviously more this cotton plantings are moving toward corn wheat and soybeans.
The plane fourteen would be at the time to start looking at the commodity the content from item alongside -- wage interest suggesting -- not -- commodities expert that was great in are aching in my case.
-- and it is the managing director of stop -- retail it's -- capital markets.
