LEONARD LUMBER REPORT: THIS MARKET IS STILL A GRIND, BUT THIS TIME A GRIND HIGHER
Recap:
This market is still a grind, but this time a grind higher. The January futures contracts were up $3.50, while the cash print was up $3. It did feel better than that all week. There may be better confidence building up with the recent cash trade. Also, the projections set in January are coming into play. The expectation was a reduced supply coming out of Canada and a slowing of Euro wood coupled with less demand.
The last estimate I saw was an 11.7 shipment number expected for 2023 out of Canada. We were looking for a 12+ number but could get less than expected. The Euro issue is under control. Coming into 2023, the docks were flooded with Euro. It was pretty easy of a call for that problem to subside. The surprise has been the steady demand. It is off YoY, but not at the pace expected. Most were prepping for the next shoe to drop in the economy, only to be forced back into the market. That is where we are at today.
Technical:
The best read for the next eight weeks will be entirely technical. The algo’s, funds, and support/resistance points will be the feature. Why is that? As futures neared the 200-day moving average, the funds started to liquidate. With less fund selling, the algo/long fund has started to buy. There are no fundamental drivers. It is all futures related. If you keep pushing futures higher, the industry can buy cash with a place to go for protection. Every rally for the last 5 years started with the ability for the trade to sell the board for protection. It is a tough time of year to get that firmly in place, but it is trying to form.
This rally is going on 18 sessions, and with an RSI of almost 70%, I believe it needs to be corrected. Hedging or basis trading a percentage of buys is the risk management play. The 200-day is sitting at 555.50.
The pulse of this market is the computer trading in futures. If has not yet switched from the short fund leading to a long fund taking over but it is different.
Daily Bulletin:
https://www.cmegroup.com/daily_bulletin/current/Section23_Lumber_Options.pdf
The Commitment of Traders:
https://www.cftc.gov/dea/futures/other_lf.htm
About the Leonard Report:
The Leonard Lumber Report is a column that focuses on the lumber futures market’s highs and lows and everything else in between. Our very own, Brian Leonard, risk analyst, will provide weekly commentary on the industry’s wood product sectors.
Brian Leonard
312-761-2636