LEONARD LUMBER REPORT: Futures experienced a very quiet, trendless trade last week
Recap:
Futures experienced a very quiet, trendless trade last week. Many are pointing to the Montreal gathering as the culprit, but it’s questionable whether any meaningful movement would have materialized regardless. May finished the week up $6, though total volume remained light throughout.
The only notable development came from the Commitment of Traders report, which showed another sizable jump in producer longs alongside a further increase in fund shorts. Overall, the best way to describe last week’s trade is simply uneventful.
The futures market managed to hold above a new low on this move, suggesting there is still underlying demand working its way through the pipeline. Given how firmly JIT buying is entrenched, that tension is always present, but today there appears to be a distinctly more spring‑like tone.
Much of the futures buying remains hedge‑related, with pending business waiting to surface. How and when that demand ultimately flows into the market is still uncertain. The key takeaway is that the marketplace continues to wrestle with supply concerns. Many remain uneasy that even a modest uptick in demand could quickly tighten conditions. For now, buyers are paying more than they’ve grown accustomed to.
Technical:
The reality of this trade is that for the past three years the market has needed an “event” to break it out of its narrow range and today is no different. There is still no data pointing to a meaningful pickup in demand. For futures to move materially higher, it would take a rally strong enough to trigger fund short covering.
With projected construction activity for Q2 and Q3 holding steady, there is little justification for a sharp selloff either. That said, if the algos or the funds lean back into the short side, prices could fall quickly. They don’t measure value — they simply sell.
The futures market saw a sharp selloff in February, followed by a solid recovery in March, though prices remained below the February highs. April is now showing signs of drifting back toward those February lows. As this illustrates, the market continues to trace a slow, uneven stair‑step lower. Historically, that type of pattern has been proven unreliable.
This may end up being a period where the cash market holds firm, while long futures hedges continue to take the brunt of the pressure.
Daily Bulletin:
https://www.cmegroup.com/daily_bulletin/current/Section23_Lumber_Options.pdf
Southern Yellow Pine:
https://www.cmegroup.com/markets/agriculture/lumber-and-softs/southern-yellow-pine.volume.html
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
bleonard@rcmam.com
312-761-263