Category: CME

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

https://www.cmegroup.com/daily_bulletin/current/Section23_Lumber_Options.pdf

312-761-2636

29 Apr 2024

Agriculture, CME, Futures, Hedging, Housing, Lumber, Market Commentary, Market Updates, Research, Risk Management, Weekly Prices rcmagserv 0 comment

LEONARD LUMBER REPORT: IT WAS A BETTER WEEK FOR TRADING

Recap:

It was a better week for trading. The market seemed to drift into a bottoming formation, followed by a couple of good spike-up days and a new low for the move. We can call it a bottoming action, supportive, new low, or dead cat bounce. I heard all of them. What it did was cause the trade to be bullish one day and bearish the next. While the trade was highly volatile, the net for the week was only a $8 gain. What was different last week was that, for the first time, we had a few green shoots appear. From wholesalers covering shorts to mills holding prices, there was a better tone. We head into next week with a much more positive attitude.

While attitudes are better, most are very cautious. Prices have fallen far more than expected. Taking the cash market back into the $3’s should not have happened with all the shutdowns etc. The trade is now searching for the reason. Is there a more significant issue lurking out there? It’s hard to pin it on the market going too high, so it needed to go lower theory. I saw fear in the faces of some traders. They couldn’t sell a stick. We can’t blame the algo for that.

The industry is exiting shorts and getting long. Seeing them in a good flow instead of a battle is nice. This last trade report had short funds almost doubling their position while the long funds continued to exit. This report cuts off on Tuesday. I bet it shows the long fund numbers reversed and going higher on the next report. The trade at the end of the week had a fund tone to it.

Technical:

It’s harder to pull any green shoots out of the tech read, except it closed higher on Friday. This indicates that the battle down here isn’t over. The problem for the shorts is that the new volatility rallied futures $15 in a few trades. Your position can be upside down in a few minutes, not sessions. To summarize, the tech read calls for an ABC correction up, not a V bottom. The jury is still out.

Daily Bulletin:

The Commitment of Traders:

About the Leonard Report:

Brian Leonard

312-761-2636

22 Apr 2024

Agriculture, CME, Corn, Cotton, Dow Jones, Futures, Grain, Hedging, Market Commentary, Market Updates, Research, Risk Management, Soybeans, Weather, Weekly Prices rcmagserv 0 comment

AG MARKET UPDATE: APRIL 8 – 19

Corn continued its slow bleed lower over the last couple weeks with no major bullish news to turn this market around. US weather may slow planting down to end April a bit but not enough for markets to begin to worry anytime soon. Argentina’s rain will continue to slow harvest as the discrepancy between the USDA and South American reporting services remains a mystery. The bounce to end the week was due to escalation of the Israel and Hamas/Iran fighting in the middle east. According to Reuters the US EPA is expected to announce plans to temporarily waive restrictions on higher-ethanol gasoline blends this summer. This market is at the mercy of funds and weather which currently aren’t helping prices higher.

Beans continued lower as they lost another 20+ cents this week even with the big up day on Friday. Beans need any good news they can get as you can see from the chart below it has been a rough few months. Soybean oil has also had a rough go lately as bullish news is lacking in the soybean complex. The size of the bean harvest with the USDA and CONAB numbers still far apart will be the biggest factor moving forward as we need all the information we can get. We did get close to the technical support which is good to see a bounce there.

Equity Markets

The equity markets continued their recent struggles as tech and AI stocks have given back some recent gains. Pullbacks are healthy for markets, especially after the run we have had to start the last few months being so concentrated, but sticky inflation and war escalation provides some problems to monitor as earnings are set to ramp up next week.

Other News

Israel retaliated against Iran overnight continuing the escalation of tensions and war in the middle east.
The USD keeps moving higher as the June USD Index went over 106 earlier this week.
Cotton has struggled of late as a lack of demand on the global scale and no weather issues yet in the US pulled it back from recent highs.

https://www.cmegroup.com/daily_bulletin/current/Section23_Lumber_Options.pdf

Drought Monitor

Here is the current drought monitor as we head toward planting with subsoil moisture a focus.

Via Barchart.com

Contact an Ag Specialist Today

Whether you’re a producer, end-user, commercial operator, RCM AG Services helps protect revenues and control costs through its suite of hedging tools and network of buyers/sellers — Contact Ag Specialist Brady Lawrence today at 312-858-4049 or [email protected].

15 Apr 2024

Agriculture, CME, Housing, Lumber, Market Commentary, Market Updates, Research, Risk Management, Weekly Prices rcmagserv 0 comment

LEONARD LUMBER REPORT: The futures market got crushed last week

Recap:

The futures market got crushed last week. The lack of a cash market increased the negative momentum. It was, as one trader put it, a “strange change in dynamics.” On almost every break in the last 16 months, the mantra was to buy it lower. We did that dance under $520 and again under $500 numerous times. Last week, the majority were preaching to sell a bounce. That is a definite change. That said, let’s wait to sell the farm.

The starts and permits report come out on Tuesday. They are looking for a number around 1.5. I struggle to see how, with the current reduced production, there can be an abundance of wood. We do generate abundance with every buy, but that is drained over time. This last buy round was more aggressive than usual. Traders became more confident and added purchases showed this. Today, we are living in the glow of that abundance. It will get cleaned up.

Economic:

We talked for months, going on years, about the probability of something breaking in the system. I’m worried the Fed can upset the marketplace with continued bad decisions. They want to cut interest rates while still carrying a large balance sheet. Continuing to push money into the system and cutting rates in an inflationary environment will choke off the market. And just to be clear, we are the first to feel the choke. I am worried we are seeing it in the multifamily sector already. Disrupt the apple cart, causing unemployment to rise, and we get the single-family sector to start to feel that choke.

Our last rally was a needed fill-in that was better than expected. This current downturn is the clearing out of those extras. Once done, another fill-in will be needed.

Technical:

The downside move last week was violent, to say the least. This pushed the RSI down to 11.80%. The selling is computer-related, driving markets well beyond the norm. Lumber futures went from $1250 to $1700 purely on computer buying. My point is that computers can move markets. Now that said, here it comes: the futures market has been following the cash market lower. The move in futures has been as much fundamentally driven as it has been computer driven.

This RSI extreme will correct itself.

Daily Bulletin:

The Commitment of Traders:

About the Leonard Report:

Brian Leonard

312-761-2636

08 Apr 2024

Agriculture, CME, Corn, Futures, Grain, Market Commentary, Market Updates, Research, Risk Management, Soybeans, USDA Report, Weekly Prices, Wheat rcmagserv 0 comment

AG MARKET UPDATE: MARCH 8 – APRIL 8

Corn has traded in about a 20 cent range the last month spending much of its time in July corn between $4.40 and $4.60. The USDA acreage intention report gave the markets an initial bullish reaction but struggled to follow through past the report as prices have fallen back from the post report highs. Corn acreage for 2024 came in at 90.036 million acres (91.776 estimate) which was a surprise to the market. The trade appears to believe that the acreage number is likely higher as it has given some of the gains back quickly. While lower prices and high input costs are likely to affect farmer’s decisions, if the weather this April and May is friendly to planting it will be hard for farmers to leave acreage on the table. South America harvest in Brazil and Argentina is in line or slightly behind average.

Soybeans have fallen from their recent highs as the USDA Report did not provide the market with any actionable news. The USDA came in at 86.510 million acres (86.530 estimate), because the acres were so close to the estimate the report was not a big mover for the bean market. The market has slowly traded lower since the report as the next market mover will be the April USDA and April CONAB Reports this week. The more information we can get on South America’s harvest the clearer the picture will become as the discrepancies between the USDA and CONAB still have the markets confused.

Equity Markets

The equity markets have pulled back from recent highs with the pullback in some tech names but the market and economy are still strong as inflation remains sticky and the Fed trying to decide when, or if, to cut rates this year.

https://www.cmegroup.com/daily_bulletin/current/Section23_Lumber_Options.pdf

Other News

US wheat acres will be lower than last year. Winter wheat plantings shrunk from the estimate in January, but spring wheat will be slightly higher than last year.
The transmission of bird flu in cattle in several states this week drove cattle prices lower and is a development to keep an eye on.

Drought Monitor

Here is the current drought monitor as we head toward planting with subsoil moisture a focus.

Via Barchart.com

Contact an Ag Specialist Today

01 Apr 2024

Agriculture, CME, Futures, Hedging, Housing, Lumber, Market Commentary, Market Updates, Research, Risk Management, Weekly Prices rcmagserv 0 comment

Leonard Lumber Report: The hardest part of a lumber cycle is the drift

Recap:

The hardest part of a lumber cycle is the drift. The value of the commodity becomes a moving target, causing futures to erode to its last trading area. The futures market has been in a range from $560 to $595 since the end of November. Without the support of the funds, the market will return to that area and wait for the next buy.

The economy isn’t good. It is great. There is so much capital flowing out there that we can never discount the home market potential. This will be a $20 down $50 up market unless something breaks.

The key points are the 38% at 598.80, the 50% at 590.70, and the 61% at 582.60. It could be the range areas.

Note: I see that open interest hit 10,000. Once the funds gear up, it will double. As I said before, even with 2000 open interest, I was able to trade large quantities with no price movement. This is a good trading market.

Daily Bulletin:

The Commitment of Traders:

About the Leonard Report:

Brian Leonard

https://www.cmegroup.com/daily_bulletin/current/Section23_Lumber_Options.pdf

312-761-2636

18 Mar 2024

Agriculture, CME, Futures, Hedging, Housing, Lumber, Market Commentary, Market Updates, Research, Risk Management, Weekly Prices rcmagserv 0 comment

LEONARD LUMBER REPORT: Last week, the futures market saw a healthy correction

Recap:

Last week, the futures market saw a healthy correction, dropping $22 in 4 sessions. March expired at 560, which was right in line with expectations. What was different was that most expected it to carry a premium, not a discount. My point is that this cash run has been far more significant than most expected. That leads to the question of how much was bought and whether it is enough. The cash side has hit the pause button to get a read of where they are. This is typical in any run but also leads to a quieter cash market and a futures correction. That sums up the week. Now what?

The industry focus is always on the micro. Today, wood continues to go out the door at a good pace. It has been a fluid trade for 18 months so that that feature will remain. The mills do have a tighter grip on certain items. This is related to logs and production. Most items are still under and over-produced within the typical timeframe. Timing that imbalance has always been a challenge. What remains in place is that a cash market run will not continue with some items tight and others abundant. The focus for this upcoming week will be on items liquidity. A sharply lower trade in May futures on Monday will give an immediate answer.

The macro picture has to be looked at. We can see the data on fewer shipments, log issues, fires, and the “worm.” What we can’t measure today is the potential headwinds of a slowing economy, rates that are higher for longer and affordability. All that is slowly creeping into the multifamily side of the business. That we can measure. The question is if a slowing multifamily sector takes the energy out of the starts number going into the fall. If it happens, we can expect a flat trading range that mirrors 2023.

The industry has to look to futures to lock in a profit or to mitigate risk. Playing supply spikes isn’t the best strategy.

Technically, this market has strong support all the way down from here. The key points are the 38% at 598.80, the 50% at 590.70, and the 61% at 582.60. A close over $620 indicates the funds are back in charge.

Daily Bulletin:

The Commitment of Traders:

About the Leonard Report:

Brian Leonard

312-761-2636

11 Mar 2024

Agriculture, CME, Corn, Grain, Hedging, Market Commentary, Market Updates, Other News, Research, Risk Management, Soybeans, USDA Report, Weather, Weekly Prices rcmagserv 0 comment

AG MARKET UPDATE: FEBRUARY 9 – MARCH 8

Corn has managed to peel off its recent lows despite no major changes in the market. South America’s harvest is moving right along, while the crop appears to be smaller than initially anticipated, the increase in acreage seen will still likely make this a record crop. The March USDA Crop Report gave a little ground in their estimates for South American production of soybeans but slightly raised the estimates for production in Argentina for corn. These changes were inconsequential to any market movement as CONAB numbers this week will be the next data to give the market more direction.

Soybeans got some good, but not great, news in the USDA report with the USDA slightly lowering the production in Brazil. While many private estimates in South America are still lower than the USDA’s, this shows that the USDA believes the others may be right but are not yet willing to give all their production back. This week’s CONAB numbers will be worth keeping an eye on. Basis has been slowly rising during harvest, hinting at this crop being smaller than expected. Continued gains following Tuesday’s report would be welcome as the further we can put the lows behind us, the better.

Equity Markets

The equity markets continued their grind higher with a broadening in recent weeks to other names outside of the Magnificent 7. With slower job growth and a slightly higher unemployment rate, the Fed appears to be getting what they aimed for in a soft landing, but inflation is still sticky. The Fed may begin cutting rates in the second half of 2024.

https://www.cmegroup.com/daily_bulletin/current/Section23_Lumber_Options.pdf

Other News

The stock market continues to make all time highs while AI stocks have driven this rally, some rebalancing appears to be occurring.

Drought Monitor

Here is the current drought monitor as we head toward planting with subsoil moisture a focus.

Via Barchart.com

Contact an Ag Specialist Today

04 Mar 2024

Agriculture, CME, Futures, Hedging, Lumber, Market Commentary, Market Updates, Research, Risk Management, Weekly Prices rcmagserv 0 comment

LEONARD LUMBER REPORT: The futures market sprang to life on Friday

Recap:

The futures market sprang to life on Friday, with May spiking to 620.50. It looks as if long-term buy stops were hit without any selling above. This market needed a little rattling. It wound itself tight into a small range while the cash market was busy daily. The premium did add to the buy side reluctance but a spike higher was brewing. Now what?

Weeks ago, we discussed the cash market needing to be the leader. Futures were already at a premium, and only the sell algo was trading. The cash side has been strong for a few weeks. The spring rally started early after the cash market suffered through January. That lag in business is showing up today. So, a combination of pent-up business and spring has helped keep the mills active.

This is not a supply-and-demand rally. The reduced supply has yet to be a factor in the trade. This is an accelerated fill-in. The buy side should see this as a warning to what a supply disruption could look like.

Technical:

The technical picture is limited to short-term data. The focus today is on the RSI in May, which is sitting at 75.10%—other than that, the switch from the old contract to new has nullified a lot of data points. If we add in the older data, the market tells us there is a $80 downside and $200 upside.

Note: A commodity producer will only lose money for so long before retooling the strategy.

Daily Bulletin:

The Commitment of Traders:

About the Leonard Report:

Brian Leonard

https://www.cmegroup.com/daily_bulletin/current/Section23_Lumber_Options.pdf

312-761-2636

26 Feb 2024

Agriculture, CME, Futures, Housing, Lumber, Market Commentary, Market Updates, Research, Risk Management, Weekly Prices rcmagserv 0 comment

LEONARD LUMBER REPORT: IT IS STILL FEBRUARY

Note:

It is still February. I have to remind most traders of that. Most are trying to accelerate the cycle up a few months, looking for all the issues to hit. In reality, the market is trading at an average February pace. What is unusual is the added buying in the last few weeks. Most are trying to hold a consistent inventory level into the spring buy. The previous two weeks’ business was not an inventory build but a fill-in. That is mildly friendly.

It is a challenging environment to navigate. For every negative data point, there is a positive one. You can’t get pessimistic about the housing industry. 2024 will be steady. The difference between 2023 and 2024 was that the lumber market was demand-driven. There could be a pivot coming to a supply-driven market. That is when the volatility starts. Last year, the cheapest, most abundant wood in the world was sitting at Port Canaveral. That is different this year.

Technical:

I am switching to the May futures contract for the tech read. Now is a good time to mention the significant gap from 572.00 to 566.00 under the market. For now, we aren’t going to worry about it. The RSI is 62%, with most momentum indicators pointing up. You can build a case that May has been a more volatile trade. That may indicate more volatility to come. A few extra cars with futures $30 over is a win/win.

Daily Bulletin:

The Commitment of Traders:

About the Leonard Report:

Brian Leonard