Category: Agriculture

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

08 Jul 2024

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

AG MARKET UPDATE: JUNE 14 – JULY 8

Corn had the bottom fall out of it after trading between $4.60 and $5 from March to June. The USDA last week pegged the US corn crop at 91.475 million acres, over 1 million acres higher than the trade estimate. The USDA did make a note that those were the reported acres at the time of the survey so there is a good chance not all those acres end up getting planted. The crop ratings are currently better than last year’s at this time that led to a record crop and with no major weather concerns on the horizon and rains from Beryl expected to help some areas in the ECB later this week. With no major weather concern in the US or abroad right now, corn will need to find help in demand or fund buying as ending stocks remain high.

Beans seemed to find a slight rally heading into the 4^th of July before having a sharply lower start to the week, falling below $12 in the November futures contract. While the corn acreage number was bearish the soybean acres came in at 86.1 million acres (below the trade estimate of 86.783). The June 1^st stocks number was slightly higher, but the markets could not find a catalyst higher. With no major weather issues on the horizon beans will need the funds to get out of their short positions while the charts still look bearish.

Equity Markets

The equity markets have remained strong as they continue to set new highs. The market is looking to broaden after being very top heavy the first half of the year. With an election and possible rate cuts in the second half of this year, the market will have plenty of information outside of earnings to watch for.

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

Drought Monitor

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].

01 Jul 2024

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

LEONARD LUMBER REPORT: The best word to describe last week’s trade was erosion

Recap:

The best word to describe last week’s trade was erosion: erosion in value, erosion in the housing sector, and finally, erosion in the economy. The industry waits for a truckload of sand to show up as the beach slips into the ocean. We searched for green shoots to pop up all week, only to see lower cash prices. One fact remains: it is the lumber market, and rallies are created out of nothing. Last week’s trade indicates the market isn’t ready. Let’s look at a few factors which could already be in play or are forming.

The key factor is the extreme lag of shutdown effects on the market. It indicates a steeper decline in construction than the data shows. With inventory management at a steady pace, sufficient supply is sitting in the pipeline. Last week’s sideways trade was a good indicator. Continued pressure would point to eroding construction.

As housing goes, so goes the economy. Remember that quote? If you have been around long enough, you have seen it occur a few times. This is not a doom-and-gloom forecast. What has happened here is that the industry was geared up for lower rates and didn’t get them. Because of that, today, we see a 9.3-month supply of new homes and confusion about when or if a cut will happen. This doubt will slow construction planning. It won’t slow the plans in place. We can’t underestimate the fall building cycle, but we also can’t underestimate the economic psychology.

If you did a SWOT analysis of our industry, the biggest threat is unemployment. That will kill an already teetering sector. My worry here is that most industries are over-hired. Today, you have a 3-person team doing the work for 2 and a manager who won’t let anyone go. As we have seen in the past, there will be a day when management tells one person to stay and lets the other two go. Today, it is using more to get less. Tomorrow, it will be using less to get more. You don’t have to slow the economy to see this shift. That’s a threat today to housing.

This industry doesn’t have many tailwinds to rely on. China’s weakness continues. Euro and bug kill keep the supply coming despite prices. The fact that Canada shipments increased in the first few months doesn’t help. And finally, our sticky 7%. Most of those reasons are why prices are hitting new lows today. If they remain in place, the market will be forced lower. One constant and a positive is the lumber buyers’ pattern. It’s all in or all out. Not even the algo can figure them out. This last buy round was very guarded, with limited purchases. Most still lost money. It will take time to generate another buy. There is construction every day. It may be less, but it is still going on.

Technical:

The 200-month moving average is 398.47. This has been a support line for the market for many years. It tends to sit very close to breakeven for the mills. It has turned up slightly over the last 10 years, but so has breakeven. I saw in the WSJ an article where the CEO of Weyerhaeuser was quoted as saying producers can’t stay in the red for long. The conversation in the C-suites has changed from so much cash to an all-out panic. When the pig farmers could no longer feed all their pigs it had to cull the herd. Look for a little of that in labor and lumber. FYI: I believe the last time Wall Street wrote an article on lumber; we were at about $1700. from and saw

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

24 Jun 2024

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

LEONARD LUMBER REPORT: IS DEMAND SLOWING AT A PACE THAT HURTS THE MARKET?

Recap:

The challenge coming into the year was curbing enough production to offset the slowdown in housing. The economics are simple. Demand slowed at a quicker pace than most would have expected. The question now becomes whether demand is slowing at a pace that hurts the market. Are we done?

Since 2019, all I have heard was the amount of business showing up on traders’ desks, even at the COVID lows. Every bearish run was only temporary. I have not heard those words all year. It looks like the old business has now run out of steam. Without China and Europe, our market has to rely on interest rate fluctuations to add sales. That is a tough reality, but at least we see an uptick in interest when rates pull back.

I believe I am making a case for why futures dropped $58 in three days and $100 in seven weeks, not a bearish call. Reality has set in. Lumber, being a very efficient market, has drained much of the excess. The two traditional takeaways from this cycle are that the lows aren’t in. There will be a constant struggle for the rest of the year. The other takeaway is that now the trade will run inventories down to dirt. We are in the middle innings, so don’t get too bearish.

Note: There is no changing the way a commodity can be produced 24/7 and is so tied to the economy. There is no formula, swap, or EFP that will help. Historically, mills set up reloads and then abandoned the strategy. They move to contracts, etc., and then abandon that strategy. Any way you look at it, in a falling market, the mills need to protect supply, not push it out. Oversupply comes in a quick second. On the buy side, I saw limited selling this week even though the market fell $58.50. Those with inventory have no excuse. It is a one-button push, back to the grind.

Technical:

The computer is pushing the market lower, but the technicals don’t see it. The critical point is 424.50. That is major support. If the futures market gets there, it will be after adding a ton of longs. As of Tuesday, they continue to add. This doesn’t end well. That said, the longer-term indicators are entering into an oversold condition. It takes time for that to create itself, but it’s something to watch.

FYI, the tech read last week was up.

Daily Bulletin:

The Commitment of Traders:

About the Leonard Report:

Brian Leonard

312-761-2636

14 Jun 2024

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

AG MARKET UPDATE: MAY 31 – JUNE 14

Corn’s small 18 cent rally off recent lows for new crop corn has been very welcome after 6 down days in a 7-day period to end May and start June. This week’s USDA Report was a non-event with the USDA making no changes to South Americas production from last month despite the trade expecting production well below the USDA’s estimate of 175 mmt (171.82 estimated). CONAB released their estimates on Thursday, increasing their estimates for Brazil’s corn crop but still 310 million bushels below what the USDA is saying. The heat over the next couple of weeks is not expected to be a major problem but if this level of heat with a lack of rain goes into July the markets would take notice and begin to worry a bit.

Beans are lower over the last 2 weeks with them settling into a flat trade this week. The USDA report was uneventful despite the USDA cutting another 1 mmt from Brazil’s bean crop. US exports were revised lower and ending stocks rose as the slow pace of exports continued. With no major surprises and no major weather/production issues yet there is not much bullish news outside of CONAB’s Brazil production estimate which is 207 million bushels below this week’s USDA update.

Equity Markets

The S&P 500 and NASQDAQ continue to move higher setting new all-time highs as several large tech companies beat on earnings. The AI movement is continuing its dominance, but some other areas are starting to find strength as funds are forced to reposition.

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

Other News

The cotton market continues lower as there is nothing bullish in the news cycle for it other than the potential for up to 25 named hurricanes this year.
Wheat’s roller coaster ride continues with potential for lower Black Sea production still a possibility after the $1.50+ rally follows by a $1 fall with 10 down days in a row.

Drought Monitor

Via Barchart.com

Contact an Ag Specialist Today

10 Jun 2024

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

LEONARD LUMBER REPORT: THE GREAT LONG LIQUIDATION

Recap:

The great long liquidation. Between Monday and Tuesday, it looked as if the industry longs blew out. That was after a previous week of light liquidation. This blowout pushed July’s futures to a low of 484, which is at par with the cash market. That was a structural change to the market dynamics and should be noted for the future. By Thursday, July was back to a $30 premium and showing some confidence. So, in the short run, we are considering trading par too cheap at a $30 premium normal, and a $50 premium as a gift.

We are entering the summer months with some tough headwinds. We were told “rates higher for longer” 18 months ago. They were right. Any rate relief in housing isn’t coming soon. The other is the sharper-than-expected drop in multifamily projects in the regions that have led the way. Some are as high as 40%. As a trader, this is a lot to digest, but it looks like the market has already started.

RDFTV is a farmer’s channel. On Friday, they interviewed a SYP tree farm owner. He said SYP farmers never lose money. He must not have gotten the memo on the falloff of the multi-sector.

The cash market looks to have three zones of value today. The first is the current zone of $335 to $450. The market has spent a lot of time down here as it digests the less demand and good supply scenario we are in. The next is $451 to $500. And the last is $501 to $600 or shall we say the happy days are here again zone. It has bounced back and forth between zones 1 and 2 since the end of covid. It is not getting any help from the fundamentals to change that.

Technical:

The value areas and technical points are becoming a better road map than in the past. The two featured points today are the 200-day moving average at 562.50 and the value area at 440.00. That correlates well with the cash zone. The support area is the low of 484.00, and resistance is the value area of 520.00. A break of either could cause a nice little run.

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

04 Jun 2024

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

LEONARD LUMBER REPORT: Last week’s trade was in line with expectations

Recap:

Last week’s trade was in line with expectations. The computer pushed the market to new lows. Coming into this week, I would expect the computer to put pressure on the longs to blow them out. It doesn’t take a computer to know that the spec longs are in much higher and now getting margin calls. If you put a fundamental face on the market, the lack of any interest out there allows this sell-off. The fact that we buy the deals today adds pressure in a slowing market.

Yes, the housing market is slowing. The data is confusing, but the economy is acting as a weight around this industry. We need to keep employment at this level to keep the buyers around. A jump in the unemployment rate will cause us to lose the market, which keeps us most guarded.

There are two takeaways. The first is how much SYP weighs on the market when things are slow. The other is the stats on how well the basis traders have done. The market has a downward bias.

Technical:

It wasn’t too long-ago that the RSI was at 6%. Today, at 23%, it seems high. The futures market is building a case for less business this year. Most are already trading that way. At some point the lack of inventory will bring in the buying and we will be off again.

A bit of advice to the producers. Sell all you can when the futures price starts with a 6.

Daily Bulletin:

The Commitment of Traders:

About the Leonard Report:

Brian Leonard

312-761-2636

03 Jun 2024

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

AG MARKET UPDATE: MAY 10 – 31

Corn had a rough week as planting is nearly wrapped up and the expectation of high initial US crop ratings put pressure on the market. The forecast for June turned slightly wetter but will not have any material impact on planting finishing up. The Black Sea yields continue to be pressured due to their weather with no immediate relief apparent. The USDA Crop Production report on June 12 will be watched closely as we get updates for the US including acreage, area harvested, and yield. The market will be looking for any good news before then to help support a weakening market.

Beans fell on the week as planting advances despite some slowdowns in some areas due to weather. Currently only 3% of soybean production comes from areas experiencing drought. Rio Grande do Sul is turning warmer and drier after weeks of issues with flooding. Morgan Stanley estimates 5 million tonnes of soybeans were lost to the flooding in the region. Beans, like corn, have no bullish weather to help the market as it looks like normal planting progress should be made and no major weather issues in the forecast.

Equity Markets

The equity markets have had a rough go lately with all major indexes falling well off recent highs. Several earnings misses and growing belief that “higher for longer” could last through the summer has people raising questions about the market.

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

Other News

The Black Sea weather forecast has improved for next week as rain has been added to the forecast.
Wheat has seen a strong rally since mid-April seeing a $1.50+ rally at one point with possible production issues in the Black Sea even with the small pullback to end the week.

Drought Monitor

Via Barchart.com

Contact an Ag Specialist Today

28 May 2024

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

LEONARD LUMBER REPORT: HEADWINDS, BROWN SHOOTS, INTEREST RATES

Recap:

Headwinds, brown shoots, interest rates—whatever data we look at is not good. The question is whether we have to start worrying about the housing market. We were looking for more but didn’t get it. What we have is the same market we have had for 17 months now. It has pockets of positives followed by a long bleed. That has been the lumber market for over 40 years now. It is tradable and profitable when one adapts to the trade mode. So what does that look like?

Buying into a falling market has always been a challenge for most. For a few years, you could buy into strength and make money. That is no longer the case. There isn’t enough time between cycles. What this indicates is a flat demand curve. What has finally hit the market is the higher rate uncertainty. For a year, the builders worked around the higher rates. That worked for the aggressive buy side. We now have returned to the “average Joe” buyer. This was expected but came early. The builders are reacting by pulling back. This knee-jerk reaction will take time to work itself out, but for now, it adds pressure.

This is an environment where you need to dust off that 10-year-old playbook. How do you take advantage of a flat market that offers a pop every so often? Today, the industry is offside, being long futures when there is a $40 or more basis opportunity available. Lower prices will rebalance that.

The fear of a strike, fires, or another shutdown has kept the marketplace off balance. At the end of the day the wood continues to show up.

Technical:

The trading range is very narrow. The focus today is on the outer bands. On the upside, the 38% retrace sits at 556.90, and the 200-day moving average sits at 564.98. This market can gain momentum with a move over the 200 day. On the downside, 511.00 is the key support point, followed by 497.00 and 486.00. This area has been support for months. There isn’t a technical point that would increase the downside momentum. Breaking back into the 400’s would indicate an economic turn in housing. The funds seem to be leaning towards a slowdown and could help it lower. That conversation is not for today.

For today, 540 is too high and 520 is too low. Enjoy.

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

20 May 2024

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

LEONARD LUMBER REPORT: IT WAS A TOUGH WEEK FOR CASH AND FUTURES

Recap:

It was a tough week for cash and futures as the quiet market pushed prices lower. Before we sound the alarm, the market is $22 off its high and $18 off the low. After 20 sessions, the market sits in the middle. At this time of year, the market tends to put in a seasonal low. This battle with a $35 range is mildly friendly. This marketplace is not heading for the exits. The industry and speculators are firmly committed to the long side, while the funds are firmly committed to the short side. If you are long waiting for the funds to react, it will be a long 30 days. Last year, we saw the same dynamics of less traffic, falling builders’ sentiment, and less construction than projected. What happened was a grind higher market. I want to make a call for the same, but this year, we are just now confirming more negatives and fewer positives. More brown shoots don’t necessarily equal sharply lower prices. It will just be a continued drag on this market. I would be mildly friendly to the market if it weren’t for the fact that the industry is long-future and cash-playing Texas Holdem with a Texas hedge. Those long cash should be selling the pops in futures.

Technical:

The tech read hasn’t been effective this year due to the tight range between swings. Today, there is a mildly friendly candlestick. The market is building a new value area about $20 higher than last year at this time. I’m looking for a lower RSI up here to confirm.

Daily Bulletin:

The Commitment of Traders:

About the Leonard Report:

Brian Leonard