Category: Hedging

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

13 May 2024

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

AG MARKET UPDATE: APRIL 19 – MAY 10

Corn has seen a strong rally over the last couple of weeks as planting is slightly delayed in parts of the US and funds seem to have changed their tone a bit. Last week’s USDA Report did not have any earth-shattering news but did provide some good news for the markets. US corn stocks were lower than estimates heading into the report along with world stocks for both 23/24 and 24/25. The production outlook for this year, 181 bu/ac, continues to show how the advances in agronomic practices and seed genetics continue to grow. All of these carryout and stocks numbers are based on those production estimates so if we begin to see weather issues or problems at the end of planting, we could continue to see revisions to the downside, and vice versa with great weather and conditions.

Beans had a rough week after a strong start to May. The USDA Report leaned bearish as the South American production continues to expand for the upcoming year. The USDA is slowly trimming Brazil’s bean crop but is still above CONAB’s estimates by a bout 300 million bushels. The recent flooding in southern Brazil will force their hand to lower their expectations but the CONAB estimates on losses will be closely watched. Another promising development in the report was the expectation of record imports and usage in China. While much of this is expected to be met by Brazil and issues with their production will still need to be met.

Equity Markets

The equity markets have rebounded over the last couple weeks with earnings season going on. The feeling on Fed rate cuts keeps pushing them back with one not expected until the fall and at least one fed chair thinking we may not get one this year as inflation remains sticky. Rates will remain data dependent but the feeling of higher for longer continues to seem more likely.

Cotton

Cotton has fallen well off the February and March highs as the lack of demand in the global market mixed with funds exiting their long positions has beaten down the market.

Wheat

Wheat’s recent rallies are welcome after struggling to find much positive movement in the market to start the year. Frost damage to Russia’s wheat crop and a dry pattern in the Black Sea has been the recent mover as the USDA Report had some mixed numbers. Smaller than expected US stocks, 24/25 world stocks and total production with higher than expected world wheat stocks for 23/24.

Other News

Conflict continues between Israel and Palestine as a ceasefire has been negotiated on many sides, but nothing has been agreed to yet.
Major flooding across southern Brazil has killed thousands of livestock and will have an impact on their crop but the extent of which is not known yet

Drought Monitor

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

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

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].

06 May 2024

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

LEONARD LUMBER REPORT: MIXED REVIEWS

Recap:

Mixed reviews. That is the industry’s opinion of this market. What we saw in futures last week was slightly more positive than mixed. Futures are showing signs of a turn. The market closed slightly higher for the second week as print continued down. It also works higher on low volume. That indicates a muted computer trade down here. The fundamentals are the focus. The funds are short but didn’t add much for the week. This lack of momentum puts them on the sidelines. So, with all the blah in the market, I would expect more of the same this week, but that’s not lumber. One side will try to push the market. Today, it is more likely that the longs will do the pushing, but never count the funds out. The cash market is getting better, albeit from some very low levels. That creep should support futures. There are still eight long sessions until May expires, so volatility could be an influence.

Technical:

The tech picture is still no help. We see better momentum signs and a slightly higher trend but no confirmation of direction.

There are two key focal points. The first is the upside objective of 556.60, which is the 38% retracement of the move. A close over it may cause the short funds to start exiting. That push sends it to the 200-day moving average at 566.80, setting off another round of short-covering. All of a sudden, the futures market is at $600.

The other point is the low at 511.00. Here, the opposite happens, and the computers kick into sell mode. Futures fall to $480, and the cash market shuts off.

Your risk model should lean towards higher prices and hope it happens. For two years now, the market has never signaled an end to the basis opportunity. It still hasn’t.

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

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.

Drought Monitor

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

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

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.

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.

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

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

312-761-2636

12 Feb 2024

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

AG MARKET UPDATE: JANUARY 26 – FEBRUARY 9

Corn has had a rough 6 months and continued lower with bearish sentiment and funds being short. The USDA report had higher Brazil corn production than the CONAB numbers by 10.25 MMT. The market has been looking for any good news to help put a floor in and that has not materialized. The one bright spot in exports is that we are ahead of pace to both Japan and Mexico for the year while China’s demand has been poor heading into the Lunar New Year. The USDA report pegged 23/24 US corn stocks at 2.172 billion bushels, close to the pre-report estimates.

As bad as the news, or lack of news, for corn has been, the news for beans has been worse. In this week’s USDA report the US bean stocks came in at 30 million bushels higher as exports struggle. Brazil bean production came in above expectations as well with a 156 mmt production (trade estimate of 153.15mmt). With a quiet period occurring during Chinese Lunar New Year it is unlikely to see strong exports and weather is neutral to bearish in South America.

Equity Markets

The equity markets continue to climb as the S&P 500 closed over 5,000 for the first time on Friday. The market has been pulled higher by the same stocks that have gotten it to this point in the magnificent 7 and AI stocks rallying. Analysts are debating whether the rally should broaden in 2024 or remain top heavy as it has started. The Fed will likely keep rates where they are until at least the summer.

Other News

The bearish USDA report continued to weigh on the markets as South American production came in above expectations, still higher than many private estimates.
Thanks to Chip Flory and Davis Michaelson for having Jody Lawrence on their internationally known and critically acclaimed AgriTalk radio program last Friday. Here is the link.