RCM Ag Services

Category: Hedging

28 Apr 2025
Agriculture, CME, Hedging, Housing, Lumber, Market Commentary, Market Updates, Research, Risk Management, Weekly Prices rcmagserv 0 comment

LEONARD LUMBER REPORT: The futures market scratched and clawed to rally a few dollars last week

The Lumber Market:

The futures market scratched and clawed to rally a few dollars last week while the cash market searched for a bottom. The futures market did rally about $18 off its Monday’s lows, but it was a grind. The isn’t any confidence on the upside so any follow through will be limited. Cash does look better, but not enough to bring in the futures buyers. The next part of the cycle is the mills selling wood and building files. That could take time and keep things flat.

The general market is flat and confused for the upcoming construction period. We can do all the mental gymnastics we want to figure out a timeline and construction pace scenario. Today the decisions are predicated on too many aspects to consider. One thing to watch is that all are guarded to the thin side. It would not take much to build some upside anxiety. Looking at all the gaps above in the July contract gives me anxiety. The work to be done is for the mills to find balance again. They are not out of the woods yet.

To keep things in perspective. On April 2nd. it looked like the equities were going to zero. By May 2nd the S&P could be back up to 6000. The flow of capital remains king. It’s estimated that only 30% of the infrastructure bill has been used so far. The economy still has excess dollars coming at it. Our sector is held back by rates. Today a 10 to 25% decrease is all that is needed to move the needle. Add to that the fact that we are underbuilt puts a floor in this market. Percentage hedging…… never fails.

Note: Southern Yellow Pine open interest has been added.

 

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

312-761-2636

14 Apr 2025
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: MARCH 31 – APRIL 14

Old crop corn has had a strong rally over the last 2 weeks, having a 40 cent rally after trading relatively flat since its 80 cent pullback in February. While markets were rallying before President Trump’s announcement of a 90 day pause on tariffs, they liked that news to push higher. Any positive news about negotiations with Mexico would be great for corn. The April 10th crop report cut old crop stocks more than expected on increased exports by 100 million bushels, but a modest 25-million-bushel demand cut to US feed demand. US planting should accelerate this week as weather is favorable and where planting hasn’t started allow for field work to get done. Weather during planting will be the main factor if we end up having 95-96 million acres of corn planted.

Via Barchart

Soybeans have also benefited from the recent rally corn has. While the rally may be losing steam until we have a better idea on how many acres will actually be planted in the US, new crop’s rally above the 20, 50 and 100 day moving averages provides some support under a volatile market. China continuing buying beans will be important as any mass cancelations will signal trade issues in Washington. As trade negotiations continue it will be important for small wins for the ag sector in all of them who are currently buyers.

Via Barchart

Equity Markets

“Liberation Day” created sharp market selloff with the White House announcing a delay to the tariffs a week later as countries came forward wanting to negotiate. The markets are well off their highs from February as well off their lows from the post tariff announcement. As the market is in flux as they try to get a feel for what could come next for the economy (recession?) or what comes with these negotiations and China, volatility will likely remain on any headline news.

Via Barchart

Other News

  • Any progress in trade agreements with Mexico could be good for corn prices as they are our largest buyer. China needs to continue buying beans and any trade progress with them would help beans.

 

Drought Monitor

As planting approaches here is the most recent drought monitor.

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 blawrence@rcmam.com.

14 Apr 2025
Agriculture, CME, Futures, Hedging, Housing, Lumber, Market Commentary, Market Updates, Research, Risk Management, Weekly Prices rcmagserv 0 comment

LEONARD LUMBER REPORT: Futures ran up about 33% after the election. It has given back almost 25% of it since the tariff announcement

The Lumber Market:

Futures ran up about 33% after the election. It has given back almost 25% of it since the tariff announcement. The futures market is staying within the parameters of the news. We would like the inclines and declines to be more subdued, but everything we hear is vague. That has the trade pushing buttons left and right. What’s interesting is the commitment of trader’s report that is compiled Tuesday to Tuesday. As of Tuesday, Wednesday was the crazy up day, the industry added 784 longs and liquidated a whopping 1684 shorts. The funds exited 1323 longs and added 390 shorts. That is a lot of movement for a week in this contract. A couple of takeaways:

  1. Futures made a lower low after the massive, short covering by the industry.

  2. The funds started adding long in the hole last time down.

  3. The industry is seeing better activity, but the mills have wood.

  4. The elephant in the room is again a 25% tariff hanging over the market and a rise in the duty coming.

  5. The elephant is more a possibility while the real time fact is an oversupplied environment.

  6. Technically we broke the channel down. It could return to the start of 527.50. That is unlikely if you add in number 4 above to the equation.

The futures market is a trading textbook. The industry is in sync and the funds are not. Under these circumstances, look for this oversupplied market to find some footing. There could be a seasonal switch flipping on this one. The spreads are getting out of line in cash. OSB?? 2×4 9ft. eastern?? There will be opportunities as prices fall in cash. If futures stabilizes the basis will pop up again. Looks like we are back to working for a living.

 

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

bleonard@rcmam.com

312-761-2636

08 Apr 2025
Agriculture, CME, Futures, Hedging, Housing, Lumber, Market Commentary, Market Updates, Research, Risk Management, Weekly Prices rcmagserv 0 comment

LEONARD LUMBER REPORT: It’s hard to believe that we could start to discuss a housing problem in the near future

The Lumber Market:

It’s hard to believe that we could start to discuss a housing problem in the near future. A week ago, there wasn’t an economic reason to talk about a recession. Today it is real. The key is the stock market. No one disagrees that a sell-off was needed. The mag 7, especially Nvidia, ran the market up. Today the market is taking the froth back. What we see in equities in these situations is a massive increase in sellers. You first have to stop the selling and then build confidence back. In 2009 and 2021 the government wrote checks to get it back. That’s not going to happen this time making the confidence factor murkier. For housing it is not as simple as finding help from an equities rally. The genie is out of the bottle. Any help from the demand side has been pushed out. It’s time to sharpen the pencils again. We came into the year looking for a supply issue to help prices not demand. That still lingers…. as does the tariff. As I am writing this the Spoo’s are down 220. Stop the equities meltdown and the lumber futures will correct. The algo selling lumber futures is feeding off of the equities.

The chart below shows a channel pattern that started from the bottom of the move back in July 24. Breakeven was going to come into play eventually. Last July showed the market could not survive at such a low price. Last week’s $91 break indicates the futures market was up on froth. A close under 569.58 indicates the futures market doesn’t care about breakeven.

Lumber futures corrected the tariff rally. This week needs to see overall calm, or we could be in trouble.

*As of Tuesday, there were 5000 industry shorts that are now up $91. Good risk management!

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

bleonard@rcmam.com

312-761-2636

31 Mar 2025
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: March 12 – March 31

The March 31 Stocks and Acreage Report did not provide any fireworks as there were no major surprises in the report with the USDA saying there will be 95.326 million acres planted. While this is a large acreage number the trade and talk the last couple weeks was about the likelihood of the USDA coming out with a 95 number. While the report could have been worse, stocks coming in exactly in line with the estimate did not pile on with bad news. As we head toward planting, weather, South America and tariff wars will be the main movers now.

Via Barchart

Soybeans came in at 83.495 million acres as their lack of profitability at current prices is making farmers switch some acres to corn. As you can see from the chart below there have not been much help for beans but if this acreage number is close to what we see, it is hard to think they would dip much below $10. The post report action was disappointing as beans continued lower.

Via Barchart

Wheat had bullish news from the report as acreage came in 1.125 million below estimates. Wheat has some bullish world news for price with emergence concerns in the Black Sea and US Plains, despite recent price action. News out of the Black Sea and any issues with the US crop will be market movers for now.

Via Barchart

Equity Markets

The equity markets continue their volatile swings while President Trump’s “day of liberation” approaches on April 2 when tariffs are supposed to be going in place. Volatility will be the name of the game as many unknowns remain in the trade wars.

Via Barchart

Other News

  • Cotton acres came in at 9.867 million. This is 1.315 million acres less than last year. Cotton needs to see demand pick up to get back and stay over 70 cents/lb.

Drought Monitor

As planting approaches the drought monitor begins to become important again as subsoil moisture always seems to be a problem somewhere.

PRICES

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 blawrence@rcmam.com.

 

24 Mar 2025
Agriculture, CME, Futures, Hedging, Housing, Market Commentary, Market Updates, Research, Risk Management, Weekly Prices rcmagserv 0 comment

LEONARD LUMBER REPORT: It was a tough week for the cash market

The Lumber Market:

It was a tough week for the cash market as mills were forced to lower prices to get rid of excesses. Futures on the other hand, held value. It was a very slow volume week as the trade stayed on the sidelines. While this is normally a hard time to read the market, it is obviously much harder this year. A few keys to be watching:

  • I have been preaching about the high amount of inventory out in the field. Every week that number is reduced. A couple day run in cash could even things up and force the buyers back in. That remains to be seen, but there will be an uptick in usage.

  • I’m not a fan of the “underbuilt” hypothesis. There are too many dynamics that have to come into play to make it a factor. We saw them come into play during covid. When momentum to move increases we are far short of homes. What we have today is a two-pronged move being created. The first is once rates drop there will bring a ton of existing home inventory onto the market. That will create good sales but little anxiety. Once the trading of homes is completed, the market with feel the underbuilt condition.

The market has been in an uptrend since last July. I will have a chart below to show the trend. It tells me that the mills can no longer produce at breakeven or at a loss. The housing demand is too great for that. I said that a few years ago so take it with a grain of salt. Economics are economics and housing leads. As of today, it is looking up. Tariffs and duties are all transitory. Stick to the fundamentals.

Technical:

I love the gap on the chart below at 812.20. I know it was the old contract, but the algo and funds don’t give a shit. The next few weeks are going to be very volatile. The market could shoot $50 in either direction for a while. What if the market ran up to $720 and then down to $620. Is your risk managed?

We are going into one the most confusing week of all of our careers. Remember things never change. We will all come out of this at some point when reality is defined. Don’t get caught up in it.

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

bleonard@rcmam.com

312-761-2636

04 Mar 2025
Agriculture, CME, Futures, Hedging, Housing, Lumber, Market Commentary, Market Updates, Research, Risk Management, Weekly Prices rcmagserv 0 comment

LEONARD LUMBER REPORT: “Lumber, lumber, we don’t need no stinkin lumber.”

The Lumber Market:

“Lumber, lumber, we don’t need no stinkin lumber.” Or is it, Badges? Trump is coming after the Canadian lumber industry with both barrels. The problem is the current Canadian government does not like or support the industry so who’s on their side? The biggest and very unintended consequence of all may not be sharply higher prices but a real slowdown in the US housing sector. It is already fighting just to stay flat. This may just send investors to other markets, thus reducing the dollars available in the housing sector.  You cool the housing sector, and you will cool inflation. Again unintended.

This is one of those times where you plan for the worst and hope for the best. It is also a time when you could have $750 lumber and no customers.

Technical:

I was dead nuts on last weekend stating that for the market to go higher it would need a sharp sell off. We saw that on Wednesday and keeping to new lumber style, it all happened in a few minutes. That’s how we roll these days. What I missed was the timing. I think we have to take a step back and consider that while the technical read tends to pan out, it now occurs in minutes not days or weeks. We have to project the move and have orders in to take advantage. Don’t freeze on winners. Manage the position based on what the cash market would offer you. More importantly, don’t freeze on losers. Get out.

Sticking with the boxing analogy…. “hit the one in the middle.”

Daily Bulletin:
The Commitment of Traders:
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

312-761-2636

24 Feb 2025
Agriculture, CME, Education, Futures, Hedging, Housing, Lumber, Market Commentary, Market Updates, Research, Risk Management, Weekly Prices rcmagserv 0 comment

LEONARD LUMBER REPORT: The futures market continued to rally last week

The Lumber Market:

The futures market continued to rally last week. This time, the driver was the fund liquidating shorts. Two weeks ago, it was a substantial cash trade. Last week, it was the roll and liquidation. The cash trade was good last week, but the futures trade was all fund related. On Friday, a mill went off the market, which resulted in nary a ripple in futures. At this point, we need a third catalyst to help the market higher.

Factors to watch:

  • A slowing Euro supply

  • Quota information (If the producers get the funds back as usual, this is only a forced savings account and should not be added to the final cost.)

  • I’m not sure, but I think we went through a day or two without the President calling out lumber. At some point, you will have too much wood or not enough. Those with too much wood can hedge at a premium and wait it out. Those who do not have enough should go back to the old-fashioned way of buying deeply discounted items and running with those until the smoke clears.

  • Spring… misery loves company, so any consistent warm weather will wake the stragglers up. ( This is not a market factor. Anytime we went into spring bullish, we would find the wood was already bought and delivered.)

 

Technical:

The market broke out to the upside of the wedge, which measures $648. I am still in the camp where the market is headed. The issue developing is that this week’s trade shows up on the charts as a big negative. Lumber historically doesn’t creep higher and then explode up. It tends to trade sharply lower for a day or two. Fund liquidation won’t get the market to $648. Adding new shorts will.

If the market sentiment, which is about 95% bullish, can turn down, some higher levels will be hit.

Daily Bulletin:
The Commitment of Traders:
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

312-761-2636

17 Feb 2025
Agriculture, CME, Corn, Education, Futures, Grain, Hedging, Market Commentary, Market Updates, Research, Risk Management, Soybeans, Weekly Prices, Wheat rcmagserv 0 comment

AG MARKET UPDATE: JANUARY 27 – FEBRUARY 14

Corn rode the wave higher following the updated USDA numbers in the January report with old crop prices settling into a range and 2025 steadily moving higher. The funds are long 1.8 billion bushels and staying long which is helping this market higher with the general fear being a huge corn acreage number for this year that could present a problem. South American weather remains consistent with non-threatening forecasts while the US has a striking cold few days coming. There are multiple items supporting a continued grind higher from here, but funds have their hand on the scale so keeping an eye on what they do and what the technicals are saying will be important as well as harvest data out of South America. It is never too early to look at making sales for the 2025 crop year once you know your breakeven. You can always look at re-owning it on paper if the market really makes moves higher.

Via Barchart

Soybeans have been trading flat since the January USDA Report bump. South America’s record crop present price challenges to the US as we are not the main supplier for the world anymore. A renewed trade war with China would certainly have negative effects again on the soybean market. South America yield numbers and any tariff wars will be the main news in the market until planting begins. Beans inability to continue the rally like corn is not surprising but the corn-bean price ratio that we are seeing is going to make for some interesting conversations when planting is decided.

Via Barchart

Equity Markets

The equity markets have been volatile as we start the year with the Magnificent 7 taking a break while managers repositioning for expected moves (or lack thereof) from the Fed. With the constant talk of tariffs and then delays to implementation, it provides a volatile market within different sectors.

Via Barchart

Other News

  • Wheat has moved higher recently with record cold weather and winterkill concern driving it to a technical breakout.
  • Livestock prices have pulled back this month but are still at strong prices as the head count in the US remains on the small side.
  • Tariff announcements remain at the top of mind of the markets as uncertainty is the main issue with no clear guidance and kicking the can down the road.

Drought Monitor

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 blawrence@rcmam.com.

 

10 Feb 2025
Agriculture, CME, Hedging, Lumber, Market Commentary, Market Updates, Research, Risk Management, Weekly Prices rcmagserv 0 comment

LEONARD LUMBER REPORT: The dynamic of supply and demand guides most commodities markets

The Lumber Market:

The dynamic of supply and demand guides most commodities markets. Admittedly some do have a slight amount of emotion added to the trade. Not here. Lumber is different. Most of the trade is based on opinions, emotions, and rumors. Supply and demand factors are secondary. We all know it as a fact and have learned to trade the whole package. This last go-around in futures was a perfect example of the smooth-out cycle that many economists embrace. The thought is pricing smooths out over time. Not in a few hours. While I agree with the theory, I have never enjoyed it in lumber. You are never hedged in this market, and that lack of hedging allows for wide swings. Wide swings kill margins, and reduced margins bring in more caution. Today, everyone wishes for higher prices to bolster the bottom line. A $600 2×4 looks much better on the books than a $400 one. We are seeing a market in the greatest smoothing out period in its history after a run to $1700. It takes time and pain. What a western Canadian producer is at has little to do with the market. Times have changed.

We continue to seek a tighter supply environment to raise prices. This is year three of that strategy. At this pace, the mills could continue to hover around break-even indefinitely. How do we survive in this environment? With SYP and Euro not embracing the cutback strategy, the pool of wood is always available. They always look to sell their wood, which is negative. This leaves the battle between SPF and the marketplace.

There are always chances for a commodity to see sharply higher prices when not warranted. Today, lumber is one. At no time should emotions warrant higher prices when a market doesn’t have the dynamics, but they do.

The trend will be down in the next couple of months as housing stays flat, but prices will spike up and back. The market gives up $30 to $50. Don’t look to add more to it. Trade what it gives you.

Now for today:

 The futures market has recovered 50% of this move. 596.30 is 50%, and 61% is 605. Without the algo selling, we could see higher prices, but they will eventually appear. For the next few weeks, the mills will try to dig in. Owning cash today will show a profit.

 

Daily Bulletin:

 

The Commitment of Traders:

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
312-761-2636

Disclaimer

RCM Ag Services is a registered DBA of Reliance Capital Markets II LLC. Trading futures, options on futures, and retail off-exchange foreign currency transactions are complex and involve substantial risk of loss and are not suitable for all investors. Loss-limiting strategies such as stop loss orders may not be effective because market conditions or technological issues may make it impossible to execute such orders. Likewise, strategies using combinations of options and/or futures positions such as “spread” or “straddle” trades may be just as risky as simple long and short positions. There are no guarantees of profit. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge and financial resources. You may lose all or more than your initial investment. You should not rely on any of the information herein as a substitute for the exercise of your own skill and judgment in making such a decision on the appropriateness of such investments. Opinions, market data and recommendations are subject to change without notice. Reliance Capital Markets II LLC shall not be held responsible for any actions taken based on this website or attached links. Parties acting on this electronic communication are responsible for their own actions. Past performance is not necessarily indicative of future results.