RCM Ag Services

Category: Lumber

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

[email protected]

312-761-2636

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

[email protected]

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

[email protected]

312-761-2636

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

LEONARD LUMBER REPORT: SHIFT TO A “COST OF SUPPLY VS DEMAND” MARKET

The Lumber Market:
There has been a shift from a supply and demand market to a “cost of supply vs. demand” market. By that I mean the actual supply does not have a relationship with its cost. The cost will be driven by a tariff charge. Let’s separate the two. If there were not any tariff threats facing the market today, the slack demand would be pressuring the market lower. I have seen so many times in the past of a spring that never developed. The wood bought covered the wood needed. It’s starting to have that type of feel. Let’s take a step back. Futures are up $120 from the lows this year. We are putting it all on the tariffs, but part of it could have been the spring run. I’ll say that because demand lacks any momentum. If the tariffs came out tomorrow, prices would go up, but demand would not. I am not calling for demand to slow. I just want to be clear that today we are an “cost of supply market.” Any other year it would be a sell in May and go away. This isn’t any other year.
There are two types of hedging. The first is basis trading locking in a profit. The other is risk management or the protection of the company. This medical insurance comes at a cost and always gets questioned by the higher ups, until it works. You have to have inventory. You also have a plan to protect it in place.
Technical:
The Bollinger bands are slowly moving back together. There is a long way to go, but viewing the market getting range bound is the play until something comes out. There is a strong support line in May sitting at 632.40. I think the focus this week should be on the chart pattern in futures and not on any rumored tariff garbage. I’m not positive, but I heard of spreads on DraftKings between a college bball teams and lumber are getting sent out.
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

[email protected]

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

[email protected]

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

[email protected]

312-761-2636

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
312-761-2636
27 Jan 2025
Agriculture, CME, Futures, Hedging, Housing, Lumber, Market Commentary, Market Updates, Research, Risk Management, Weekly Prices rcmagserv 0 comment

LEONARD LUMBER REPORT: It was a tough week with selling pressure dominating

Recap:

It was a tough week with selling pressure dominating. Who was selling? Most likely an algo that doesn’t grow a position. But I think the bigger question, and one that may linger for a few quarters, is why there isn’t much support on the way down. A quote Friday after existing home sales came out was troubling.

“On an annual basis, existing home sales (4.06 million) declined to the lowest level since 1995, while the median price reached a record high of $407,500 in 2024.” By the way, multifamily construction hit a record last quarter. The industry is very reluctant to participate beyond the contracts that they deal with.

New home sales do better as the existing inventories get sold. Today, with the higher interest rates and record costs, that won’t be happening any time soon. That leaves us in the same atmosphere in 2025 as it was in 2023 and 2024 when the builders created the market. That gives us the duty rally, the tariff rally, and finally, the shutdown/supply rally. At no time does it chase the industry into the marketplace to load up.

If nothing else, the trade is consistent. It made a high and then came back down to value, or at least what the charts call it. We spent a lot of time trading like this at $520. Value is determined by the volume traded in that area. $565 has had a lot. Have we moved our value area from 520 to 560? Too early to tell. The algo type selling strains the market but doesn’t represent it. The industry’s next move will. Just remember, business isn’t dead.

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

[email protected]

312-761-2636

23 Dec 2024
Agriculture, CME, Education, Futures, Hedging, Housing, Lumber, Market Commentary, Market Updates, Research, Risk Management, Weekly Prices rcmagserv 0 comment

LEONARD LUMBER REPORT: A FLARE FOR THE DRAMATICS

Recap:

” A flare for the dramatics.” That’s how the market was described last week. It was meant for futures but can be easily fit the cash trade most of the year. Here all in or all out mentality drives prices more than supply and demand. The fact that this commodity has been in a range now for over 2 years, but the trade can get chopped up, shows us just how difficult this market is to navigate. At the end of the day, the price always represents value. The main takeaway from last week was that this market is working to redefine the trading range higher. If you look back over the past few weeks, many cash items were back near their lows. That’s not a consolidation higher, but it’s not a confirmation of value. The futures market better defines the overall market as it is a broader indicator of prices and attitudes. Last week we saw a rally of about $40. Yes, it was all in one day and actually all in a matter of minutes, but the fact that it didn’t give it all back tells us that the value area is higher. If all economics remain the same the market has suggested the new value area to be $560 up from $520. The buy zone has moved up. The sell is the premium offered when out of line.

Technical:

It’s hard to find a mirror today’s chart pattern in any markets. The looming gap down to $540 will keep most technicians out of the market. The idea mentioned above of a new value area and how this market trades technically are opposites this week.

The roll has allowed a long algo to trade again. That will be the key to direction this week. That said, with rising open interest in the commercial longs and in the fund shorts, I’m worried more about the downside more than the upside during the holidays. Again, the roll will bring in buying. The best trade of the week is to shut off the computer and come back on January 6th.

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

[email protected]

312-761-2636

16 Dec 2024
Agriculture, CME, Education, Futures, Housing, Lumber, Market Commentary, Market Updates, Research, Risk Management, Weekly Prices rcmagserv 0 comment

LEONARD LUMBER REPORT: THE MARKET IS IN TROUBLE

Recap:

The market is in trouble. Last week’s trade was the giveback for futures hitting $620. Now what? The trade was out of sync all week. Futures headed lower while the industry was buying. The selling was met with large buy orders all the way down. These opposing dynamics create a bearish atmosphere. Between the industry buying back shorts, the roll and the makeup of the open interest there is much to unpack. Let’s give it a try.

The industry shorts liquidated 1339 contracts in the last reporting period. I have to start by saying that the number is more spec short than actual commercial. My guess is that most of the 1339 contracts were not tied to a cash contract. My point is a spec trade will exit sooner than a hedge trade. The drop in the commercial shorts (specs) will not create an imbalance.

The roll is not typical. Today there are 995 short funds in the market. Many of those may already be sitting in March. They will not be a factor. The likelihood of the market going from a -30 to a -10 this time is small. There might be some creep in, but nothing of substance.  This is the time that the market gets some positivity out of the roll. Without it, the market stays under pressure.

The cash market just can’t find a bottom. SYP continues to be the market barometer since the moves are so extreme. SPF can’t move away from that fact. It’s the bitcoin of lumber.

Technical:

The January chart sets off a lot of warning signs. It is not very attractive. A commodity chartist called me today and said, “wow you’re going to 0.” We reviewed the weekly chart only to see more of the same. Lumber futures are not reacting to an extreme RSI or stochastic anymore. It now has a lagging reaction time. Most cash traders would agree that in the cash market the same occurs and the need to retime the buy has to develop. It’s less about the deal. Less about the RSI and more about timing.

A good suggestion for those who have to write a 2025 report for the company is that we may be getting closer to our typical $129 trading range. I think the market is going to be forced sharply higher at some point, but for now set up the parameters or bookends for the year.

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

[email protected]

312-761-2636

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