Category: Market Commentary

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

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.

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.

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.

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

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 [email protected].

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:

Brian Leonard

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

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:

Brian Leonard

312-761-2636

27 Jan 2025

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

AG MARKET UPDATE: DECEMBER 10 – JANUARY 25

A lot has happened in the corn market since our last update, from a new administration taking office to a surprise USDA report. The final yield and stocks for 2024 came in well lower than previous USDA estimates leading to a solid rally for a market that needed it. The USDA lowered the final average yield to 179.3 bu/ac, down from their estimate of 183.1 bu/ac in November. The market had been priced in for a 182+ yield so as you can see in the chart below the market responded appropriately. The market popped higher to reach new 6-month highs following the report and has continued higher with funds having long positions in the market.

Soybeans’ also got a bump following the January USDA report. The USDA lowered the US crop from 51.7 bu/ac in November to 50.7. The yield cuts worked through to ending stocks but did not completely match as demand numbers were slightly trimmed with harvested acres raised. The Biden administration did not help out the SAF industry on their way out as bean crush plants remain in limbo on its future as a less eco friendly Trump administration takes over. What was projected to be a huge win for soybean growers now is a cloud that you do not know how long it hangs around before it rains. South America’s yields were barely changed with their forecasts now the most important thing to the markets (outside of President Trump starting any trade wars).

Equity Markets

The equity markets have had a volatile end to 2024 and start of 2025 but overall seem to be in a good place as Q4 earnings start to come in. A wave went through the market with Chinese DeepSeek coming out with an opensource AI model that is much cheaper than anything in the US. This caused tech stocks to plummet to start the week with Nvidia losing over 15%. With no immediate tariff action by the Trump administration the market sighed some relief as this administration appears to be taking a more measured approach than in President Trump’s previous term.

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

Other News

The USDA’s revisions lower were both surprising in a positive way and frustrating how they were so wrong on the data the market traded for the last few months when farmers had to sell.
The Trump administration had their first spat over deporting illegal immigrants with Colombia president Petro while mutually threatening tariffs over the handling of the situation.

Drought Monitor

Contact an Ag Specialist Today

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:

Brian Leonard

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

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:

Brian Leonard

312-761-2636

10 Dec 2024

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

AG MARKET UPDATE: NOVEMBER 18 – DECEMBER 10

Corn has had a good month but needs some more help to get over the $4.50 hump that it bumped against after Tuesday’s Dec USDA report. The bullish trade leading into the report was hoping the USDA would find better numbers for ethanol and US exports, but they underestimated the demand numbers with the US ending stocks coming in 168 million bushels below estimates for US stocks. World stocks were also lower by 268 million bushels. While these stocks numbers are still very strong, they have tightened enough to raise the floor for the meantime while corn could trade between $4.30-$4.55 heading into the new year.

Soybeans’ last few weeks of trade between $9.80 and $10 has not provided much bullish optimism. There were no surprises in the Dec USDA report as large South American crop expectations and the US bean carryout doubling from 2023 are still bearish influences. Soybeans have a tough road ahead as South America is on pace to produce another record crop, and the incoming administration will likely not be biofuel friendly in the US. With all the recent investments in biodiesel and sustainable aviation fuel, there is a cloud that hangs over those areas that we are not sure if it is nothing and will blow over or a storm that may linger.

Equity Markets

The equity markets have continued higher with some recent weaknesses in the largest stocks while strength in the market has broadened. Analysts are beginning to release their outlooks for 2025, while plenty still feel good about the market do not expect another year of 20+% returns like we saw in ’23 and ’24 (so far) after the down year in ’22.

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

Other News

The Assad regime in Syria is over. Israel and Hamas appear close to reaching a temporary ceasefire. The fallout of both will be watched by energy markets as many questions will emerge in the region.
There was a slight cut to US wheat stocks, but world stocks are as expected, and comfortable as low Russian cash prices continue to reflect their ample supplies.

Drought Monitor

Contact an Ag Specialist Today

25 Nov 2024

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

LEONARD LUMBER REPORT: Coming into the week we were expecting a sloppy trade

Recap:

Coming into the week we were expecting a sloppy trade. With a later Thanksgiving and the recent run up, a technical correction was not out of the question. The problem is that lumber futures have a tendency of unwinding gains in a hurry. That’s what we saw in January futures from Wednesday on. There was no change in market conditions to warrant a rollover so what caused the steep selloff?

The lumber market has changed. There will be times of tightness exclusively caused by supply reductions. JIT from here on out will keep you undersupplied in a trending higher market. That said, the standard operating procedure will remain the same in 2025 with the boss calling for no losses on excess inventories. That’s a receipt for price spikes. Most will agree that it will be harder to buy something in a rallying market. What holds many back is the fact that once the cycle is over there is no support. That is what we are experiencing now. The futures market can settle back towards its original value. With the cash and futures prices so close, I would not expect the futures to return to 560. The discovery period of the next level should be higher. The issue I see is that there are about 15 trading sessions left between now and the new year to gain some momentum. It might be the algo/fund buying or the cash trade picking up again. This is a tough environment for price discovery. Buy the mistake.

Technical:

The market was able to fall to the 595.15 retracement point. The major support point is the 50% mark at 586.25. The RSI is 44.50% and the stochastics are heading lower. Both indicate a market that had pressed higher than value and now is giving it back. If this was a court of law a new precedent of 623.50 is on the books. The 200-day moving average is 566.70.

The key takeaway is how to trade the basis. There needs to be a recalibration of the model. $40 or $50 basis is still great. The issue is when. The first spike could be followed by another so now you are managing the futures. It looks like the trade switch could be one that the trade makes money on the cash side now. All these are signs of a change in trend. We are still in a sideways market. The trend is only a minor factor in the overall trade. If you have too much wood, hedge it.

Daily Bulletin:

The Commitment of Traders:

About the Leonard Report:

Brian Leonard

312-761-2636

18 Nov 2024

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

AG MARKET UPDATE: OCT 29 – NOV 18

December ’24 corn rallied back to the $4.30-point last week, matching its recent highs from the start of the month. Corn’s 40+ cent rally from the August lows has been very welcome as harvest wrapped up and bins were getting full. Corn struggled to hold this level of trading for long a few weeks ago but with the December contract getting ready to expire and all the focus shifting to March the markets need some help to push to the $4.50 mark. Funds are long 550 million bushels of corn, the largest long position in 21 months. The November 8^th USDA report had the ’24 US corn crop at 183.1 bu/ac, avoiding the fears of the USDA finding an even bigger crop and raising yields that would’ve sent the market lower. Exports have been solid but within expectations as post-election trade will involve countries positioning themselves ahead of the new Trump presidency.

Soybeans recent rally was quickly given back with January soybeans trading just over $10. The recent lows in the $9.75 range appear to the where support is showing up as it has traded down to that range a few times but keeps bouncing back. The USDA had the US soybean production to 51.7 bu/ac, below the 52.8 bu/ac estimate the markets had priced in. While the market got an initial bounce from the report the fact that another trade war may be on the horizon with record bean yields in the US and South America, the supply and demand story is not friendly in its current state.

Equity Markets

The equity markets rallied following the presidential election and have since given some back. While Trump is seen a market friendly, the “who will benefit?” is a big question mark as tariffs and promised lower government spending will have widespread effects. Republicans will control the house and senate but with some senators not high on Trump, he likely will need some help to do everything he wants (think Manchin and Sinema with Dems).