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05 Jun 2023
Agriculture, CME, Lumber, Market Commentary, Market Updates, Research, Risk Management rcmagserv 0 comment

LEONARD LUMBER REPORT: The futures market had a mixed week

Summary:

The futures market had a mixed week as Tuesday saw a good flush of longs followed by a Wednesday of profit-taking. By Friday the market saw a pickup in volume as the roll began. Having an active roll is key to a fluid contract. The market is getting a little fatigued on the sell side. After over 16 sessions without a correction, the attitude has changed to “not short” from “not long.” This will leave only the algo and funds left to sell it. They won’t compete with themselves for long. Is this a bullish call? Nope, I just think that the headwinds out there for this industry are now defined. The negatives coming are expected and planned for. Without a surprise, the market is underbought.

Economic:

The overall economy expects higher unemployment and sticky high rates.  Those are big negatives for this industry. The question becomes if the 80% break in prices from the 2022 highs was enough or not to offset those issues. The fact that we are in the middle of it with steady demand tells us that just maybe the underbuilt condition is a bigger factor in the demand equation. If so, demand will also remain sticky. My projection for a third quarter of less supply offsetting less demand may not play out with demand better.

Technical:

The resistance trendline is now at 499.50. The oscillators are calling for a correction. A rally back to the trendline would be expected. The issue is this elongated downtrend. It doesn’t create a comprehensive oversold condition. It gradually puts indicators overdone. Today nothing indicates caution should be used when basis trading. It continues to be a reliable tool to use.

Section23_Lumber_Options.pdf

Lumber Futures Volume & Open Interest

https://www.cmegroup.com/markets/agriculture/lumber-and-softs/lumber.volume.html?itm_source=cmegroup&itm_medium=friendly&itm_campaign=lbr&redirect=/lbr

CFTC Commitments of Traders Long Report

https://www.cftc.gov/dea/futures/other_lf.htm

Lumber & Wood Pulp Options

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

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

30 May 2023
Agriculture, CME, Lumber, Market Commentary, Market Updates, Research, Risk Management, Weekly Prices rcmagserv 0 comment

LEONARD LUMBER REPORT: Last week it was about demand. This week it’s all about the structure

Summary:

Last week it was about demand. This week it’s all about the structure. I mentioned a few years back how the face of this industry was changing. I think it’s here. Never have we seen home builders’ stock hit new highs in a lumber bear market. And never have we seen a distributor have more sales than many of the producers. Today the product moves very fluidly from the mill to the builder and without disruptions allows for a lower-priced commodity. That is what it looks like out there.

Let’s look at a few numbers. In the last few weeks, Pulte, and DR Horton both hit 5-year highs. Toll was right behind them. The lack of supply on the market allows them to build and sell every day at a continued high margin. Wallstreet sees that continuing. So, despite the high prices of homes and high mortgages, the market is still out there.

Now let’s go through the first quarter numbers of two of the players. West Fraser did $1.6 billion in sales with a net loss of $ 42 million. Builders First Source did $3.8 billion in sales with a net income of $333.8 million. Their gross profit margin was up 300 pts to 35.3%. You would have to group a few mills together to reach BFS sales. This is just one of the big three distributors out there. The mills have been laser-focused on the contracts and consignment structure. It works well in a bull market as the print tends to hold a premium. It doesn’t work in a bear market where print holds a discount. It is a win-win for distribution. An upmarket allows for an additional margin to be added. In a down market, they get the spread between the cash price and the selling price. Basically in a down market, they keep all the margin excess. I have to add that there are many players out there that have some of the same programs because of their sheer size today.

For us lay people what this means is that the remainder of the market is in competition with themselves. The net result is more product chasing fewer dollars in a flat market. You either go to a third party for help (the futures market) or you chase the low. A $60 premium is a windfall. A $30 premium is great.

Technical:

It took till Friday, but we did hit the $485 number. There wasn’t even a ripple of short covering for the weekend. The RSI is now at 26.80%. With a ROC of .5 to 1 there is room to go down. This isn’t the type of market that will “test” areas. It will just be a grinder until help arrives. The focus is on the 2023 trendline which comes in at 504.50. The line is almost 6 months old. It is important.

Section23_Lumber_Options.pdf

Lumber Futures Volume & Open Interest

https://www.cmegroup.com/markets/agriculture/lumber-and-softs/lumber.volume.html?itm_source=cmegroup&itm_medium=friendly&itm_campaign=lbr&redirect=/lbr

CFTC Commitments of Traders Long Report

https://www.cftc.gov/dea/futures/other_lf.htm

Lumber & Wood Pulp Options

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

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

26 May 2023
Agriculture, CME, Corn, Cotton, Dow Jones, Grain, Market Commentary, Market Updates, Research, Risk Management, Soybeans, Weather, Weekly Prices rcmagserv 0 comment

AG MARKET UPDATE: MAY 15 – 26

Corn had its best 2 week stretch in quite a while. As you can see from the chart below this has been the first meaningful rally, we have seen in 2023. As corn planting was 81% complete to start the week, ahead of the average pace, the trade has started to look at the weather outlook as we head into June. A dry pattern has begun forming in the coming weeks as it begins to warm up across the corn belt. While the heat in June is not overly worrisome it will be important to keep an eye on it as a warm dry June, followed by a hot dry July, could be plenty to do some serious damage to the US crop. We are a long way from this becoming a reality but a few weeks of dry heat to start June could help this rally keep some momentum or at least not give back the recent gains. Exports continue to be disappointing, and the extension of the Black Sea grain corridor isn’t bullish, but as usual the focus will be on final planted acres and weather in the coming weeks.

Via Barchart

Soybeans can’t get any momentum as South American beans continue to be the preferred option in the world market. November futures made a new low this week before getting a modest bounce on Friday heading into the long weekend. As demand continues to struggle the USDA will likely continue to trim exports in the next report, which will add to ending stocks for 22/23. Beans were 66% planted, ahead of the average pace, as weather concerns won’t hit the soybean market just yet. Beans are lacking any bullish news as they wait for a spark but struggle to find where it will come from.

Via Barchart

Cotton had a volatile week as seen in the chart below. When these opportunities present themselves, you do not want to miss the opportunity to hedge your risk. Have a plan and be prepared if there is another 5-cent spike that could make a big difference in your bottom line and potentially a good spot to place a hedge. The 78-84 cent range of Dec 2023 cotton has been consistent with pops to the upside and dips back to the bottom. The world economic outlook and US weather will be the main drivers moving forward into the long weekend.

Via Barchart

Equity Markets

The equity markets continue their mixed run of late with the DJI continuing to struggle while the S&P and NASDAQ stocks see gains. NVIDIA was the big winner of the week as chips and AI have investors’ focus. While the jury is still out on Artificial Intelligence and what role it will play in the coming years, one thing is clear, investors don’t want to miss the boat even though we do not know if the boat is the Titanic or the USS Missouri.

Via Barchart

Drought Monitor

The drought monitor below shows the struggles in the weestern corn belt as the eastern corn belt is in good shape as planting wraps up.

Podcast

With every new year, there are new opportunities, and there’s no better time to dive deeply into the stock market and tax-saving strategies for 2023 than now. In our latest episode of the Hedged Edge, we’re joined by Tim Webb, Chief Investment Officer and Managing Partner from our sister company, RCM Wealth Advisors. Tim is no stranger to advising institutions and agribusinesses where he has been implementing no-nonsense financial planning strategies and market investment disciplines to help Clients build and maintain wealth and reach financial goals since

Inside this jam-packed session, we’re taking a break from commodities, and talking about the world of equities, interest rates, tax savings, and business planning strategies. Plus, Jeff and Tim delve into a variety of topics like:

  • The current state of the markets within the wealth management industry
  • Is there a beacon of hope, or is it all doom and gloom for the markets?
  • Other strategies to think about outside of the stock market and so much more!

 

Via Barchart.com

 

Contact an Ag Specialist Today

Whether you’re a producer, end-user, commercial operator, RCM AG Services helps protect revenues and control costs through its suite of hedging tools and network of buyers/sellers — Contact Ag Specialist Brady Lawrence today at 312-858-4049 or [email protected].

 

22 May 2023
Agriculture, CME, Lumber, Market Commentary, Market Updates, Research, Risk Management, Weekly Prices rcmagserv 0 comment

LEONARD LUMBER REPORT: IT WAS ANOTHER SLOW WEEK IN BOTH FUTURES AND CASH

Summary:

It was another slow week in both futures and cash. As we search for answers, we just may not be asking the right question. The question is if demand is our problem. The data isn’t showing it. Reports from the field aren’t showing it, but this industry’s general malaise today is not typical. All the other sectors of the economy experienced covid interruptions, as did lumber. They have all cleaned up logistics issues allowing for lower prices. So why have most other sectors experienced a pick-up in demand from the lower prices while lumber has not? There is a key headwind from this malaise. This industry has an extremely slow-moving cycle where most others don’t. This lagging grind may just shift the cycle. Today we are in a positive upcycle. All the dynamics are still in place, but the shift may be quietly developing. This is a big call. This rolls the homebuilders and producer’s stocks to a sell. Let’s dig into the factors at risk.

The most apparent today is rates. They have become much stickier in the mid-6 % range than expected. Yes, builders are buying the rates down today and yes, they won’t stay high forever, but it may just hang high enough to change the buyer’s attitude. Today there is a much smaller percentage of first-time home buyers in the market. The doubling of rates has forced them to the sidelines. High median home prices also have hurt. They are on the sidelines not out of the market. If unemployment starts to creep up and there are job losses near the entry level, they may just change their way of thinking. You lose that core group, and you lose the market.

Another issue today is the fact that about 35% of new buyers were funds and spec groups buying and either renting or selling the homes. You think of names like Blackrock who have been very active in this sector. With rates on the rise, their participation has dropped substantially for the 2022 highs. Higher rates limit profits and increase risks. Now if rates do start to fall it will become a viable investment again, but here is where the long lag could hurt. The longer the lag the more likely they will develop another investment for the money and move away from home buying.

I’ve been talking about the “sweet spot” for the buyers. That’s said to be a sub-5 % mortgage and a $350,000 home. That is what the new buyer can afford. If you move this out 3 to six months, the equation moves from what they can afford to what they are willing to pay. That psyche shift will have a long and negative effect on home buying.

The housing industry needs to find economic confidence. It doesn’t look as if that can be created in the near future. Not when the discussion focuses on when the recession will hit.

Technical:

The read continues to be one of a neutral call. The 513.50 area on the upside is still in play as is the 485.00 support. There hasn’t been much movement but when there is the market runs up and then makes a new low. The stochastics have done a great job of calling this type of trade. It is still showing a bearish tone. There are no indicators supporting a directional move development. Old school tells us that lumber doesn’t stay sideways for that long. I’m guessing that the market will either see the low 480’s or the high 5teens this week. Enjoy the week and the beautiful weather.

Section23_Lumber_Options.pdf

Lumber Futures Volume & Open Interest

https://www.cmegroup.com/markets/agriculture/lumber-and-softs/lumber.volume.html?itm_source=cmegroup&itm_medium=friendly&itm_campaign=lbr&redirect=/lbr

CFTC Commitments of Traders Long Report

https://www.cftc.gov/dea/futures/other_lf.htm

Lumber & Wood Pulp Options

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

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

15 May 2023
Agriculture, CME, Corn, Dow Jones, Grain, Market Commentary, Market Updates, Other News, Podcast, Research, Risk Management, Soybeans, USDA Report, Weekly Prices, Wheat rcmagserv 0 comment

AG MARKET UPDATE: APRIL 28 – MAY 15

The USDA Report on Friday did not give any bullish news. But the overall muted market reaction was good to see as the overall report did not offer much to help prices. The USDA had production and ending stocks above pre-report estimates with the main number of US yield an expected 181.5 bpa. The USDA did not change their April estimates for Argentina’s crop, which remains higher than the numbers from the Rosario Grain Exchange but did raise the production estimates for Brazil. The USDA raised ending stocks on expectations for lower exports which matches the theme in the export space of late. The US crop planting progress was 65% complete to start this week.

Via Barchart

Soybeans had a bad week, like corn, but did not have as bearish a response following the report as the numbers could have led to. The major numbers were in-line with pre-report estimates except for the ending stocks for similar reasons as corn, with lower exports and south American production. WASDE did not lower Argentina’s numbers for beans either. The world bean market needs to find a new demand angle to keep from being oversupplied if the US has a great growing year. The US soybean crop was seen as 49% planted to start the week.

Via Barchart

Wheat was the lone warm spot of the report with some numbers coming in below trade estimates. The 23/24 world wheat ending stocks came in well above the pre-report estimates at 264.3 MMT (259.5 MMT) consumption and exports are lower. Wheat got a strong bounce, with KC leading the way, and should give corn some help. The Black Sea corridor will remain the biggest issue for commodities as any stops or problems will be supportive for Wheat.

Via Barchart

Equity Markets

The equity markets were mixed this week with the Dow getting hit with losses, the S&P being relatively flat and the Nasdaq continuing higher. Tech continues higher after good earnings from the major companies and the market thinking the Fed is done raising rates and potentially lowering sooner. The markets are still waiting for a catalyst as it has been a story of the have and have nots as of late.

Via Barchart

Drought Monitor

The eastern corn belt has gotten plenty of moisture as planting has begun while the western corn belt in some areas getting lots of moisture over the weekend.

Podcast

With every new year, there are new opportunities, and there’s no better time to dive deeply into the stock market and tax-saving strategies for 2023 than now. In our latest episode of the Hedged Edge, we’re joined by Tim Webb, Chief Investment Officer and Managing Partner from our sister company, RCM Wealth Advisors. Tim is no stranger to advising institutions and agribusinesses where he has been implementing no-nonsense financial planning strategies and market investment disciplines to help Clients build and maintain wealth and reach financial goals since

Inside this jam-packed session, we’re taking a break from commodities, and talking about the world of equities, interest rates, tax savings, and business planning strategies. Plus, Jeff and Tim delve into a variety of topics like:

  • The current state of the markets within the wealth management industry
  • Is there a beacon of hope, or is it all doom and gloom for the markets?
  • Other strategies to think about outside of the stock market and so much more!

 

Via Barchart.com

 

Contact an Ag Specialist Today

Whether you’re a producer, end-user, commercial operator, RCM AG Services helps protect revenues and control costs through its suite of hedging tools and network of buyers/sellers — Contact Ag Specialist Brady Lawrence today at 312-858-4049 or [email protected].

08 May 2023
Agriculture, CME, Lumber, Market Commentary, Market Updates, Research, Risk Management, Weekly Prices rcmagserv 0 comment

LEONARD LUMBER REPORT: The entire economic world is waiting for the next shoe to drop

The entire economic world is waiting for the next shoe to drop. Well, last week the shoes got new laces. This doom and gloom weighs on us all. The housing sector may feel the biggest chunk of it. As we try to piece together all the reasons why lumber prices are low we may just be missing the key component. The 12-year bull market is over ending after the most volatile time in history. What’s wrong with the market falling back to more normal prices and staying flat for a few years? Is there any history to back that up?

The market spiked to all-time highs in May of 2018 and then settled back and went flat for almost 20 months. It was only after covid hit that the market changed dynamics. Those changed dynamics brought unprecedented wealth to this industry. Some would say unsustainable in an industry based on readily available and easily produced commodity. Now that the market has gone flat, firms are scrambling to see if the added structure will work or not. That dance keeps many out of the market or in it at a limited capacity. That quietness should also cause an underbought lumber industry which has yet to happen. We have grown so big that we can’t define small yet. The market will probably help out with that one.

Today’s challenge is how to trade a lot of wood for little money. A long runway to the upside is shrinking by the day. A profit quickly turns into a loss. Something unheard of only a few months ago. This type of cycle will bring the focus back to the use of risk management. Small losses will smooth themselves out. Big losses won’t. In recent years the reluctance to use futures was because it limited gains. Today you need to use it to limit losses. Defense is as much mental as it is physical. It takes time, energy, and studies to make it work.

Technically this market has been in a perfect down channel since May of 2022. One year later it is in the same channel without any indication of that changing. The 12-month stretch does allow for better analysis. From mid-January of this year, the market has developed an inter-channel with higher parameters. I was able to match both channels and tighten up the projected moves. Since we now need to focus on July (little) the support and resistance lines are both roughly $70 from the $500 market. The key points in July are $430 and $570. The momentum indicators show a low probability of reaching $430 from here. With the need for a buy round and a better probability for it to go up, I’m looking for the $570 to be the objective of a bounce. I will not rule out an expiration failure back to $430 but that’s not for today. Today the market will trade around $500 until relief shows up. 

What we saw Friday was a relief rally across the economic spectrum. Let’s see if one is brewing down here.

Section23_Lumber_Options.pdf

Lumber Futures Volume & Open Interest

https://www.cmegroup.com/markets/agriculture/lumber-and-softs/lumber.volume.html?itm_source=cmegroup&itm_medium=friendly&itm_campaign=lbr&redirect=/lbr

CFTC Commitments of Traders Long Report

https://www.cftc.gov/dea/futures/other_lf.htm

Lumber & Wood Pulp Options

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

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

01 May 2023
Agriculture, CME, Lumber, Market Commentary, Market Updates, Research, Risk Management rcmagserv 0 comment

LEONARD LUMBER REPORT: All markets, regardless if it is a commodity or equity, will telegraph a change in their trend

All markets, regardless if it is a commodity or equity, will telegraph a change in their trend. The lumber market is one of the easiest markets to predict. It only takes 10 or 12 missteps before you are right. In the few months of 2023, we have gone from expecting a sideways give-it-back market to looking for a recession, and finally, it getting positive. We are now back to the sideways thought process as an industry. The key facts are that the housing sector didn’t get as bad as we thought, but that better-than-expected business didn’t help prices. The demand has not cleaned up the excess supply. May 1st. looks much different than we had thought back on January 1st. or does it?

Are the wholesalers feeding on their young? Yes. Are the buyers locking in jobs at $700 and beating up distribution for another $30? Yes. Is it true that all euro wholesalers can only go out after dark? Yes. We are where we expected to be at this point. The problems on the supply side are working themselves out. It is just looming micro issues now. These micro-dynamic issues should not control pricing, but in this small industry, they do. The industry’s macro dynamics do not look bad. They are just very slow-moving. The macro issue of logs. The macro issue of reduced production, no infrastructure replacement, and the macro issue of costs are all factors that determine the price on a timeline never defined. All we have is Elliot Wave to help.

The main technical read today is the long-term Elliot Wave. The pattern consists of a 1 down in August of 2021, a 2 up in August of 2022, and now a wave 3 down which has not been defined yet. I’m confirming that completion is somewhere between here and May 15th. for 2 reasons. First is that we tend to make our new lows somewhere around expiration and the fact that the next expiration is a delivered price. We need to put an asterisk next to Wave 3 as it might be artificial. I’m not recommending buying July because Wave 3 is in, just defining a bottom.

There have been two very successful strategies for the first 4 months of the year. The first is straight out of futures 101, the basis trade. No one wanted to waste their time making $20 on a basis trade. Today those same naysayers are hoping they don’t lose $20. If you did the basis in LBK rolled it to LBRK and then to July you picked up $50 of basis. Really…. The other success has been the strategy that is older than dirt. Counter those with wood in a falling market and counter them aggressively. There is a rhythm to this market. We have been in a lower high and lower lows cycle that could be shifting to flat highs and higher lows. That brings the “Don’t be the second guy into the Pool” syndrome back into play again.

The one way a market telegraphs a change is through the news. This industry has gone from reports of shutdowns to extensions of those shutdowns. Today’s news is about how many guys showed up late for work. The Beaks of the world are telling us that more of the same is in front of us.

Lumber Futures Volume & Open Interest

https://www.cmegroup.com/markets/agriculture/lumber-and-softs/lumber.volume.html?itm_source=cmegroup&itm_medium=friendly&itm_campaign=lbr&redirect=/lbr

CFTC Commitments of Traders Long Report

https://www.cftc.gov/dea/futures/other_lf.htm

Lumber & Wood Pulp Options

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

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

28 Apr 2023
Agriculture, CME, Corn, Dow Jones, Grain, Market Commentary, Market Updates, Other News, Podcast, Research, Risk Management, Soybeans, Weather, Weekly Prices rcmagserv 0 comment

AG MARKET UPDATE: APRIL 21 – 28

The losing streak continued for corn this week after another week with no bullish news keeps hitting prices. With Brazil’s prices as low as they are due to record production, China cancelled a 233,000-tonne corn purchase this week. This is not a new strategy by China as they cancel purchases from the US once they know Brazil can meet their demand for cheaper. This could lead the USDA to lower export expectations for the year and we would not be surprised to see more cancelations. While all the news has been bad of late and the chart looks ugly, the bounce off the lows to end the week was helpful. The weather remains cool and wet across much of the corn belt for the next week but should warm up and dry out after that to allow for quick planting come mid May. Corn planting progress was as expected this week at 14% complete.

Via Barchart

Soybeans had had seven consecutive days lower before their bounce on Friday to end the week. Brazilian markets had imploded but now appear to be stabilized, but still priced far below the US price. Like corn, there have been some cancelations and slow down in purchases, which will likely make the USDA lower export predictions for beans as well. Bean planting was seen 9% complete to start the week which is slightly ahead of expectations. Corn and Beans are both battling lower prices in Brazil and a good start to planting while they wait on news to change the trade direction.

Via Barchart

Equity Markets

The equity markets got a bounce this week after several mega cap tech companies delivered strong earnings report. Next week’s reports don’t have as many big names but it does have Apple which may be the most important stock. GDP growth cooled for the 3rd straight quarter growing slightly over 1%, the drop of 1%+ quarter over quarter the last three will make Q2 growth important to see if that trend continues and we slip into negative growth, also known as recession territory.

Via Barchart

Drought Monitor

The eastern corn belt has gotten plenty of moisture, some too much, so far this winter with the western corn belt dry.

Podcast

With every new year, there are new opportunities, and there’s no better time to dive deeply into the stock market and tax-saving strategies for 2023 than now. In our latest episode of the Hedged Edge, we’re joined by Tim Webb, Chief Investment Officer and Managing Partner from our sister company, RCM Wealth Advisors. Tim is no stranger to advising institutions and agribusinesses where he has been implementing no-nonsense financial planning strategies and market investment disciplines to help Clients build and maintain wealth and reach financial goals since

Inside this jam-packed session, we’re taking a break from commodities, and talking about the world of equities, interest rates, tax savings, and business planning strategies. Plus, Jeff and Tim delve into a variety of topics like:

  • The current state of the markets within the wealth management industry
  • Is there a beacon of hope, or is it all doom and gloom for the markets?
  • Other strategies to think about outside of the stock market and so much more!

 

Via Barchart.com

 

Contact an Ag Specialist Today

Whether you’re a producer, end-user, commercial operator, RCM AG Services helps protect revenues and control costs through its suite of hedging tools and network of buyers/sellers — Contact Ag Specialist Brady Lawrence today at 312-858-4049 or [email protected].

24 Apr 2023
Agriculture, CME, Lumber, Market Commentary, Market Updates, Research, Risk Management, Weekly Prices rcmagserv 0 comment

LEONARD LUMBER REPORT: THERE COMES A TIME WHEN BEING PROACTIVE AND OR INACTIVE BECOME THE SAME

There comes a time when being proactive and or inactive become the same. That is where this industry is today. A better way to put it is the best offense is a good defense. The daily data bombs send mixed messages. These are messages interpreted differently over the generational chasm. If you are over 40 you are looking for the next shoe to drop in housing. If you are under 40 you are looking for the next opportunity. Neither is right or wrong, just educated differently. Let’s look at the issues.

The first focal point that always amazes me is the difference in cycles between multifamily and single-family. In the last 10 years, single-family construction has had 3 downturns while multifamily has yet to see one. Ask a trader in the multifamily space how things are going, and he will say if this is what a recession looks like then he’ll take it. Ask a single-family trader the same question and he will be leaning more on the negative side. The confusing part is the fact that DR Horton had a great quarter, and the home builder stock index is nearing its all-time highs. Things are not that bad so why can’t wood products pull themselves out of this big hole they dug?

Reports are of almost a record number of multifamily projects going on today. That is why those in that space are enjoying the ride. The confusion is in the single-family sector. Data show that the marketplace is tremendously underbuilt. I think the market is telling us differently. Existing home sales are off sharply. The reason is relatively easy to define. The answer is that a few want to increase their mortgage rate by 200%. This normal supply of homes on the market will not be available for some time. Builders will have to step up to supply the shortfall. Starts are hovering above 2019. That was a year that saw an extreme lack of price volatility. That isn’t my call here. The other focal point is that this market no longer can “lack” volatility. It can remain range bound in the new post covid world but with much wider swings. I think what this market is telling us is that there is still more bottoming work to come.

This coming week I expect to see wide swings caused by position evening in May. There aren’t many who want to carry a position into a no-limit May. That covering will add more pressure down than up. What is marketable is the July contract. It is a few dollars away from being a good hedge buy and also a few dollars away from a good basis trade. The basis traders are cleaning up. July is in the zone.

Lumber Futures Volume & Open Interest

https://www.cmegroup.com/markets/agriculture/lumber-and-softs/lumber.volume.html?itm_source=cmegroup&itm_medium=friendly&itm_campaign=lbr&redirect=/lbr

CFTC Commitments of Traders Long Report

https://www.cftc.gov/dea/futures/other_lf.htm

Lumber & Wood Pulp Options

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

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 Apr 2023
Agriculture, Corn, Cotton, Dow Jones, Grain, Market Commentary, Market Updates, Other News, Research, Risk Management, Soybeans, Weather, Weekly Prices rcmagserv 0 comment

AG MARKET UPDATE: APRIL 12 – 21

Corn had a rough week, especially to end the week falling over 20 cents after a small rally. Poor weekly exports, fund selling and the potential for rain in the driest parts of the US pushed prices lower this week. Corn planting was 8% complete to start the week, slightly behind where it was expected to be but in fine shape for this point of the year. Weather will remain a problem from the Midwest with cold temps continuing. Any news out of Russia and Ukraine will continue to move markets.

Via Barchart

Soybeans had a similar week to corn with weakness into the weekend. Brazilian soybeans continue to be at a big discount to Chicago, $2.00, with their record production and storage shortage. China is not as active a buyer as expected in Brazil but less demand from them will lead to more from other places taking away from US exports. The soybean balance sheet has been tight so that would not be a bad thing for global supply but would not be friendly to getting back to $14 beans.

Via Barchart

Cotton was limit down at one point during Thursday’s trade, before bouncing slightly for its worst day in over a month. The export report was less than impressive this week at a 15-week low. The chart broke through its support level during the down trade, changing how the charts look. The chance of rain in west Texas was one of the drivers as it only takes a few well-timed rains to make the markets nervous. While it is still only a chance of rain all eyes will be on if that rainfall comes to fruition. Any widespread rain in west Texas would lead to another limit move lower.

Via Barchart

Equity Markets

The equity markets bled a little this week as the market looks for direction from earnings. The S&P 500 was unable to break through the 4,200 level, coming close before moving lower for the week. Earnings next week for some major companies (Microsoft, Google, Meta, and Amazon) will give us a lot of information that will determine the market’s next move.

Via Barchart

Drought Monitor

The eastern corn belt has gotten plenty of moisture, some too much, so far this winter with the western corn belt dry.

Podcast

With every new year, there are new opportunities, and there’s no better time to dive deeply into the stock market and tax-saving strategies for 2023 than now. In our latest episode of the Hedged Edge, we’re joined by Tim Webb, Chief Investment Officer and Managing Partner from our sister company, RCM Wealth Advisors. Tim is no stranger to advising institutions and agribusinesses where he has been implementing no-nonsense financial planning strategies and market investment disciplines to help Clients build and maintain wealth and reach financial goals since

Inside this jam-packed session, we’re taking a break from commodities, and talking about the world of equities, interest rates, tax savings, and business planning strategies. Plus, Jeff and Tim delve into a variety of topics like:

  • The current state of the markets within the wealth management industry
  • Is there a beacon of hope, or is it all doom and gloom for the markets?
  • Other strategies to think about outside of the stock market and so much more!

 

Via Barchart.com

 

Contact an Ag Specialist Today

Whether you’re a producer, end-user, commercial operator, RCM AG Services helps protect revenues and control costs through its suite of hedging tools and network of buyers/sellers — Contact Ag Specialist Brady Lawrence today at 312-858-4049 or [email protected].

 

Disclaimer

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