Category: Market Commentary

01 May 2023

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

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

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

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].

 

12 Apr 2023

AG MARKET UPDATE: MARCH 31 – APRIL 12

Corn has been down over the last week and half after the prospective plantings report and this week’s supply and demand report. The theme has been a lack of market moving news with little surprises in the reports. This week’s report was slightly higher than pre-report estimates for US and world ending stocks, but slightly below estimates for Argentina and Brazil’s production. The market did not react much either way to the report as the market continued to trade in its current range. Cash basis is rising and planting is rolling this week, expect this range bound trade to continue between the March 22nd low of $5.47 ½ and resistance at the 20 DMA at $5.61 until there is a catalyst to move it.

Via Barchart

Soybeans had a similar week to corn as they traded lower off the post planting report bump. The demand for beans has picked up recently but US and world stocks came out higher than anticipated. Basis continues to improve for beans as well with South Americas crop continuing to get smaller. We continue to learn how bad the Argentine crop is with potential to be the smallest crop in the last 20 years. The recent sideways trend looks to continue for old crop as stocks remain tight with falling Brazilian prices keeping the market from moving higher.

Via Barchart

Equity Markets

The DJIA moved higher this week while the S&P and Nasdaq sank as CPI came in .1% better than expected with year over year inflation sitting at 5%, core CPI was at 5.6%. It is still expected that the Fed will raise another 25 basis points next month, but the markets believe that will be the last rate hike this year. Q1 earnings kick off this week with several big banks, the guidance and response to the recent banking crisis will be the focus.

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].

 

10 Apr 2023

LEONARD LUMBER REPORT: CROSSWINDS VS. HEADWINDS

Crosswinds verse headwinds. I am starting to wonder if the story is of how we all walked 3 miles to school uphill both ways. We are getting to the point where we may just have to take the charts and data from 2020 to 2023 and put them off to the side. While it is reflective historically it may not be the true focal point today. If we push that information to the side, we can focus on today’s factors. All of which we have experienced in earlier cycles.

Positives:

  • The housing market is underbuilt.
  • There has been a generational shift to owning a home.
  • Labor is tight.
  • Real log issues.
  • Great overall employment.

Negatives:

  • The economic question.
  • Highest rates in years.
  • Euro wood. It is a race to the bottom in the wholesale community.
  • The home mortgage business sits with the community bank. They are becoming more restrictive.

 

The negative factors will smooth themselves out more quickly than the positives. Rates and the Euro wood will be less an issue by the third quarter. The economy on the other hand will take much longer to be defined and then to recover. That will be a hinderance to our market. On the positive side, if you build less houses you take care of the labor issue and keep the marketplace thin. That is the direction the home builders have headed towards.

The question coming into 2023 remains the question today. What should the price of a 2×4 be with a 1.2 or 1.1 starts number? That cannot be answered until the Euro problem has cleared up. What I will say is this market has built a box around it. The first thought coming into the year was a muted 2023 trade. That shifted to a higher trade because of business. Now I am an afraid that it is boxed in. What I mean is that momentum will be created only to get hit from the existing factors. This will show up when inventories are light in a falling market and overbuying in a rising market. That is not a sideways trade. It is a trade that finds momentum and then stops abruptly. Opportunity is only available in the middle and lost when the push up or down is in place. It will break out and trade at a higher level eventually, but not anytime soon. For today, real inventories will be a value while the churn and burn crowd are in the liability zone. There is absolutely no reason not to hedge inventories when in this box and futures are a premium.

 

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

03 Apr 2023

LEONARD LUMBER REPORT: ALL MARKETS ARE CYCLICAL

All markets are cyclical, and most will return to their historical value area.  In lumber the lens to look through is a long-term one. One that can bypass the noise and create a sharper picture of the market. If you look at 50 years of lumber futures data, you will come up with a mean close to $330. With a $330 mean the closes of January and March so far this year have been normal. Add to that the fact that May is also hellbent on getting there. This is not an abnormal trade. Trading in the $300’s for months and getting about 6% margins is normal. So, what is different this time? The current cycle. Cycles, like waves, are not perfect. The typical long-term cycle runs from 13 to 18 months. Most planted commodities run in 6-to-12-month cycles tied to the growing season. Lumber has a longer cycle because of the timeline of the project. We a currently in our 13th month of a down cycle. The difference is that this cycle started way up at $1477.40. Just a small percentage correction puts the market substantially higher. A $200 rally in a 6% margin environment would be devastating. Then again so would 5 more months of this current cycle.

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

31 Mar 2023

AG MARKET UPDATE: MARCH 24 – 31 USDA REPORT

The USDA prospective plantings and quarterly stocks reports were released today, March 31st, with a mix of news. The report pegged this year’s crop at 92 million acres while the trade estimates were about 91 million. This led to a mixed trade as pre-report strength faded with futures ending mixed for the day. Current US weather conditions and the expectation of a slow start to planting could lead to this number falling, it is unlikely we will see a number higher than this the rest of the year, similar to last year. Corn stocks were lower than estimates by 69 million bushels and over 350 million bushels lower than last year.

Via Barchart

Soybeans received a boost from the report as with lower acreage and stocks than expected. The planted acreage number came in at 87.5 million acres, lower than the 88.24 million trade estimate. The quarterly stocks were 247 million bushels lower than a year ago, continuing to show the tightness on the balance sheet. South America still has some uncertainty around their crop, but we should get a better idea in the coming weeks. Both numbers from today’s report are seen as bullish for the market.

Via Barchart

Wheat saw some bearish numbers with higher planted acreage and higher stocks than pre-report estimates. 49.9 million acres, 1 million over estimates, and 946 million bushels in stocks, 934 mbu estimate, were both bearish while the price did not overreact. Wheat will follow corn’s lead for now with many questions still surrounding the conditions in the southern plains and the Black Sea.

Via Barchart

Cotton’s bounce this week back to over 83 cents was very welcome after a couple weeks of lower trade. The market did not have a major reaction to the report with planted acreage estimates coming in at 11.3 million acres vs the 11.2 million trade estimate. Speculative short covering helped cotton rally this week while spreads were also a lower than normal percent of the trade. The problem continues to remain of recession fears and how that affects companies purchases trying to weigh supply and demand.

Via Barchart

Equity Markets

Equities had another good week as investors seem to believe the Fed will relax with rate hikes and the banking fears have calmed down along with an ease in inflation pressure as we slowly move lower. Tech companies would be the beneficiary of lowering rates by the end of the year but the Fed’s recent comments would indicate they have no intention to lower rates before the end of the year. There was strength in most sectors this week.

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 needing more heading into the spring.

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 Mar 2023

AG MAKET UPDATE: MARCH 10 – 24

Corn leveled out over the past couple weeks after its move lower into the mid $5 range. Good exports and continued problems in Argentina have been able to keep corn from moving any further lower while funds continue to offload long positions. Corn will continue to trade here until the prospective plantings and quarterly stocks report on the 31st that will play a role in its next move. There could be surprise news that gives it a bump higher or lower but for overall directional change something surprising would need to be in the report. How the USDA adjusts for further losses in Argentina and unpredictable world demand will be two questions to look for in the stocks report.

Via Barchart

Soybeans finally caved and followed corn and wheat lower after putting up a good fight. Brazil’s record bean harvest is under way and with insufficient storage they have to get rid of them driving prices lower to keep US beans even remotely competitive. Like corn the funds are legging out of their long held long positions making the moves sudden and large. Beans saw a nice bounce to end the week making up for Thursdays losses. One would expect the markets to calm down a little next week as the report looms large for any further downward pressure or welcome support.

Via Barchart

Equity Markets

The markets continue to be confused as they look for guidance that does not appear to be coming. Sec. Yellen this week flipped back and forth on whether or not they would increase deposit insurance for a period of time to help calm fears while the Fed went ahead with its 25 point rate hike. The banking issues make analysts think the Fed could cut rates before the end of the year helping tech stocks but ultimately the Fed likely wont cut rates until we are in a recession.

Via Barchart

Drought Monitor

The eastern corn belt has gotten plenty of moisture so far this winter with the western corn belt needing more heading into the spring.

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].

 

20 Mar 2023

LEONARD LUMBER REPORT: THE STRUGGLE BETWEEN WHAT THE LUMBER MARKET WAS AND WHAT IT IS

Recap:

As I write this, I am struggling between what the lumber market was and what it is. It was a low margin high volume structure for a thousand years. In recent years it has turned into a high margin low volume trade. You have to ask which it is today. There have been structural changes to the industry. There was a big consolidation in distribution. A loss of available cut and contraction in production. And most importantly was the change in volatility. Three months into 2023 I’m wondering if we have integrated those changes into the marketplace or need more time. If it has been integrated into the market prices will be range bound. If it has yet to be integrated, then there are higher highs coming.

Markets are efficient when value is defined. A farmer will sell futures if the price is a few pennies over the elevator. It’s called the basis. Over the past few weeks, I have noticed the traders in this industry are reluctant to do a basis trade that will net out a $40 profit after all the expenses. I am not judging. I am just stating one of many issues we have with pricing. The buy side does not trade a $40 gain, nor does the sell side trade a $40 less of a loss. The nature of the trade today will cause more volatility and that volatility will remain until it’s deemed unproductive.

Another aspect of the volatility equation is the fear and greed quotient. Today we are going to redefine it as the fear and fear quotient. The industry is waiting for the other shoe to drop in housing, and it will stay hand to mouth until defined. Last week’s 1.45 starts number was great. I was looking for a 1.1 to 1.2 number coming into spring. The Fed told us that housing would be pushed into a recession. We haven’t seen it. We should all be dancing the tarantella. (Happy St. Joseph’s Day) Instead the big number is all the more reason to practice restraint. Maybe there is a little bit of greed out there too. Why give it back? For whatever the reason, the lumber market will remain underbought.

Technical:

The chart pattern has been flat for almost a year now. It is grinding along the bottom with no end in sight. The market manages a rally every 8 weeks but doesn’t change the pattern. Today the market is sitting on the weekly resistance line from back at the highs of 2022. It’s at 455.00. A close above that area will bring in some buying as signals are set off with the short funds. There are three parts to a cycle today. First is fund short covering followed by the industry buying cash and finished off with spec futures buying. To sum it up, the technicals indicate a market that is $100 away from mediocracy and $200 away from a bull cycle.

 

NEW CONTRACT:

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