Category: Research

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

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

312-761-2636

16 Jan 2024

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

USDA Final 2023 Yield and Stocks Overview

USDA Final 2023 Yield and Stocks

Overview

January 12, 2024

First Glance:

Corn

USDA Yield: 177.3 BPA (174.9 Estimate – 174.9 Nov)

Total Crop: 15.342 BBU (15.226 Estimate – 15.234 Nov)

Harvested Area: 86.513 MA (87.036 Estimate – 87.096 Nov)

23/24 US Ending Stocks: 2.162 BBU (2.111 Estimate – 2.131 Nov)

23/24 World Stocks: 325.2 MMT (312.9 Estimate – 315.2 Nov)

Brazil/ARG Crop: 182 MMT (180 Estimate – 184 Nov)

Beans

USDA Yield: 50.6 BPA (49.9 Estimate – 49.9 Nov)

Total Crop: 4.165 BBU (4.134 Estimate – 4.129 Nov)

Harvested Area: 82.356 (82.757 Estimate – 82.791 Nov)

23/24 US Ending Stocks: 280 MBU (245 Estimate – 245 Nov)

23/24 World Stocks: 114.6 MMT (111.9 Estimate – 114.2 Nov)

Brazil/ARG Crop: 212.0 MMT (204.9 Estimate – 209 Nov)

Wheat

23/24 US Ending Stocks: 648 MBU (659 Estimate – 659 Nov)

Winter Wheat Seedings: 34.425 MA (35.786 Estimate – 36.699 LY)

23/24 World Stocks: 260.0 MMT (258.3 Estimate – 258.2 Nov)

The USDA found larger than expected totals in almost every category, increasing corn yield 2.4 bpa over the November estimate to 177.3 bpa. This is both a record yield and record total crop of 15.342 billion bushels. Bean yield was also raised .7 bpa to 50.6 and a total crop of 4.165 bbu. Both corn and bean harvested acres were slightly trimmed, the only bullish news in the report.

Higher yields were pushed through to higher ending stocks with US corn carryover raised to 2.162 bbu (+31 mbu from Nov) and 803 mbu above last year’s stocks. Beans had a similar fate with stocks set at 280 mbu, up 35 mbu from November but only 16 mbu above last year. Wheat stocks were slightly smaller than expected at 648 mbu but still up 78 mbu from 22/23.

Despite the rough start to Brazil’s growing season in their northern regions, Brazil’s bean and corn crops were not cut as much as expected. The weather has improved hurting the bullish narrative of a bad year for Brazil but the expanded acreage will also help offset any damage done earlier in the year.

There has not been any good news lately and prices reflect that. In June there was concern over the US crop with corn a $6.25 and beans at $14, now today has made new contract and multi-year lows in corn, soybeans and wheat.

08 Jan 2024

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

Leonard Lumber Report: The futures trade last week looked flat

Recap:

On the surface, the futures trade last week looked flat. The net change for the week was up $2. In fact, the last seven sessions have seen closes within a $4 range. A digestion phase after the run-up? Underneath the surface, things are changing. We have shifted the fund shorts over to the industry. Wood is now hedged. We have also shifted some of the industry longs over to new fund longs. The makeup of the futures market today is friendly. It is not a signal to buy, but it could generate higher prices on its own.

The futures market is closed on Monday the 15th, so January expires on Friday. The current open interest is normal for five sessions to go. With the growing industry’s short number, we may see some upward pressure again. We could see a shift to expirations now having an upward bias.

As far as the cash market goes, it remains fluid. That has been the case for months now. It has the feel of the covid slowdown that never occurred. This time, we spent a year expecting a recession and higher unemployment. What we found was steady business.

With mills coming back online and wholesalers owning wood, it could be sloppy for a while. The funds are the key.

This recent sideways trade is nearing an end…….

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

18 Dec 2023

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

LEONARD LUMBER REPORT: THE VOLKER RALLY

Happy Holidays to all and your families.

Recap:

The Volker rally. The markets reacted very positively to Powell’s comments on lower rates sooner. The comments were in stark contrast to the previous comments about higher for longer. The lumber market was no different, squeezing out gains for the week. So, while there are positives on the horizon, the facts are the futures market has been flat for over 75 weeks. (see chart below) That is a long time without a trend. The housing market has a like dynamic. if you look at today’s active listings, new listings, and closed sales; they are very close to 2019 levels. We are not coming out of COVID weaker or stronger, just flat. So, what has changed? The answer is two main drivers. The first has been the significant loss of production in Canada. That will continue with little chance of growing that back. The other is rates. The homes today are not affordable to many buyers. Higher rates also contribute to the pause in move-ups. The buying dynamic is flat.

Those two factors, supply and affordability keep the market flat. Either one would cause the market to trend but remain in conflict. One thing is sure: the tighter you control inventories next year, the more you’ll pay up.

Technical:

The Bollinger bands on a weekly chart are as tight as I have seen them. A spike through one of the bands is imminent. I expect a higher spike since the futures market sits near the top band. That said, if the market continues its drag sideways, look for an uneventful winter season. The market tends to hint towards a direction as we go into the Christmas holidays.

Note:

The open interest increase is industry-based this time.

Daily Bulletin:

The Commitment of Traders:

About the Leonard Report:

Brian Leonard

312-761-2636

18 Dec 2023

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

AG MARKET UPDATE: DECEMBER 1 – 15

Corn has been rage bound for the last two weeks with no catalysts in the market to move it much either direction. The weather in South America has improved slightly in areas that got off to a tough start but doesn’t seem to have made much a difference on the market. It is still a wait and see approach for the South American crop, nobody wants to jump to conclusions. Th Biden administration is supporting tax credits for ethanol-based sustainable aviation fuel, which would result in a major new demand source down the road. The markets will likely be muted in both volume and price movement as we head into the end of the year.

Soybeans have bounced around the last couple of weeks with a steady stream of exports and the Argentinian peso devaluation. The latest crush report from NOPA recorded a record for the month and about 3 million bushels more than pre-report estimates. The demand for beans has been there and seems to be significant but with so much time still to go before South America’s crop is known. Estimates keep shrinking the Bazil crop, which the market shrugs off, making it a hard market to be overly bullish in when good news is not met with good market reactions.

Equity Markets

The equity markets continued their run higher this week as the Fed kept rates steady and seem likely to begin cuts in 2024. The rest of the market has begun participating as the Magnificent 7 stocks had done most of the heavy lifting to this point. Analysts are still warry of a soft landing recession but for now the markets are moving higher in the short term.

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

Other News

The Fed held rates steady this week with markets expecting them to start cutting in the first half of 2024.
Argentina devalued the peso by more than 50% to try and help the nation’s struggling economy.

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].

11 Dec 2023

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

LEONARD LUMBER REPORT: “THE SEASON OF CONTENTMENT”

Recap:

“The season of contentment.” Most have closed up shop for the rest of the year. There is minimal volume in either the futures or cash. The futures trade is a liquidation of all sides. The outlook is also fuzzy. As the daily traders look for a crack at the mills the long-term traders wonder if that was enough of a buy. In 2023, there have been three good buy rounds, each at a lower cash price and futures bounce. Does the trend continue? I will say this: most of the industry does not want lower cash prices. That tells me it could be more of the same, dragging the market lower until the next round.

It’s been over a year of complacency, confusion, and a content market. The data shows a loss of 20% from the retail sector side versus a drop in supply of roughly 20%. You can be more balanced. Historically, this industry doesn’t come out of that phase quietly. With less production, less Euro, and a construction needle that doesn’t move, the volatility will be on the upside. The futures market is quietly indicating that with the support we are seeing. It’s going to take more time.

Technical:

The lower objectives of 518.50 and 510.50 are still in play. These are corrective objectives. If you look at the wedge pattern that formed in 2023, the bands are 568.80 and 495.30. Today, lower mill prices will not stimulate buying. With an RSI of 49.40%, those bands look a mile away.

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

04 Dec 2023

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

LEONARD LUMBER REPORT: The lumber market today has three defined pillars

Recap:

The lumber market today has three defined pillars. The first is supply and demand. The other is rates, and then there is inventory management attitudes. All are currently indicating more of the same for 2024. What could be different is inventory management.

This past month we saw a much more robust buy round. There was a genuine attitude that buying cash at $370 or $375 held a low risk. We saw that again with the lack of hedging after a $50 run in futures. Most believed that inventory management was sufficient. Distribution and wholesalers want to hold more product. Contracts and VMI limit the availability of wood at any given time. The fact that the industry was able to have a good buy round indicates a shift at the mills to hold more wood. That is good for prices in a flat market. A Weyerhaeuser guy (Jay) always said that it is bullish when the mills control the wood. When they ship it to others it is bearish. Let’s see if that is the case next year.

Last week’s negative trade reflected the lack of hedging by the industry. The end-of-the-year timeframe is rough for those holding inventories. Another sloppy week is expected. The massive liquidation in the futures market takes it out of the game to help at this point.

Technical:

The futures market retraced 38% of the move last week. The 50% mark is 518.00 and the 61% is 509.70. All are in reach. What is a little more bullish is the fact that the lower Bollinger band sits at 520.50. It would take time and work to get that band to turn down. I am looking for a lower trade in January, but the timing may be closer to expiration.

Note: fund managers point to a possible shift in the fund makeup in lumber from short to long. Rates will control that conversation.

Note: the sleeper in this market is the monthly inventory of new homes available. This last number of 7.8 months is the highest we have seen in three years.

Daily Bulletin:

The Commitment of Traders:

About the Leonard Report:

Brian Leonard

312-761-2636

01 Dec 2023

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

AG MARKET UPDATE: NOVEMBER 9 – DECEMBER 1

Corn has had a rough month as it continues its sideways to lower grind after briefly touching $5.20 in October for the March contract. While there has not been any major market news to direct the market a strong weekly export report this week was welcome to the market that had been bleeding lower. The last few days saw a nice reversal, seeing a 14-cent rally off this week’s lows. Basis has taken a nosedive in many areas of the country hinting that there may be more corn out there than initially expected. With harvest all but wrapped up for most of the country it will be worth keeping an eye on whether farmers store the corn and hope for better basis or get it off their books to pay back operating loans at the highest rates we have seen in years. Brazil’s weather remains about the same with beneficial rains expected over the next couple of weeks in the drier areas north and the south remains wet.

Soybeans have fallen over the last couple of weeks but is in a sideways trade in the big picture. Exports were not as strong as corn but better than expected. Brazil’s weather is the main focus for beans right now as the north is drier than normal and the south is still wet. The bean demand from China is welcome, as always, but sustained demand and not just demand while Brazil is having logistic issues will be important. The amount of rain in Brazil next week will be the main market mover until the report on Friday if we get some surprises.

Equity Markets

The equity markets had a great November seeing strong gains across the board as the Fed speak has turned dovish and inflation continues to cool. The markets are pricing in the Fed beginning to cut rates in the first half of 2024 while the general consensus by large companies and funds is that a mild recession is still in the cards next year. The big names had a good month and the 10-year note fell, but it was encouraging to see some laggards join the party. The end of the year always involves some shuffling, but economic data will continue to move the markets now that earnings are past.

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

Other News

Charlie Munger passed away this week at the age of 99. A longtime investor and one of the brightest minds for financial markets the Berkshire Hathaway investor left his mark and knowledge on the financial markets.
The next WASDE Report is Friday, December 8 at 12 ET
Brazil is set to join OPEC+. Brazil produces about 3.7 million barrels a day which makes it a top 10 oil producing country.
The ceasefire between Israel and Hamas ended as hostage swap negotiations stalled. The unrest in the Middle East will continue to dominate headlines.

Via Barchart.com

Contact an Ag Specialist Today

27 Nov 2023

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

Leonard Lumber Update: I Will Continue to focus on the technical side of this market

Recap:

I will continue to focus on the technical side of this market. There are two takeaways from the weekly chart below.

The first read is that when a market goes through an extreme volatility event, there tends to be a corrective phase. You can see just how flat the market has become. In 2021 and 2022, the market experienced record prices and volatility. In 2023, the market has been flat. I wonder if the excess volatility has been sufficiently drained yet. The chart shows that futures can run another $50 higher and still be in the flat range. That brings me to read number two. This is a flat market working along its bottom. Rarely does a market break out down from this type of trade. The breakout is usually a retracement of the last move. So, this market has some room to run higher. I made a case in March, more than once, that the potential distance up is far greater than down. That math has stayed the same, but the timeline is in doubt.

The fundamentals are getting better as time goes on. The market is getting used to higher rates and higher home prices. A slight downtick in either stimulates more activity. I expect a continued start and lag with the buyers for another year, but the good news is the actual decline was marginal at best. My other soapbox rant continues to be the excess capital in the system. Massive capital injections are still coming into the market. There is also enormous capital sitting on the sidelines. And finally, 2024 is an election year. Enough said there.

Last week’s futures trade was a good read of the market. The recent Sept-Oct trend to new lows was more a sign of frustration than weakness. The bounce off those lows is a rebalancing, but last week’s positive trade showed underlying strength. The breakthrough of the 100-day average and the 200-day average indicated new strength. Two other keys are that Elliot Wave is calling the excess volatility gone. This is not a bottom call. It is a warning not to discount the possibility of some large spikes higher. If true, the other key factor could be a market exiting the focus of the 2020 to 2022 data and reverting to pre-2020 data and fundamentals. As we remember, that was an underbuilt sector with lessening production.

This week’s focus remains on the algo buying versus the premium. This is a very disciplined premium/discount trading market. It will have to meet somewhere in the middle. A good indicator of potential January weakness will be if the spread goes further. The upcoming roll might be enough to bring January closer to the cash market.

Daily Bulletin:

The Commitment of Traders:

About the Leonard Report:

Brian Leonard