LEONARD LUMBER REPORT: 2026 “The Great Reset?”
2026 “The Great Reset?”
The Lumber Industry:
An industry where being almost perfectly correct loses money.
An industry where a strong risk management plan leads you into hot water with the bosses.
An industry where a better rate of return comes from the derivative products offered, but is mostly ignored and sometimes vilified.
An industry where 80% of planning and execution is calculated for only the next few days, not quarters or years.
The lumber industry is not designed as a growth model. There will never be maturing companies. There will never be “cash cows.” At every turn, you must reinvent. That isn’t a complete overhaul of the company, but more of a “what did we do last time under these circumstances?” Today, the only way you grow is through acquisition. You don’t see internal growth. A commodity-based industry doesn’t allow it. A commodity-based industry offers long, slow periods of trade followed by the short-lived, but very profitable periods. The job is to balance them out. If you acquire when the profits are good, your losses multiply when times are bad. It turns into a wash. Now, as always, I am simplifying the economics. The point is that a commodity-driven industry needs a much stronger process than, say, the fashion industry. There needs to be a plan in place that is derivative-driven. This is a risk-management industry, and that is where the focus should be. If you are a fan of fashion and want the next hot item, well, here it is. All you have to do is look at the spreads between the items. The last great one was buying pine vs. spruce. The data is there; the execution isn’t.
I don’t want to date this, but after the 2008 meltdown, the housing industry never fully recovered. It is a commodity and offered some quick profit opportunities, but never stabilized. Quick profits aren’t stability. 2019 was a good indication that the market had nowhere to go, then Covid turned us into Bitcoin. Now we are back to pre-COVID. From 2017 to 2019, starts were hovering around 1.2. Today they are 1.3 with a lag in data. The 1.3 area puts us back to flat. 2026 plans can’t be based on the 2021 to 2023 period. It isn’t the market. Today this market has an X amount of dollars available while the industry continues to expand. It is a WWI battle of attrition in the trenches. 2026 will bring an environment of less supply. It should help prices but will have little effect on demand. A slow trade at a higher price is the real risk.
The lumber industry has transitioned from a decade of underbuilding and a major labor crisis to one now marked by unaffordable home prices and high mortgage rates. That cured the underbuilt and labor issues. Economists claim that an affordability issue is by far the biggest threat to industry today. Housing has drifted in and out of affordability problems in the past. This is the first time the affordability issue has arisen due to a spike in home prices. In the past, it was related to employment and/or the economy. The good news is that the math to owning a home will eventually come around. It just takes time. A momentum shift in buyers’ attitudes is based on years, not months. The bad news is, “Affordability is the blunt force that keeps knocking Millennial buyers back. Millennials are confronting a housing market defined by high prices, elevated borrowing costs, and stagnant wages, and many are quietly recalibrating their expectations about ever owning a home. The dream has not disappeared, but it is colliding with a reality that makes giving up feel rational rather than defeatist.” That is from an article written by Elias Broderick. I had to quote her because I obviously didn’t write it….. I think we spend too much time analyzing the data when it is that simple. The new home buyer has been priced out of the market again. Producers aren’t closing mills because of overcapacity. This is a real industry-changing event.
What changes in 2026? It is the difficulty of the timing of the buy. For three years, the buyers have been able to pay the low almost every time. Breaking even or losing money on a job was impossible. With higher prices and less supply that freebee will be gone. The buyer’s patterns will cause spikes. Bad timing will equal overpaying. The distribution side had a few tough years. That won’t change in 2026, but they now have the buy-side traders to drink with. Derivatives are a must. Plan the plan and go with it.
Best advice for 2026. Talk to the old guy in the back of the trading floor room who has lived through this type of market a few times…. The reset is back to the 80’s and 90’s. Everyone made money, but it took work.
Daily Bulletin:
https://www.cmegroup.com/daily_bulletin/current/Section23_Lumber_Options.pdf
Southern Yellow Pine:
https://www.cmegroup.com/markets/agriculture/lumber-and-softs/southern-yellow-pine.volume.html
The Commitment of Traders:
https://www.cftc.gov/dea/futures/other_lf.htm
Brian Leonard
bleonard@rcmam.com
312-761-263