LEONARD LUMBER REPORT: It was another miserable week in both futures and cash

Recap:

It was another miserable week in both futures and cash. The rallying cry for the fourth quarter is, “If we can only break even.” Hell of a way to run a business.

The proactive stance this year was to have inventory when things spiked. That strategy drastically cut into margins. The fact that product never got cheap enough to help navigate the trade is likely to continue through the rest of the year.

That same scenario does not appear on the futures side. Futures have fallen sharply and are starting to look at the 2025 lows as an objective. My guess is that we don’t get there, but it needs to be said for affect.

There really is no reason to spend much time on the demand equation when the 30-year mortgage continues to make new highs. Coming into the year, there was an argument that the affordability issue could ease with a 5% or 5.5% mortgage rate. That argument is gone now. The reality is that even builder buy-downs are doing little to stimulate interest.

There is a real disconnect. In 2025, we averaged 909,000 single-family starts. In August, single-family starts were running at a 918,000 annualized pace. The market is stable, and that takeaway is keeping cash prices higher than most want, but still lower than the mills can stand.

Futures, on the other hand, perceive more of the same. That kills any upward momentum. Thus the disconnect: cash prices are higher than expected while futures prices are lower than anyone wants.

Summary:

Look for the futures market to offer little, but what it does offer should be more upside movement than downside. Today, the 515 low and the 2025 low of 496 are just rounding errors in the macro picture.

We are in the camp that the producer side can exist under these conditions—and by conditions, I’m talking about another three quarters of losing money. The loans will run out, and reality will force many hands. That tension alone should slow any sharp selloff in futures.

At this point, there aren’t any basis or forward opportunities, only risk management. If you own wood, hedge a percentage on any spike. It doesn’t matter if you’re hedging a loss. You are buying time.

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