LEONARD LUMBER REPORT: Last week’s trade activity provided a reliable indication of the broader market conditions
Last week’s trade activity provided a reliable indication of the broader market conditions. The strength of the housing reports, including new homes, existing homes, and permits, suggests a robust demand for lumber. However, factors such as production and shipment disruptions have contributed to a tight marketplace. It’s important to consider whether the market is still experiencing a shortage and whether it’s driven by increased demand or inventory management.
When the focus shifts to inventory management, it results in fewer buyers willing to participate, indicating that the rally is nearing its end. This also prevents the market from becoming overbought. These patterns align with the typical characteristics of a market cycle in the process of bottoming out. Rejecting excess inventory is a crucial aspect of building a market bottom. Bottoming cycles tend to be of longer duration. While it might not be confirmed until December or later, the recommended strategy moving forward is to consider owning wood.
Regarding the roll and spread, the narrowing gap between buyers and sellers is an indication that the roll is nearing its end. While the spread may or may not widen again, the overall behavior aligns with typical market patterns.
Lastly, the question arises whether the strength of the pre-4th rally will disregard this overbought condition. Monitoring market strength and considering the impact of rallies over the coming weeks will be crucial in determining future trends.
Lumber Futures Volume & Open Interest
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
312-761-2636