LEONARD LUMBER REPORT: “Made it another week” is not a strategy; it is what we are forced to accept

“Made it another week” is not a strategy; it is what we are forced to accept. Today, the producer side is waiting for the squeeze to occur, while the buy side is looking for oversupply to weigh on prices. The market has a macro view of the trade, which is all in. It may just be a market sitting at equilibrium, slowly leading into a trend. Lumber is either volatile or flat. It tends not to trend, forcing the trade to “pick a side.” Today, the time of year and weather have allowed buyers to hold off. The mills may take some counters, but not enough to supply the spring run. That leads me to believe a rally is coming. The next question will be whether the buying pattern of the last few years has continued. The marketplace did not remain tight for long. Could the supply disruption be a cause for a better cash run this time?
The market shown more resilience on this last run. A lot of it is the time of year and the recent shutdowns, but whatever the case, the next rally starts from a higher level. Today, with flat demand, prices are holding. It won’t take much to push them higher. For now, the weather is no better than last week.

It is too hard to make a call on demand. The economy is flat. Unemployment is flat. Interest rates are flat. Inflation is in check, and wages are only slightly higher. That is the US. Globally, we see that China’s softwood usage is down 50% from the peak. Of that usage, the majority comes from the USSR. There has been a global downturn and a shift in wood demand. A flat US market makes it worse. It is a very tough market. That said, the SYP mills are getting ready for Mardi gras…..

Technical:

The technical study is in focus today due to the ambiguity in the cash market. Last week’s trade turned the market negative in a tight space. We need more data when futures are trading close to cash. We no longer see the $50 or $80 spreads. Today $30 is high. A moving average cross or gap needs more confirmation. Last week’s 580.50 low is the key point. If the market is over it by Thursday, we are going higher. Last week we had a few days to test some upside points. This week, it is right here for the downside. The upside trade would be a breakout. The downside will be earning every dollar lower.

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

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.