LEONARD LUMBER REPORT: The cash market remains weak

Recap:

The cash market remains weak. There’s no arguing that most items hold little to no value. It’s a tough environment, but for the first time this year, the issue is more about logistics than demand. Demand is currently steady for this time of year, but mills are in a phase where they need to clear out wood. Historically, the trade would step in, buy their first quarter needs, and store it outside to freeze. This year, the problem is that the trade has been very proactive in maintaining high inventories due to macroeconomic risks. Futures led the decline lower. Last week, there were attempts to bottom out futures, with a few bounces, but with a liquidating cash market, these are short-lived. We can’t determine when the mills are finished liquidating versus when futures have reached their bottom. All signs suggest that the market will experience a few more weeks of this condition. So what are the issues?

• The mills cannot add value to their product. We have spiked a few times this year based on a reduction in supply fear. If reduced supply is the only way to add value, it will be a long, cold winter.

• The industry is not responsible for maintaining the mill’s profits.

• Underbuilt isn’t a real number in an uncertain economy.

• It’s the economy, stupid. Lower rates mean higher unemployment.

• 2026 planning should weigh less on the current, an underbuilt, and less inventory story. The macro is so much greater. In 2025, there were numerous great hedging opportunities and numerous great cash buying opportunities. Stick with the small ball.

Technical:

The RSI has been back and forth from 35% to 15% for 5 weeks now. The slow stochastics are flatlined. We are sitting in the middle of a micro flat market, which sits in the middle of a micro flat market. Maybe a better way to define it is that today’s market holds few opportunities, which has been the case for 3 years now.  I’ll save you a few therapy dollars. It isn’t you or your trading. It is really a very difficult market for the entire industry.

There is a lot of support in the 520’s. We will see if the holiday week turns the market.