LEONARD LUMBER REPORT: The main takeaway is that the dynamics of the last six months have changed

The main takeaway is that the dynamics of the last six months have changed. The first change is that the commodity funds are no longer sellers and are liquidating. If that stays true, the futures market will have no sellers. The next is that both cash and futures have moved higher despite what looks to be a stock market meltdown and other economic woes. Our market tends to ignore news as the trend changes. This market is forward-thinking. The plans coming into the year were to build as rates were lowered and traffic picked up. Going into the 3rd. quarter, some of that business is now on the books, as is the yearend homebuilders surge. This is not a bunch, but it changes the current pipeline structure. That brings us to the third change. Production has been cut. The amount is minimal with zero demand, but it will mean something if things pick up. Just because inventories are kept so low is enough to force prices higher. Add to that the mill’s song and dance, and you can’t find a stick. That’s what I love about this business. Two weeks ago, your mill guy was begging for an offer, and soon, they will be telling you to go scratch.

The market has less production going into the fall. We also see better demand as the year’s first half has pulled some building forward. Without funds, prices will be pushed higher.

What has changed? When things get tighter, the lack of funds for selling changes the market dynamics. What hasn’t changed is the fact that housing will stagnate in the near future. You have this major economic headwind versus a much-needed buy. The technical read calls for higher levels, and the buy round should get us there. While we may look good for a while, the fundamentals will creep back in. I don’t think we need to go back to $308 cash anymore.

Technical: