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LEONARD LUMBER REPORT: THE VOLKER RALLY

December 18, 2023 rcmagserv Agriculture, CME, Futures, Housing, Lumber, Market Commentary, Market Updates, Research, Risk Management, Weekly Prices 0 comment  Like

LEONARD LUMBER REPORT: THE VOLKER RALLY

Happy Holidays to all and your families.

Recap:

The Volker rally. The markets reacted very positively to Powell’s comments on lower rates sooner. The comments were in stark contrast to the previous comments about higher for longer. The lumber market was no different, squeezing out gains for the week. So, while there are positives on the horizon, the facts are the futures market has been flat for over 75 weeks. (see chart below) That is a long time without a trend. The housing market has a like dynamic. if you look at today’s active listings, new listings, and closed sales; they are very close to 2019 levels. We are not coming out of COVID weaker or stronger, just flat. So, what has changed? The answer is two main drivers. The first has been the significant loss of production in Canada. That will continue with little chance of growing that back. The other is rates. The homes today are not affordable to many buyers. Higher rates also contribute to the pause in move-ups. The buying dynamic is flat.

Those two factors, supply and affordability keep the market flat. Either one would cause the market to trend but remain in conflict. One thing is sure: the tighter you control inventories next year, the more you’ll pay up.

Technical:

The Bollinger bands on a weekly chart are as tight as I have seen them. A spike through one of the bands is imminent. I expect a higher spike since the futures market sits near the top band. That said, if the market continues its drag sideways, look for an uneventful winter season. The market tends to hint towards a direction as we go into the Christmas holidays.

Note:

The open interest increase is industry-based this time.

Daily Bulletin:

https://www.cmegroup.com/daily_bulletin/current/Section23_Lumber_Options.pdf

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.

 

Brian Leonard

[email protected]

312-761-2636

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