Leonard Lumber Report: This is a Supply-Side Industry



Leonard Lumber Report: This is a Supply-Side Industry

We tend to focus on fires, rail, a wall of wood, etc. Then one day a month, we look at housing starts. Today it is too easy to say that shipping issues are running prices up again. We hear daily from the trade that the company has too high of inventories on one day, and they don’t have enough in less than 24 hours. That is a demand issue. The other feature on the demand side is that the late cars’ fill-ins are not increasing inventories. Follow-through buying keeps the buy-side underbought. We saw this same dynamic last February. The mills have a lot of sold inventory to ship. Will new buying stay at this pace?

We must stay focused on the global economic picture. After yesterday’s booming PPI number, we now have the sense that the inflation push is unsustainable. That doesn’t indicate a pullback in prices but suggests that the trajectory will ease. What that means for housing is that production costs will remain high, and that will keep home prices high and affordability an issue for some time. 

Let’s Get Technical:

There are two markets today, March and the back months. March keeps pace with the cash trade while the back months reluctantly stay above $1000. We have even seen some algo type trading as far out as July as it sets up for the rollover. The key driver remains March, and a close over the last high sets it up for a run, which will drag the back months higher. 

Weekly Round-Up:

Anything bought today has to be hedged. Most refuse to sell a discount to hedge. Today you must look at the sell as a wood product trade, not a pure hedge. Puts are the way to go but are very expensive. Everyone from the local yard to the computer running the options knows we are going down at some point.

Open Interest and Commitment of Traders:
https://www.cmegroup.com/daily_bulletin/current/Section23_Lumber_Options.pdf

About The Leonard Report
The Leonard Lumber Report is a new 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.

Before You Go…
A special guest joins us for this episode of The Hedged Edge, who is well known for his many titles, which include Doctor, Editor-in-Chief, Dean, and Chief Academic Officer, just to name a few. Dr. Channa S. Prakash, Dean of the College of Arts and Sciences (CAS) at Tuskegee University, has served as faculty since 1989 and is a professor of crop genetics, biotechnology, and genomics. He is also well recognized for mentoring underrepresented minority students.

Tune in as biotech guru Dr. Prakash discusses everything from Alabama football, genetics as one of the most extensive agricultural advancements, the most significant risk factors to feeding the world over the next 30-50 years, plus everything in between. And as a bonus, we find out what sport he would be interested in playing if he went professional.