LEONARD LUMBER REPORT: This market has been flat, is flat, and will remain flat in the near future
Lumber Weekly
Last Week:
This market has been flat, is flat, and will remain flat in the near future. Every truck and every car bought out there is a battle. The gloves are off. The struggle is how to pull out a profit from a market so flat. The only possible mover to this market is the funds. If they decide to add more, then the market goes down. Absent that selling, the market has scaled down interest to own it and scaled up selling to hedge it. Everyone claims they don’t have wood to hedge, but those last few cars have taken a hit. Least resistance remains down.
The one aspect to note is that the downcycle is getting older now. With JIT inventory management, most need to show up more often. A buy round is coming. The question is if futures will hold long enough to get it rolling. Any negative pricing in September will push the buy round out to Thanksgiving.
Thought:
Last year, our reports from the builders were of a slowdown going into the first quarter. This was not a bearish projection but more of a digestive move. As we have seen, this readjusting benefited the single-family builders. They created a pace and maintained it for most of the year. Today, we are in the thick of their year-end push but expect a similar pullback going into the end of the year. We heard about it last year. I don’t think we will this year. Orders are good, and any slowdown won’t be readily noticed. While the home builders have a good handle on the business, they are still aware of possible headwinds and will slow down to discuss. Going a step further, we are starting to see the lofty stock levels of these companies start to fall off. Wallstreet wonders if the builders’ frothy profits this year can carry forward. Most believe that even the homebuilders will need to sharpen their pencils, cutting into profits.
Summary:
The weekly 100- and 200-day moving averages last cross was up in December 2020. They are now getting close to crossing again. That would be a negative cross. While that is a very substantial indicator, it is skewed because the market moved a record $1200 since the last cross. This cross could confirm a lesser trading range and lower volatility rather than a sell signal. That is how I look at it. $30 up is a big move, as is $30.
Short run: I’ll give November till Thursday to close under 494.50. If it doesn’t, the bounce will begin.
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
312-761-2636