Tag: 2022 Projection

14 Mar 2022

Leonard Lumber Report: The Futures Market Is Under Pressure

The futures market was under pressure all week as a seasonal pause had hit the market; however, the push to buy cash has eased. The transportation issue hasn’t eased, but the buying has. That has led to more wood in the secondary’s hand, thus more wood available in the field. That amount isn’t much, and it is high priced. 

The takeaway from last week is only when the push eases, so does cash flow to the middle of the market. Any time a buyer sees two offers available, they close the POs, which is what we are seeing again. This industry is more afraid of buying a car and the market falling than missing a cheap vehicle and paying up. There is a lot of inefficiencies built into the market today. Another is the fear of a margin call. This lack of structure will keep volatility around and the mills in high cotton. 

There are two ways to look at the market today: by counting sticks and needs for tomorrow or taking a closer look at where we are at in the housing cycle. For the bigger players, this quarter is done, the second is close to being finished, and now the focus is on the third quarter and those needs. 


Housing report and Early Projections

This week we have the housing report, and the early projections are for 1.7 starts and 1.85 permits. The critical number is always completions, but these are the trendsetters. Ongoing predictions are for the numbers to stay in this area and completions to have only a slight uptick. We can see the builders accepting these prices and guaranteeing the product is key, not price. 

The market experienced it last May with an uptick in forward pricing in the $1,200 range. That turned out not to be a great level to buy, but the push back from it was minor, and they were locking in the product. This year we’d expect the opposite with less forward sales. The industry will play for the break this time around, limiting the downside and extending the next rally. 


Let’s Get Technical:

The technical read is negative. There is no easy way to say it. For the first time in months, the market has all signals pointing lower. If there isn’t buying on the break, the downside objective will increase, and it won’t get as low as most expect. 

Another way to look at it is how the market reacts to the news. The added supply has pushed futures lower at a very slow pace turning the momentum indicators only after many down days. On the flip side, any good news spikes the market up.

We’d suspect the algo programmer is adding a selling layer, and the long fund is adding stops. Let’s face it. They are the drivers of our market and thus are the guiding factor for starts and stops. We see in the overall market that the buyer short cash because of jobs. The key to this move is to buy on the way down or are forced to pay up again.

The technical read is short, while the fundamentals are positive—hedge your risk.


Open Interest and Commitment of Traders:



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.

05 Jan 2022

The Leonard Lumber Report: 2022 Outlook

What a year. The housing industry plowed through 2021 with record disruptions and record sales. Once a pipeline issue was resolved, another would pop up. We are coming into 2022 with a tight supply and high demand for this commodity. Big dollars continue to flow into the economy, and now a house has reappeared as a valuable asset. There is also roaring inflation which is a double-edged sword for this commodity. 

The fact is the housing market is exceptional, and lumber prices are trending higher. The positives are firmly in place, while the negatives will need a dramatic economic shift to come into play. The black swan could be rates or inflation or a greater covid blitz. In any case, it would have to be dramatic. Let us dive into the key factors controlling this industry. Our gut instinct is to rehash the past, and we’ll attempt not to bring up the obvious. 

2021 — Year in Review

We came into 2021 at a futures price of $870. While we saw $1,000 the year before, this was much too high for the industry. The refusal to buy put an industry, seeing increasing volume in construction, critically underbought. From there, a panic ensued, and the market went parabolic.

The biggest takeaway from 2021 is that the trade was willing to pay unheard-of prices for wood and passed along the cost. No price level slows buying, and there is no longer too high. What higher prices do is generate a greater supply at a quicker pace. When there is a disruption in the chain, prices go straight up. Today we are either in the middle of that cycle or near the end.  

Many would build a plan around the “bookends” of that year’s trade in the past. This is a critical drill for the industry in 2022. The need is to create a value area. We need to look at some of the economics out there to look at the value of this commodity.  

Housing starts average in 2021 was 1.586 million. The consensus is projecting a 1.6 number in 2022. That number could be far greater if there were the ability to build. As we said back in 2018, there is only so much capacity to go around. This year, many builders have chosen to scale back building plans so as not to get overextended. Others are adding numbers with lofty goals. Profitability drives their planning, and with the lack of availability still present, profits will stay high.  

Where should value sit at 1.6 million starts? 

The cost of production is skyrocketing in this industry as in all the rest. The last report showed wages up 9.2%. Yes, that is correct. That means the person who changes the oil in the logger’s truck to the people who do the final cleaning on the home before closing makes about 10% more. And that is if you can find a person to hire. 

In the United States, the average monthly job offerings number is around 6 million — The December 1st number was 11 million. The stat that shows the mood of labor is the “quit” rate. This is usually a sub 1% number, and it was a whopping 3% in November. 3% of workings are quitting. These numbers are unsustainable, but many of these costs will not come off. 

The best indicator today of the economic issue is the current inflation rate, and in November, it recorded 6.8% with an upward trajectory.  

All this is a result of flooding the system with cash. That is flooding a system that was already building strength, and that was not the case in 2009 when the economy was headed lower. We must remember that many funds are circulating in a small economic space today. At this point, it will have to inflate itself out of the problem, which will end the housing run. 

We talked earlier this year about how the housing market reacts to a cash-infused accelerating economy. With a better economy, expectations were for the first-time homebuyers to jump into the market after the “lost decade.” We have seen that increase, but more than expected went to the multi-sector. Under these dynamics, an increase in rates will not cause a slowdown in home buying. The norm has been about 38% of first-timers buying new homes, which is now closer to 20%. The troubling statistic is that the 38% group are investors. We do not need to review what happened the last time it was that high.  


Usually, most outlooks are a counter-trend analysis. Today we see only roses. This industry is highly complicated because of the various amounts of input at all levels. One factor could be bullish at one point and bearish at another. Today, we have numerous positive inputs that will lead to higher prices. At the same time, those factors have a shelf life. The tightness factors are slowing. Last year once those factors were finished, others crept into the equation. The next correction will indicate if that repeats or not. In the meantime, expect the 2021 swings again. It will also look remarkably familiar to the old-time seasonals that would make a top in the first quarter, do the sell in May and go away for the summer, followed by the fall buy starting the cycle all over again. 

2022 will show owning lumber products will be a sound investment. Also, owning some type of downside risk management will soften the blow of the wide swings, especially when it is down. It is no longer a “time the buy” market; it is an opportunistic buy market.     

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…

The 2021 U.S. grain crop has the potential to be one of the largest on record. Where did all the yield come from, what areas were the hardest hit, and why on God’s green earth are grain prices still so high?