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23 Jun 2023
Agriculture, Corn, Dow Jones, Grain, Market Commentary, Market Updates, Other News, Research, Risk Management, Soybeans, Weather, Weekly Prices rcmagserv 0 comment

AG MARKET UPDATE: JUNE 9 – 23

Welcome to the weather market we have been waiting for. The market skyrocketed higher as drought conditions set it across the US as growing is well on the way. The market ended the week with large losses as the chances of rain across a large area is expected over the weekend. While the market was quick to give up 40 cents on chances of rain whether or not that rain comes is still a question mark, let alone the amount needed is unlikely to happen. The US corn crop was rated at 55% good/excellent to start the week, very low for this time of year before we get into the heat of the summer. The actual rainfall amount seen over the weekend will be important, but continued rain in the coming weeks will be needed with minimal subsoil moisture currently helping this crop.

Via Barchart

Soybeans saw a similar rally to corn in the last couple weeks with the drought conditions helping the market higher then rain chances pulling them back. The chances of rain this weekend will help soybeans, like corn, but the soybean crop is not in full panic mode yet although it is in some places. The US crop was rated 54% good/excellent to start the holiday shortened week as the weather market is in full effect. One other piece of news this week was the US EPA adjusting the biofuel mandates for 2023-25. While they raised the blending requirements to 22.38 billion gallons by 2025 many were expecting/hoping for higher amounts to give soybeans another catalyst higher. While they increased the 2023 renewable volume obligation by 120 million gallons from the December proposal, they lowered the RVOs by 300+ million gallons for ’24 and ’25.

Via Barchart

Equity Markets

The equity markets saw losses this week after an impressive run over the last couple of months in tech. Recession fears are still widespread in the market as we are not out of the storm yet with inflation still well above the target levels. The Fed did not raise rates in their latest meeting as expected but could still raise them again in the future.

Via Barchart

Drought Monitor

The drought monitors below show the change in drought conditions over the last 2 weeks.

Podcast

With every new year, there are new opportunities, and there’s no better time to dive deeply into the stock market and tax-saving strategies for 2023 than now. In our latest episode of the Hedged Edge, we’re joined by Tim Webb, Chief Investment Officer and Managing Partner from our sister company, RCM Wealth Advisors. Tim is no stranger to advising institutions and agribusinesses where he has been implementing no-nonsense financial planning strategies and market investment disciplines to help Clients build and maintain wealth and reach financial goals since

Inside this jam-packed session, we’re taking a break from commodities, and talking about the world of equities, interest rates, tax savings, and business planning strategies. Plus, Jeff and Tim delve into a variety of topics like:

  • The current state of the markets within the wealth management industry
  • Is there a beacon of hope, or is it all doom and gloom for the markets?
  • Other strategies to think about outside of the stock market and so much more!

 

Via Barchart.com

 

Contact an Ag Specialist Today

Whether you’re a producer, end-user, commercial operator, RCM AG Services helps protect revenues and control costs through its suite of hedging tools and network of buyers/sellers — Contact Ag Specialist Brady Lawrence today at 312-858-4049 or [email protected].

 

12 Jun 2023
Agriculture, CME, Lumber, Market Commentary, Market Updates, Research, Risk Management, Weekly Prices rcmagserv 0 comment

Leonard Lumber Report: The futures and cash market saw a much needed buy round last week

Summary:

The futures and cash market saw a much needed buy round last week. July futures finished up $27.50 while cash was up $7. I would categorize it as not explosive, but positive. The fires in eastern Canada set the rally off. The lack of inventories kept it going. It is not a runaway market. It is one that needs continuous reassurance. The current trader psyche should cause a pause early next week unless more issues arise. $350 cash isn’t the issue. Getting long is. Let’s dig down into that thought process.

There is a big divergence in confidence between the buyers and the builders. The builders have been living off old orders this year but then began gearing up for more building with no one noticing. Economics showed they could still build and sell. Wallstreet saw while distribution didn’t care. The buy side was suffering through an oversupplied marketplace. That is still around but having a much less impact. Last week we saw a slight wake-up call on the supply side. This summer wood won’t be as available and weed was at Woodstock.

Flash Crash:

At about 12:30 on Friday, the futures market experienced a flash crash. In a matter of seconds, the market fell $20 to the first circuit breaker of $25. There is a circuit breaker at the 50% mark of a limit move. It stops trading for two minutes and then resumes. It was put in place to keep computer programs from running the market limit on one order. Coming off of a market that ran $60 in a few seconds this was nothing.

Technical:

The futures market did a good job of breaking out from the sideways trade. That move turned some overdone oscillators to neutral or positive. The run also caused a rapid increase in the RSI. It hit 71% intraday. 80% is getting too rich. This is a norm for a market that was trending sideways for so long. What to watch for is a 70% RSI when July futures get into the $520s. That type of divergence is positive.

Roll/Spread:

The first takeaway is the fact that there are funds in this contract to roll. That mechanism is key for liquidity. They are holding roughly 2500 shorts. The percentage to open interest is consistent with the fund’s way of trading for years. The spreading on Wednesday and Thursday was very robust. The buying of July and selling of September helped keep July higher than the rest of the market. More rolling will keep July positive if that is the only trading.

 

Section23_Lumber_Options.pdf

Lumber Futures Volume & Open Interest

https://www.cmegroup.com/markets/agriculture/lumber-and-softs/lumber.volume.html?itm_source=cmegroup&itm_medium=friendly&itm_campaign=lbr&redirect=/lbr

CFTC Commitments of Traders Long Report

https://www.cftc.gov/dea/futures/other_lf.htm

Lumber & Wood Pulp Options

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

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

09 Jun 2023
Agriculture, Corn, Dow Jones, Grain, Market Commentary, Market Updates, Research, Risk Management, Soybeans, USDA Report, Weather, Weekly Prices, Wheat rcmagserv 0 comment

Ag Market Update: June USDA Report Overview

22/23 US Corn Stocks:  1.452 BBU (1.449 BBU Est)

22/23 World Corn Stocks:  297.60 MMT (297.66 MMT Est)

23/24 US Ending Stocks:  2.257 BBU (2.254 BBU Est)

23/24 World Ending Stocks: 314.00 MMT (313.40 MMT Est)

22/23 Brazil/ARG Corn Prod: 167.00 MMT (166.67 Est)

World corn stocks look to grow a lot year over year with expected economic slowdowns dragging on consumption. The USDA left production estimates unchanged, while this is not surprising for the June report, the weather will need to start helping or we should see a drop in next month’s report. The EU and GFS weather models continue to be inconsistent for the next two weeks. The USDA lowered Argentina’s production from last month but raised Brazil’s.

 

22/23 US Bean Stocks:  230 MBU (223 MBU Est)

22/23 World Bean Stocks:  101.30 MMT (100.55 MMT Est)

23/24 US Ending Stocks:  350 MBU (345 MBU Est)

23/24 World Ending Stocks:  123.30 MMT (121.99 MMT Est)

22/23 Brazil/ARG Bean Prod: 181.00 MMT (180.16 Est)

The USDA kept the US production the same while lowering exports, which leads to a big jump in US ending stocks. Crush margins should keep supporting beans, as weather is not a major factor, yet, to worry about. Like corn, the drop in Argentina’s bean crop was partially offset by Brazil’s gains.

 

22/23 US Wheat Stocks:  598 MBU (606 MBU Est)

22/23 World Wheat Stocks:  266.70 MMT (266.58 MMT Est)

23/24 US Wheat Stocks:  562 MBU (569 MBU Est)

23/24 World Ending Stocks:  270.70 MMT (264.65 MMT Est)

2023 US All Wheat Production:  1.665 MBU (1.672 MBU Est)

The USDA forecasted wheat world ending stocks to grow more than expected with higher stock in Russia, India Ukraine and the EU all revising higher. The US ending stocks were raised with a raise in US production as well. Wheat will continue to keep its eyes on the Black Sea, which as we have learned can be unpredictable.

 

Overview:

Business as usual with no big surprises in the June report as the USDA left US production estimates untouched. The USDA also left Chinese imports the same with 23 million tons or corn and 100 million tons of beans. The lack of any major news in the report was expected but the lack of any real bearish surprises was welcome. As it starts to heat up many areas will still be looking for rain, especially in the WCB that was lacking subsoil moisture to begin with. Forecasts will be the most watched thing moving forward as the inconsistencies in models does little to ameliorate any concerns.

 

December 2023 – Corn

November 2023 – Beans

July 2023 – Wheat

Via Barchart

Contact an Ag Specialist Today

Whether you’re a producer, end-user, commercial operator, RCM AG Services helps protect revenues and control costs through its suite of hedging tools and network of buyers/sellers — Contact Ag Specialist Brady Lawrence today at 312-858-4049 or [email protected].

05 Jun 2023
Agriculture, CME, Lumber, Market Commentary, Market Updates, Research, Risk Management rcmagserv 0 comment

LEONARD LUMBER REPORT: The futures market had a mixed week

Summary:

The futures market had a mixed week as Tuesday saw a good flush of longs followed by a Wednesday of profit-taking. By Friday the market saw a pickup in volume as the roll began. Having an active roll is key to a fluid contract. The market is getting a little fatigued on the sell side. After over 16 sessions without a correction, the attitude has changed to “not short” from “not long.” This will leave only the algo and funds left to sell it. They won’t compete with themselves for long. Is this a bullish call? Nope, I just think that the headwinds out there for this industry are now defined. The negatives coming are expected and planned for. Without a surprise, the market is underbought.

Economic:

The overall economy expects higher unemployment and sticky high rates.  Those are big negatives for this industry. The question becomes if the 80% break in prices from the 2022 highs was enough or not to offset those issues. The fact that we are in the middle of it with steady demand tells us that just maybe the underbuilt condition is a bigger factor in the demand equation. If so, demand will also remain sticky. My projection for a third quarter of less supply offsetting less demand may not play out with demand better.

Technical:

The resistance trendline is now at 499.50. The oscillators are calling for a correction. A rally back to the trendline would be expected. The issue is this elongated downtrend. It doesn’t create a comprehensive oversold condition. It gradually puts indicators overdone. Today nothing indicates caution should be used when basis trading. It continues to be a reliable tool to use.

Section23_Lumber_Options.pdf

Lumber Futures Volume & Open Interest

https://www.cmegroup.com/markets/agriculture/lumber-and-softs/lumber.volume.html?itm_source=cmegroup&itm_medium=friendly&itm_campaign=lbr&redirect=/lbr

CFTC Commitments of Traders Long Report

https://www.cftc.gov/dea/futures/other_lf.htm

Lumber & Wood Pulp Options

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

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

30 May 2023
Agriculture, CME, Lumber, Market Commentary, Market Updates, Research, Risk Management, Weekly Prices rcmagserv 0 comment

LEONARD LUMBER REPORT: Last week it was about demand. This week it’s all about the structure

Summary:

Last week it was about demand. This week it’s all about the structure. I mentioned a few years back how the face of this industry was changing. I think it’s here. Never have we seen home builders’ stock hit new highs in a lumber bear market. And never have we seen a distributor have more sales than many of the producers. Today the product moves very fluidly from the mill to the builder and without disruptions allows for a lower-priced commodity. That is what it looks like out there.

Let’s look at a few numbers. In the last few weeks, Pulte, and DR Horton both hit 5-year highs. Toll was right behind them. The lack of supply on the market allows them to build and sell every day at a continued high margin. Wallstreet sees that continuing. So, despite the high prices of homes and high mortgages, the market is still out there.

Now let’s go through the first quarter numbers of two of the players. West Fraser did $1.6 billion in sales with a net loss of $ 42 million. Builders First Source did $3.8 billion in sales with a net income of $333.8 million. Their gross profit margin was up 300 pts to 35.3%. You would have to group a few mills together to reach BFS sales. This is just one of the big three distributors out there. The mills have been laser-focused on the contracts and consignment structure. It works well in a bull market as the print tends to hold a premium. It doesn’t work in a bear market where print holds a discount. It is a win-win for distribution. An upmarket allows for an additional margin to be added. In a down market, they get the spread between the cash price and the selling price. Basically in a down market, they keep all the margin excess. I have to add that there are many players out there that have some of the same programs because of their sheer size today.

For us lay people what this means is that the remainder of the market is in competition with themselves. The net result is more product chasing fewer dollars in a flat market. You either go to a third party for help (the futures market) or you chase the low. A $60 premium is a windfall. A $30 premium is great.

Technical:

It took till Friday, but we did hit the $485 number. There wasn’t even a ripple of short covering for the weekend. The RSI is now at 26.80%. With a ROC of .5 to 1 there is room to go down. This isn’t the type of market that will “test” areas. It will just be a grinder until help arrives. The focus is on the 2023 trendline which comes in at 504.50. The line is almost 6 months old. It is important.

Section23_Lumber_Options.pdf

Lumber Futures Volume & Open Interest

https://www.cmegroup.com/markets/agriculture/lumber-and-softs/lumber.volume.html?itm_source=cmegroup&itm_medium=friendly&itm_campaign=lbr&redirect=/lbr

CFTC Commitments of Traders Long Report

https://www.cftc.gov/dea/futures/other_lf.htm

Lumber & Wood Pulp Options

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

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

26 May 2023
Agriculture, CME, Corn, Cotton, Dow Jones, Grain, Market Commentary, Market Updates, Research, Risk Management, Soybeans, Weather, Weekly Prices rcmagserv 0 comment

AG MARKET UPDATE: MAY 15 – 26

Corn had its best 2 week stretch in quite a while. As you can see from the chart below this has been the first meaningful rally, we have seen in 2023. As corn planting was 81% complete to start the week, ahead of the average pace, the trade has started to look at the weather outlook as we head into June. A dry pattern has begun forming in the coming weeks as it begins to warm up across the corn belt. While the heat in June is not overly worrisome it will be important to keep an eye on it as a warm dry June, followed by a hot dry July, could be plenty to do some serious damage to the US crop. We are a long way from this becoming a reality but a few weeks of dry heat to start June could help this rally keep some momentum or at least not give back the recent gains. Exports continue to be disappointing, and the extension of the Black Sea grain corridor isn’t bullish, but as usual the focus will be on final planted acres and weather in the coming weeks.

Via Barchart

Soybeans can’t get any momentum as South American beans continue to be the preferred option in the world market. November futures made a new low this week before getting a modest bounce on Friday heading into the long weekend. As demand continues to struggle the USDA will likely continue to trim exports in the next report, which will add to ending stocks for 22/23. Beans were 66% planted, ahead of the average pace, as weather concerns won’t hit the soybean market just yet. Beans are lacking any bullish news as they wait for a spark but struggle to find where it will come from.

Via Barchart

Cotton had a volatile week as seen in the chart below. When these opportunities present themselves, you do not want to miss the opportunity to hedge your risk. Have a plan and be prepared if there is another 5-cent spike that could make a big difference in your bottom line and potentially a good spot to place a hedge. The 78-84 cent range of Dec 2023 cotton has been consistent with pops to the upside and dips back to the bottom. The world economic outlook and US weather will be the main drivers moving forward into the long weekend.

Via Barchart

Equity Markets

The equity markets continue their mixed run of late with the DJI continuing to struggle while the S&P and NASDAQ stocks see gains. NVIDIA was the big winner of the week as chips and AI have investors’ focus. While the jury is still out on Artificial Intelligence and what role it will play in the coming years, one thing is clear, investors don’t want to miss the boat even though we do not know if the boat is the Titanic or the USS Missouri.

Via Barchart

Drought Monitor

The drought monitor below shows the struggles in the weestern corn belt as the eastern corn belt is in good shape as planting wraps up.

Podcast

With every new year, there are new opportunities, and there’s no better time to dive deeply into the stock market and tax-saving strategies for 2023 than now. In our latest episode of the Hedged Edge, we’re joined by Tim Webb, Chief Investment Officer and Managing Partner from our sister company, RCM Wealth Advisors. Tim is no stranger to advising institutions and agribusinesses where he has been implementing no-nonsense financial planning strategies and market investment disciplines to help Clients build and maintain wealth and reach financial goals since

Inside this jam-packed session, we’re taking a break from commodities, and talking about the world of equities, interest rates, tax savings, and business planning strategies. Plus, Jeff and Tim delve into a variety of topics like:

  • The current state of the markets within the wealth management industry
  • Is there a beacon of hope, or is it all doom and gloom for the markets?
  • Other strategies to think about outside of the stock market and so much more!

 

Via Barchart.com

 

Contact an Ag Specialist Today

Whether you’re a producer, end-user, commercial operator, RCM AG Services helps protect revenues and control costs through its suite of hedging tools and network of buyers/sellers — Contact Ag Specialist Brady Lawrence today at 312-858-4049 or [email protected].

 

22 May 2023
Agriculture, CME, Lumber, Market Commentary, Market Updates, Research, Risk Management, Weekly Prices rcmagserv 0 comment

LEONARD LUMBER REPORT: IT WAS ANOTHER SLOW WEEK IN BOTH FUTURES AND CASH

Summary:

It was another slow week in both futures and cash. As we search for answers, we just may not be asking the right question. The question is if demand is our problem. The data isn’t showing it. Reports from the field aren’t showing it, but this industry’s general malaise today is not typical. All the other sectors of the economy experienced covid interruptions, as did lumber. They have all cleaned up logistics issues allowing for lower prices. So why have most other sectors experienced a pick-up in demand from the lower prices while lumber has not? There is a key headwind from this malaise. This industry has an extremely slow-moving cycle where most others don’t. This lagging grind may just shift the cycle. Today we are in a positive upcycle. All the dynamics are still in place, but the shift may be quietly developing. This is a big call. This rolls the homebuilders and producer’s stocks to a sell. Let’s dig into the factors at risk.

The most apparent today is rates. They have become much stickier in the mid-6 % range than expected. Yes, builders are buying the rates down today and yes, they won’t stay high forever, but it may just hang high enough to change the buyer’s attitude. Today there is a much smaller percentage of first-time home buyers in the market. The doubling of rates has forced them to the sidelines. High median home prices also have hurt. They are on the sidelines not out of the market. If unemployment starts to creep up and there are job losses near the entry level, they may just change their way of thinking. You lose that core group, and you lose the market.

Another issue today is the fact that about 35% of new buyers were funds and spec groups buying and either renting or selling the homes. You think of names like Blackrock who have been very active in this sector. With rates on the rise, their participation has dropped substantially for the 2022 highs. Higher rates limit profits and increase risks. Now if rates do start to fall it will become a viable investment again, but here is where the long lag could hurt. The longer the lag the more likely they will develop another investment for the money and move away from home buying.

I’ve been talking about the “sweet spot” for the buyers. That’s said to be a sub-5 % mortgage and a $350,000 home. That is what the new buyer can afford. If you move this out 3 to six months, the equation moves from what they can afford to what they are willing to pay. That psyche shift will have a long and negative effect on home buying.

The housing industry needs to find economic confidence. It doesn’t look as if that can be created in the near future. Not when the discussion focuses on when the recession will hit.

Technical:

The read continues to be one of a neutral call. The 513.50 area on the upside is still in play as is the 485.00 support. There hasn’t been much movement but when there is the market runs up and then makes a new low. The stochastics have done a great job of calling this type of trade. It is still showing a bearish tone. There are no indicators supporting a directional move development. Old school tells us that lumber doesn’t stay sideways for that long. I’m guessing that the market will either see the low 480’s or the high 5teens this week. Enjoy the week and the beautiful weather.

Section23_Lumber_Options.pdf

Lumber Futures Volume & Open Interest

https://www.cmegroup.com/markets/agriculture/lumber-and-softs/lumber.volume.html?itm_source=cmegroup&itm_medium=friendly&itm_campaign=lbr&redirect=/lbr

CFTC Commitments of Traders Long Report

https://www.cftc.gov/dea/futures/other_lf.htm

Lumber & Wood Pulp Options

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

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

15 May 2023
Agriculture, CME, Corn, Dow Jones, Grain, Market Commentary, Market Updates, Other News, Podcast, Research, Risk Management, Soybeans, USDA Report, Weekly Prices, Wheat rcmagserv 0 comment

AG MARKET UPDATE: APRIL 28 – MAY 15

The USDA Report on Friday did not give any bullish news. But the overall muted market reaction was good to see as the overall report did not offer much to help prices. The USDA had production and ending stocks above pre-report estimates with the main number of US yield an expected 181.5 bpa. The USDA did not change their April estimates for Argentina’s crop, which remains higher than the numbers from the Rosario Grain Exchange but did raise the production estimates for Brazil. The USDA raised ending stocks on expectations for lower exports which matches the theme in the export space of late. The US crop planting progress was 65% complete to start this week.

Via Barchart

Soybeans had a bad week, like corn, but did not have as bearish a response following the report as the numbers could have led to. The major numbers were in-line with pre-report estimates except for the ending stocks for similar reasons as corn, with lower exports and south American production. WASDE did not lower Argentina’s numbers for beans either. The world bean market needs to find a new demand angle to keep from being oversupplied if the US has a great growing year. The US soybean crop was seen as 49% planted to start the week.

Via Barchart

Wheat was the lone warm spot of the report with some numbers coming in below trade estimates. The 23/24 world wheat ending stocks came in well above the pre-report estimates at 264.3 MMT (259.5 MMT) consumption and exports are lower. Wheat got a strong bounce, with KC leading the way, and should give corn some help. The Black Sea corridor will remain the biggest issue for commodities as any stops or problems will be supportive for Wheat.

Via Barchart

Equity Markets

The equity markets were mixed this week with the Dow getting hit with losses, the S&P being relatively flat and the Nasdaq continuing higher. Tech continues higher after good earnings from the major companies and the market thinking the Fed is done raising rates and potentially lowering sooner. The markets are still waiting for a catalyst as it has been a story of the have and have nots as of late.

Via Barchart

Drought Monitor

The eastern corn belt has gotten plenty of moisture as planting has begun while the western corn belt in some areas getting lots of moisture over the weekend.

Podcast

With every new year, there are new opportunities, and there’s no better time to dive deeply into the stock market and tax-saving strategies for 2023 than now. In our latest episode of the Hedged Edge, we’re joined by Tim Webb, Chief Investment Officer and Managing Partner from our sister company, RCM Wealth Advisors. Tim is no stranger to advising institutions and agribusinesses where he has been implementing no-nonsense financial planning strategies and market investment disciplines to help Clients build and maintain wealth and reach financial goals since

Inside this jam-packed session, we’re taking a break from commodities, and talking about the world of equities, interest rates, tax savings, and business planning strategies. Plus, Jeff and Tim delve into a variety of topics like:

  • The current state of the markets within the wealth management industry
  • Is there a beacon of hope, or is it all doom and gloom for the markets?
  • Other strategies to think about outside of the stock market and so much more!

 

Via Barchart.com

 

Contact an Ag Specialist Today

Whether you’re a producer, end-user, commercial operator, RCM AG Services helps protect revenues and control costs through its suite of hedging tools and network of buyers/sellers — Contact Ag Specialist Brady Lawrence today at 312-858-4049 or [email protected].

08 May 2023
Agriculture, CME, Lumber, Market Commentary, Market Updates, Research, Risk Management, Weekly Prices rcmagserv 0 comment

LEONARD LUMBER REPORT: The entire economic world is waiting for the next shoe to drop

The entire economic world is waiting for the next shoe to drop. Well, last week the shoes got new laces. This doom and gloom weighs on us all. The housing sector may feel the biggest chunk of it. As we try to piece together all the reasons why lumber prices are low we may just be missing the key component. The 12-year bull market is over ending after the most volatile time in history. What’s wrong with the market falling back to more normal prices and staying flat for a few years? Is there any history to back that up?

The market spiked to all-time highs in May of 2018 and then settled back and went flat for almost 20 months. It was only after covid hit that the market changed dynamics. Those changed dynamics brought unprecedented wealth to this industry. Some would say unsustainable in an industry based on readily available and easily produced commodity. Now that the market has gone flat, firms are scrambling to see if the added structure will work or not. That dance keeps many out of the market or in it at a limited capacity. That quietness should also cause an underbought lumber industry which has yet to happen. We have grown so big that we can’t define small yet. The market will probably help out with that one.

Today’s challenge is how to trade a lot of wood for little money. A long runway to the upside is shrinking by the day. A profit quickly turns into a loss. Something unheard of only a few months ago. This type of cycle will bring the focus back to the use of risk management. Small losses will smooth themselves out. Big losses won’t. In recent years the reluctance to use futures was because it limited gains. Today you need to use it to limit losses. Defense is as much mental as it is physical. It takes time, energy, and studies to make it work.

Technically this market has been in a perfect down channel since May of 2022. One year later it is in the same channel without any indication of that changing. The 12-month stretch does allow for better analysis. From mid-January of this year, the market has developed an inter-channel with higher parameters. I was able to match both channels and tighten up the projected moves. Since we now need to focus on July (little) the support and resistance lines are both roughly $70 from the $500 market. The key points in July are $430 and $570. The momentum indicators show a low probability of reaching $430 from here. With the need for a buy round and a better probability for it to go up, I’m looking for the $570 to be the objective of a bounce. I will not rule out an expiration failure back to $430 but that’s not for today. Today the market will trade around $500 until relief shows up. 

What we saw Friday was a relief rally across the economic spectrum. Let’s see if one is brewing down here.

Section23_Lumber_Options.pdf

Lumber Futures Volume & Open Interest

https://www.cmegroup.com/markets/agriculture/lumber-and-softs/lumber.volume.html?itm_source=cmegroup&itm_medium=friendly&itm_campaign=lbr&redirect=/lbr

CFTC Commitments of Traders Long Report

https://www.cftc.gov/dea/futures/other_lf.htm

Lumber & Wood Pulp Options

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

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

01 May 2023
Agriculture, CME, Lumber, Market Commentary, Market Updates, Research, Risk Management rcmagserv 0 comment

LEONARD LUMBER REPORT: All markets, regardless if it is a commodity or equity, will telegraph a change in their trend

All markets, regardless if it is a commodity or equity, will telegraph a change in their trend. The lumber market is one of the easiest markets to predict. It only takes 10 or 12 missteps before you are right. In the few months of 2023, we have gone from expecting a sideways give-it-back market to looking for a recession, and finally, it getting positive. We are now back to the sideways thought process as an industry. The key facts are that the housing sector didn’t get as bad as we thought, but that better-than-expected business didn’t help prices. The demand has not cleaned up the excess supply. May 1st. looks much different than we had thought back on January 1st. or does it?

Are the wholesalers feeding on their young? Yes. Are the buyers locking in jobs at $700 and beating up distribution for another $30? Yes. Is it true that all euro wholesalers can only go out after dark? Yes. We are where we expected to be at this point. The problems on the supply side are working themselves out. It is just looming micro issues now. These micro-dynamic issues should not control pricing, but in this small industry, they do. The industry’s macro dynamics do not look bad. They are just very slow-moving. The macro issue of logs. The macro issue of reduced production, no infrastructure replacement, and the macro issue of costs are all factors that determine the price on a timeline never defined. All we have is Elliot Wave to help.

The main technical read today is the long-term Elliot Wave. The pattern consists of a 1 down in August of 2021, a 2 up in August of 2022, and now a wave 3 down which has not been defined yet. I’m confirming that completion is somewhere between here and May 15th. for 2 reasons. First is that we tend to make our new lows somewhere around expiration and the fact that the next expiration is a delivered price. We need to put an asterisk next to Wave 3 as it might be artificial. I’m not recommending buying July because Wave 3 is in, just defining a bottom.

There have been two very successful strategies for the first 4 months of the year. The first is straight out of futures 101, the basis trade. No one wanted to waste their time making $20 on a basis trade. Today those same naysayers are hoping they don’t lose $20. If you did the basis in LBK rolled it to LBRK and then to July you picked up $50 of basis. Really…. The other success has been the strategy that is older than dirt. Counter those with wood in a falling market and counter them aggressively. There is a rhythm to this market. We have been in a lower high and lower lows cycle that could be shifting to flat highs and higher lows. That brings the “Don’t be the second guy into the Pool” syndrome back into play again.

The one way a market telegraphs a change is through the news. This industry has gone from reports of shutdowns to extensions of those shutdowns. Today’s news is about how many guys showed up late for work. The Beaks of the world are telling us that more of the same is in front of us.

Lumber Futures Volume & Open Interest

https://www.cmegroup.com/markets/agriculture/lumber-and-softs/lumber.volume.html?itm_source=cmegroup&itm_medium=friendly&itm_campaign=lbr&redirect=/lbr

CFTC Commitments of Traders Long Report

https://www.cftc.gov/dea/futures/other_lf.htm

Lumber & Wood Pulp Options

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

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

Disclaimer

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