Lumber Markets Archives - Page 3 of 10

26 Feb 2024

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

LEONARD LUMBER REPORT: IT IS STILL FEBRUARY

Note:

It is still February. I have to remind most traders of that. Most are trying to accelerate the cycle up a few months, looking for all the issues to hit. In reality, the market is trading at an average February pace. What is unusual is the added buying in the last few weeks. Most are trying to hold a consistent inventory level into the spring buy. The previous two weeks’ business was not an inventory build but a fill-in. That is mildly friendly.

It is a challenging environment to navigate. For every negative data point, there is a positive one. You can’t get pessimistic about the housing industry. 2024 will be steady. The difference between 2023 and 2024 was that the lumber market was demand-driven. There could be a pivot coming to a supply-driven market. That is when the volatility starts. Last year, the cheapest, most abundant wood in the world was sitting at Port Canaveral. That is different this year.

Technical:

I am switching to the May futures contract for the tech read. Now is a good time to mention the significant gap from 572.00 to 566.00 under the market. For now, we aren’t going to worry about it. The RSI is 62%, with most momentum indicators pointing up. You can build a case that May has been a more volatile trade. That may indicate more volatility to come. A few extra cars with futures $30 over is a win/win.

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

05 Feb 2024

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

LEONARD LUMBER REPORT: The futures market continues to drift toward the 200-day average

Note:

The futures market continues to drift toward the 200-day average. If the market is lower, it drifts up to it; if the market is higher, it drifts down. That average has been flat for months, and the market looks to be near fair value whenever it is close. This is not a buyer or seller manipulation. It is fair value for the current supply and demand. This simplifies the game. If you stay within the goalposts, you make money. Those goalposts are $20 under and $30 over. That was the proper strategy in 2023 and continues into 2024. Can this market stay perfectly balanced for the long term? Most likely not, but the reasons for imbalance take time to materialize. The risk in 2024 is that demand will outpace supply at certain points. The upside risk is real and should be mitigated. After 2017 and 2021, no one can tell me things will be normal again. You need to protect yourself if you have 2nd, third, and fourth-quarter risks. If supply becomes an issue, you are protected. If not, a yearend loss in futures will dwarf the cash gains.

In the short run, this market continues in a wave pattern with higher highs and higher lows. While marginal, it does offer a playbook of sorts as to when to enter the market. The December low was 537.00. The January low was 542.50. With the 200-day at 548.40, I would set that as the objective right now. The funds are buying, making it a slog. There was a jump in the industry shorts. If the mills are selling, the spring rally will start early.

Flounder to flat this week??

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:

Brian Leonard

[email protected]

312-761-2636

29 Jan 2024

Agriculture, CME, Futures, Hedging, Housing, Lumber, Market Commentary, Market Updates, Research, Risk Management, Weekly Prices rcmagserv 0 comment

LEONARD LUMBER REPORT: CAN IT BE ANY MORE OBVIOUS?

Recap:

Can it be any more obvious? For many months, which are now turning into years, the marketplace has been perpetually short. Some by design and some by necessity. The market is always short. That had been a winning strategy. With a shift to tighter supply, pressure on the buy-side is coming into play today. Last week was a good example where an announcement of another mill closure set futures, not cash off. The industry adjusted by exiting futures positions, not buying cash. Where is the panic? The answer lies with the other obvious factor. As long as construction remains steady and mills produce, the industry can stay in this guarded mode. That is why the action last week was in the futures and not cash. The buy side will not go unless it is needed. Announcements won’t be a factor right after a buy round. They are a few weeks in.

The futures market has changed directions. Instead of bleeding the market to the downside, it will bleed the market to the upside. This is not fund-related or algo-driven. This is a simple cycle change. The potential for sharp upside moves is real. The ability to hold those gains is not so much.

Technical:

The elephant in the room is the gap below the market. I looked for it to get filled, only to see higher highs. The volume is too low to show a direction here. It is easy to hold the market up. A pullback into the gap is not a reversal. The technicals are positive. Basis trades are still in play.

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:

Brian Leonard

[email protected]

312-761-2636

16 Jan 2024

Agriculture, CME, Futures, Lumber, Market Commentary, Market Updates, Research, Risk Management, Weekly Prices rcmagserv 0 comment

LEONARD LUMBER REPORT: THE MARKET TOPPED RIGHT BEFORE CHRISTMAS

Recap:

The market topped right before Christmas and now has given back $43 of the $56 rally in March. What we saw last week was the selling gaining momentum. The short-term focus has to be on the range. Is it the low of 537.00 at the start of the December rally, or is it back at $500, March’s bottom in November? Here are a few points.

There are zero reports of the market struggling. The market is fluid, but it is work. Are there deals showing up? Yes, but on a limited basis and at a higher level. So, the industry is now accepting a trade at a higher level. We all expected it. It tells us that in the short term, prices will not go back to the original lows but base out higher.

Technical:

The elephant in the room is Friday’s January close of 528.00. Next Friday, there will be a large weekly gap. Those gaps get closed. Would I get short on Tuesday because of the gap? No, but we will see 528. The weather and the algo selling tells me that it should come sooner rather than later.

Note: this has been a short-term read. We are looking at 550, 537,528, or even 500. In 2023, watching the downside grew the dollars. In 2024, not watching the upside will be painful. Treat 2024 like 2019. Stay balanced so you can reap the benefits of any upside move.

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:

Brian Leonard

[email protected]

312-761-2636

08 Jan 2024

Agriculture, CME, Futures, Hedging, Housing, Lumber, Market Commentary, Market Updates, Research, Risk Management, Weekly Prices rcmagserv 0 comment

Leonard Lumber Report: The futures trade last week looked flat

Recap:

On the surface, the futures trade last week looked flat. The net change for the week was up $2. In fact, the last seven sessions have seen closes within a $4 range. A digestion phase after the run-up? Underneath the surface, things are changing. We have shifted the fund shorts over to the industry. Wood is now hedged. We have also shifted some of the industry longs over to new fund longs. The makeup of the futures market today is friendly. It is not a signal to buy, but it could generate higher prices on its own.

The futures market is closed on Monday the 15th, so January expires on Friday. The current open interest is normal for five sessions to go. With the growing industry’s short number, we may see some upward pressure again. We could see a shift to expirations now having an upward bias.

As far as the cash market goes, it remains fluid. That has been the case for months now. It has the feel of the covid slowdown that never occurred. This time, we spent a year expecting a recession and higher unemployment. What we found was steady business.

With mills coming back online and wholesalers owning wood, it could be sloppy for a while. The funds are the key.

This recent sideways trade is nearing an end…….

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:

Brian Leonard

[email protected]

312-761-2636

18 Dec 2023

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

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:

Brian Leonard

[email protected]

312-761-2636

11 Dec 2023

Agriculture, CME, Hedging, Lumber, Market Commentary, Market Updates, Research, Risk Management, Weekly Prices rcmagserv 0 comment

LEONARD LUMBER REPORT: “THE SEASON OF CONTENTMENT”

Recap:

“The season of contentment.” Most have closed up shop for the rest of the year. There is minimal volume in either the futures or cash. The futures trade is a liquidation of all sides. The outlook is also fuzzy. As the daily traders look for a crack at the mills the long-term traders wonder if that was enough of a buy. In 2023, there have been three good buy rounds, each at a lower cash price and futures bounce. Does the trend continue? I will say this: most of the industry does not want lower cash prices. That tells me it could be more of the same, dragging the market lower until the next round.

It’s been over a year of complacency, confusion, and a content market. The data shows a loss of 20% from the retail sector side versus a drop in supply of roughly 20%. You can be more balanced. Historically, this industry doesn’t come out of that phase quietly. With less production, less Euro, and a construction needle that doesn’t move, the volatility will be on the upside. The futures market is quietly indicating that with the support we are seeing. It’s going to take more time.

Technical:

The lower objectives of 518.50 and 510.50 are still in play. These are corrective objectives. If you look at the wedge pattern that formed in 2023, the bands are 568.80 and 495.30. Today, lower mill prices will not stimulate buying. With an RSI of 49.40%, those bands look a mile away.

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:

Brian Leonard

[email protected]

312-761-2636

04 Dec 2023

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

LEONARD LUMBER REPORT: The lumber market today has three defined pillars

Recap:

The lumber market today has three defined pillars. The first is supply and demand. The other is rates, and then there is inventory management attitudes. All are currently indicating more of the same for 2024. What could be different is inventory management.

This past month we saw a much more robust buy round. There was a genuine attitude that buying cash at $370 or $375 held a low risk. We saw that again with the lack of hedging after a $50 run in futures. Most believed that inventory management was sufficient. Distribution and wholesalers want to hold more product. Contracts and VMI limit the availability of wood at any given time. The fact that the industry was able to have a good buy round indicates a shift at the mills to hold more wood. That is good for prices in a flat market. A Weyerhaeuser guy (Jay) always said that it is bullish when the mills control the wood. When they ship it to others it is bearish. Let’s see if that is the case next year.

Last week’s negative trade reflected the lack of hedging by the industry. The end-of-the-year timeframe is rough for those holding inventories. Another sloppy week is expected. The massive liquidation in the futures market takes it out of the game to help at this point.

Technical:

The futures market retraced 38% of the move last week. The 50% mark is 518.00 and the 61% is 509.70. All are in reach. What is a little more bullish is the fact that the lower Bollinger band sits at 520.50. It would take time and work to get that band to turn down. I am looking for a lower trade in January, but the timing may be closer to expiration.

Note: fund managers point to a possible shift in the fund makeup in lumber from short to long. Rates will control that conversation.

Note: the sleeper in this market is the monthly inventory of new homes available. This last number of 7.8 months is the highest we have seen in three years.

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:

Brian Leonard

[email protected]

312-761-2636

27 Nov 2023

Agriculture, CME, Housing, Lumber, Market Commentary, Market Updates, Research, Risk Management, Weekly Prices rcmagserv 0 comment

Leonard Lumber Update: I Will Continue to focus on the technical side of this market

Recap:

I will continue to focus on the technical side of this market. There are two takeaways from the weekly chart below.

The first read is that when a market goes through an extreme volatility event, there tends to be a corrective phase. You can see just how flat the market has become. In 2021 and 2022, the market experienced record prices and volatility. In 2023, the market has been flat. I wonder if the excess volatility has been sufficiently drained yet. The chart shows that futures can run another $50 higher and still be in the flat range. That brings me to read number two. This is a flat market working along its bottom. Rarely does a market break out down from this type of trade. The breakout is usually a retracement of the last move. So, this market has some room to run higher. I made a case in March, more than once, that the potential distance up is far greater than down. That math has stayed the same, but the timeline is in doubt.

The fundamentals are getting better as time goes on. The market is getting used to higher rates and higher home prices. A slight downtick in either stimulates more activity. I expect a continued start and lag with the buyers for another year, but the good news is the actual decline was marginal at best. My other soapbox rant continues to be the excess capital in the system. Massive capital injections are still coming into the market. There is also enormous capital sitting on the sidelines. And finally, 2024 is an election year. Enough said there.

Last week’s futures trade was a good read of the market. The recent Sept-Oct trend to new lows was more a sign of frustration than weakness. The bounce off those lows is a rebalancing, but last week’s positive trade showed underlying strength. The breakthrough of the 100-day average and the 200-day average indicated new strength. Two other keys are that Elliot Wave is calling the excess volatility gone. This is not a bottom call. It is a warning not to discount the possibility of some large spikes higher. If true, the other key factor could be a market exiting the focus of the 2020 to 2022 data and reverting to pre-2020 data and fundamentals. As we remember, that was an underbuilt sector with lessening production.

This week’s focus remains on the algo buying versus the premium. This is a very disciplined premium/discount trading market. It will have to meet somewhere in the middle. A good indicator of potential January weakness will be if the spread goes further. The upcoming roll might be enough to bring January closer to the cash market.

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:

Brian Leonard

[email protected]

312-761-2636

20 Nov 2023

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

LEONARD LUMBER REPORT: THIS MARKET IS STILL A GRIND, BUT THIS TIME A GRIND HIGHER

Recap:

This market is still a grind, but this time a grind higher. The January futures contracts were up $3.50, while the cash print was up $3. It did feel better than that all week. There may be better confidence building up with the recent cash trade. Also, the projections set in January are coming into play. The expectation was a reduced supply coming out of Canada and a slowing of Euro wood coupled with less demand.

The last estimate I saw was an 11.7 shipment number expected for 2023 out of Canada. We were looking for a 12+ number but could get less than expected. The Euro issue is under control. Coming into 2023, the docks were flooded with Euro. It was pretty easy of a call for that problem to subside. The surprise has been the steady demand. It is off YoY, but not at the pace expected. Most were prepping for the next shoe to drop in the economy, only to be forced back into the market. That is where we are at today.

Technical:

The best read for the next eight weeks will be entirely technical. The algo’s, funds, and support/resistance points will be the feature. Why is that? As futures neared the 200-day moving average, the funds started to liquidate. With less fund selling, the algo/long fund has started to buy. There are no fundamental drivers. It is all futures related. If you keep pushing futures higher, the industry can buy cash with a place to go for protection. Every rally for the last 5 years started with the ability for the trade to sell the board for protection. It is a tough time of year to get that firmly in place, but it is trying to form.

This rally is going on 18 sessions, and with an RSI of almost 70%, I believe it needs to be corrected. Hedging or basis trading a percentage of buys is the risk management play. The 200-day is sitting at 555.50.

The pulse of this market is the computer trading in futures. If has not yet switched from the short fund leading to a long fund taking over but it is different.

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:

Brian Leonard

[email protected]

312-761-2636

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Tag: Lumber Markets

LEONARD LUMBER REPORT: IT IS STILL FEBRUARY

LEONARD LUMBER REPORT: The futures market continues to drift toward the 200-day average

LEONARD LUMBER REPORT: CAN IT BE ANY MORE OBVIOUS?

LEONARD LUMBER REPORT: THE MARKET TOPPED RIGHT BEFORE CHRISTMAS

Leonard Lumber Report: The futures trade last week looked flat

LEONARD LUMBER REPORT: THE VOLKER RALLY

LEONARD LUMBER REPORT: “THE SEASON OF CONTENTMENT”

LEONARD LUMBER REPORT: The lumber market today has three defined pillars

Leonard Lumber Update: I Will Continue to focus on the technical side of this market

LEONARD LUMBER REPORT: THIS MARKET IS STILL A GRIND, BUT THIS TIME A GRIND HIGHER

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