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

LEONARD LUMBER REPORT: THIS BUYING CYCLE HAS COME TO ITS COMPLETION

Summary: Futures and Cash

This buying cycle has come to its completion. The pipeline is back to normal. Wood is now parked throughout the system. The mills were able to walk the price back up to breakeven and the buy side now has a few months of inventory on its way. The cash and futures also hit par. It was typical and nothing special except for the fact that it took a few major fires and continual shutdowns to even get the needle to move. Without those issues, this market would be headed right back down. But those issues are still with us.

This cycle has seen futures run $86 and pull back almost $40. At the same time, the cash market rallied $85 and remains firm.  The mills have good files and the marketplace as a whole isn’t oversupplied. The market is sitting in a good area. The next issue becomes the expiration of July futures. Expirations have been mostly negative in the past given the housing dynamics. The makeup today shows possible pressure coming from the short mills. The market will need to go to value to offset the mills. At this point, it is hard to tell if that area is substantially lower or not. On Monday there won’t be any takers. They will step up if the news out there remains the same and futures are at a discount. The market is very inefficient going into expiration. Regardless, the fact is a firm cash market trades.

Technical: 

The numbers to watch are the 50% and 61.8% retracement points in July. At this point, I would be focusing on September but a sloppy July early in the week will hurt the market overall. The 50 number is $521 and the 61 number is $511. There is a lot of support from $523 to $525. Everything else is neutral. Moving to September, the formation is somewhat supportive. If July can hold in here, I think the September will rally.

With the market being open on Monday and then closed on Tuesday we could be in for a choppy week. Any firm conviction in either direction could tell the story.

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

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

LEONARD LUMBER REPORT: Last week’s trade activity provided a reliable indication of the broader market conditions

Last week’s trade activity provided a reliable indication of the broader market conditions.  The strength of the housing reports, including new homes, existing homes, and permits, suggests a robust demand for lumber. However, factors such as production and shipment disruptions have contributed to a tight marketplace. It’s important to consider whether the market is still experiencing a shortage and whether it’s driven by increased demand or inventory management.

When the focus shifts to inventory management, it results in fewer buyers willing to participate, indicating that the rally is nearing its end. This also prevents the market from becoming overbought. These patterns align with the typical characteristics of a market cycle in the process of bottoming out. Rejecting excess inventory is a crucial aspect of building a market bottom. Bottoming cycles tend to be of longer duration. While it might not be confirmed until December or later, the recommended strategy moving forward is to consider owning wood.

Regarding the roll and spread, the narrowing gap between buyers and sellers is an indication that the roll is nearing its end. While the spread may or may not widen again, the overall behavior aligns with typical market patterns.

Lastly, the question arises whether the strength of the pre-4th rally will disregard this overbought condition. Monitoring market strength and considering the impact of rallies over the coming weeks will be crucial in determining future trends.

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

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

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

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

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

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

LEONARD LUMBER REPORT: THERE COMES A TIME WHEN BEING PROACTIVE AND OR INACTIVE BECOME THE SAME

There comes a time when being proactive and or inactive become the same. That is where this industry is today. A better way to put it is the best offense is a good defense. The daily data bombs send mixed messages. These are messages interpreted differently over the generational chasm. If you are over 40 you are looking for the next shoe to drop in housing. If you are under 40 you are looking for the next opportunity. Neither is right or wrong, just educated differently. Let’s look at the issues.

The first focal point that always amazes me is the difference in cycles between multifamily and single-family. In the last 10 years, single-family construction has had 3 downturns while multifamily has yet to see one. Ask a trader in the multifamily space how things are going, and he will say if this is what a recession looks like then he’ll take it. Ask a single-family trader the same question and he will be leaning more on the negative side. The confusing part is the fact that DR Horton had a great quarter, and the home builder stock index is nearing its all-time highs. Things are not that bad so why can’t wood products pull themselves out of this big hole they dug?

Reports are of almost a record number of multifamily projects going on today. That is why those in that space are enjoying the ride. The confusion is in the single-family sector. Data show that the marketplace is tremendously underbuilt. I think the market is telling us differently. Existing home sales are off sharply. The reason is relatively easy to define. The answer is that a few want to increase their mortgage rate by 200%. This normal supply of homes on the market will not be available for some time. Builders will have to step up to supply the shortfall. Starts are hovering above 2019. That was a year that saw an extreme lack of price volatility. That isn’t my call here. The other focal point is that this market no longer can “lack” volatility. It can remain range bound in the new post covid world but with much wider swings. I think what this market is telling us is that there is still more bottoming work to come.

This coming week I expect to see wide swings caused by position evening in May. There aren’t many who want to carry a position into a no-limit May. That covering will add more pressure down than up. What is marketable is the July contract. It is a few dollars away from being a good hedge buy and also a few dollars away from a good basis trade. The basis traders are cleaning up. July is in the zone.

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

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

LEONARD LUMBER REPORT: CROSSWINDS VS. HEADWINDS

Crosswinds verse headwinds. I am starting to wonder if the story is of how we all walked 3 miles to school uphill both ways. We are getting to the point where we may just have to take the charts and data from 2020 to 2023 and put them off to the side. While it is reflective historically it may not be the true focal point today. If we push that information to the side, we can focus on today’s factors. All of which we have experienced in earlier cycles.

Positives:

  • The housing market is underbuilt.
  • There has been a generational shift to owning a home.
  • Labor is tight.
  • Real log issues.
  • Great overall employment.

Negatives:

  • The economic question.
  • Highest rates in years.
  • Euro wood. It is a race to the bottom in the wholesale community.
  • The home mortgage business sits with the community bank. They are becoming more restrictive.

 

The negative factors will smooth themselves out more quickly than the positives. Rates and the Euro wood will be less an issue by the third quarter. The economy on the other hand will take much longer to be defined and then to recover. That will be a hinderance to our market. On the positive side, if you build less houses you take care of the labor issue and keep the marketplace thin. That is the direction the home builders have headed towards.

The question coming into 2023 remains the question today. What should the price of a 2×4 be with a 1.2 or 1.1 starts number? That cannot be answered until the Euro problem has cleared up. What I will say is this market has built a box around it. The first thought coming into the year was a muted 2023 trade. That shifted to a higher trade because of business. Now I am an afraid that it is boxed in. What I mean is that momentum will be created only to get hit from the existing factors. This will show up when inventories are light in a falling market and overbuying in a rising market. That is not a sideways trade. It is a trade that finds momentum and then stops abruptly. Opportunity is only available in the middle and lost when the push up or down is in place. It will break out and trade at a higher level eventually, but not anytime soon. For today, real inventories will be a value while the churn and burn crowd are in the liability zone. There is absolutely no reason not to hedge inventories when in this box and futures are a premium.

 

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

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