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04 Mar 2025
Agriculture, CME, Futures, Hedging, Housing, Lumber, Market Commentary, Market Updates, Research, Risk Management, Weekly Prices rcmagserv 0 comment

LEONARD LUMBER REPORT: “Lumber, lumber, we don’t need no stinkin lumber.”

The Lumber Market:

“Lumber, lumber, we don’t need no stinkin lumber.” Or is it, Badges? Trump is coming after the Canadian lumber industry with both barrels. The problem is the current Canadian government does not like or support the industry so who’s on their side? The biggest and very unintended consequence of all may not be sharply higher prices but a real slowdown in the US housing sector. It is already fighting just to stay flat. This may just send investors to other markets, thus reducing the dollars available in the housing sector.  You cool the housing sector, and you will cool inflation. Again unintended.

This is one of those times where you plan for the worst and hope for the best. It is also a time when you could have $750 lumber and no customers.

Technical:

I was dead nuts on last weekend stating that for the market to go higher it would need a sharp sell off. We saw that on Wednesday and keeping to new lumber style, it all happened in a few minutes. That’s how we roll these days. What I missed was the timing. I think we have to take a step back and consider that while the technical read tends to pan out, it now occurs in minutes not days or weeks. We have to project the move and have orders in to take advantage. Don’t freeze on winners. Manage the position based on what the cash market would offer you. More importantly, don’t freeze on losers. Get out.

Sticking with the boxing analogy…. “hit the one in the middle.”

Daily Bulletin:
The Commitment of Traders:
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 Feb 2025
Agriculture, CME, Education, Futures, Hedging, Housing, Lumber, Market Commentary, Market Updates, Research, Risk Management, Weekly Prices rcmagserv 0 comment

LEONARD LUMBER REPORT: The futures market continued to rally last week

The Lumber Market:

The futures market continued to rally last week. This time, the driver was the fund liquidating shorts. Two weeks ago, it was a substantial cash trade. Last week, it was the roll and liquidation. The cash trade was good last week, but the futures trade was all fund related. On Friday, a mill went off the market, which resulted in nary a ripple in futures. At this point, we need a third catalyst to help the market higher.

Factors to watch:

  • A slowing Euro supply

  • Quota information (If the producers get the funds back as usual, this is only a forced savings account and should not be added to the final cost.)

  • I’m not sure, but I think we went through a day or two without the President calling out lumber. At some point, you will have too much wood or not enough. Those with too much wood can hedge at a premium and wait it out. Those who do not have enough should go back to the old-fashioned way of buying deeply discounted items and running with those until the smoke clears.

  • Spring… misery loves company, so any consistent warm weather will wake the stragglers up. ( This is not a market factor. Anytime we went into spring bullish, we would find the wood was already bought and delivered.)

 

Technical:

The market broke out to the upside of the wedge, which measures $648. I am still in the camp where the market is headed. The issue developing is that this week’s trade shows up on the charts as a big negative. Lumber historically doesn’t creep higher and then explode up. It tends to trade sharply lower for a day or two. Fund liquidation won’t get the market to $648. Adding new shorts will.

If the market sentiment, which is about 95% bullish, can turn down, some higher levels will be hit.

Daily Bulletin:
The Commitment of Traders:
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 Feb 2025
Agriculture, CME, Hedging, Lumber, Market Commentary, Market Updates, Research, Risk Management, Weekly Prices rcmagserv 0 comment

LEONARD LUMBER REPORT: The dynamic of supply and demand guides most commodities markets

The Lumber Market:

The dynamic of supply and demand guides most commodities markets. Admittedly some do have a slight amount of emotion added to the trade. Not here. Lumber is different. Most of the trade is based on opinions, emotions, and rumors. Supply and demand factors are secondary. We all know it as a fact and have learned to trade the whole package. This last go-around in futures was a perfect example of the smooth-out cycle that many economists embrace. The thought is pricing smooths out over time. Not in a few hours. While I agree with the theory, I have never enjoyed it in lumber. You are never hedged in this market, and that lack of hedging allows for wide swings. Wide swings kill margins, and reduced margins bring in more caution. Today, everyone wishes for higher prices to bolster the bottom line. A $600 2×4 looks much better on the books than a $400 one. We are seeing a market in the greatest smoothing out period in its history after a run to $1700. It takes time and pain. What a western Canadian producer is at has little to do with the market. Times have changed.

We continue to seek a tighter supply environment to raise prices. This is year three of that strategy. At this pace, the mills could continue to hover around break-even indefinitely. How do we survive in this environment? With SYP and Euro not embracing the cutback strategy, the pool of wood is always available. They always look to sell their wood, which is negative. This leaves the battle between SPF and the marketplace.

There are always chances for a commodity to see sharply higher prices when not warranted. Today, lumber is one. At no time should emotions warrant higher prices when a market doesn’t have the dynamics, but they do.

The trend will be down in the next couple of months as housing stays flat, but prices will spike up and back. The market gives up $30 to $50. Don’t look to add more to it. Trade what it gives you.

Now for today:

 The futures market has recovered 50% of this move. 596.30 is 50%, and 61% is 605. Without the algo selling, we could see higher prices, but they will eventually appear. For the next few weeks, the mills will try to dig in. Owning cash today will show a profit.

 

Daily Bulletin:

 

The Commitment of Traders:

About the Leonard Report:

The Leonard Lumber Report is a column that focuses on the lumber futures market’s highs and lows and everything else in between. Our very own, Brian Leonard, risk analyst, will provide weekly commentary on the industry’s wood product sectors.
Brian Leonard
312-761-2636
27 Jan 2025
Agriculture, CME, Futures, Hedging, Housing, Lumber, Market Commentary, Market Updates, Research, Risk Management, Weekly Prices rcmagserv 0 comment

LEONARD LUMBER REPORT: It was a tough week with selling pressure dominating

Recap:

It was a tough week with selling pressure dominating. Who was selling? Most likely an algo that doesn’t grow a position. But I think the bigger question, and one that may linger for a few quarters, is why there isn’t much support on the way down. A quote Friday after existing home sales came out was troubling.

“On an annual basis, existing home sales (4.06 million) declined to the lowest level since 1995, while the median price reached a record high of $407,500 in 2024.” By the way, multifamily construction hit a record last quarter. The industry is very reluctant to participate beyond the contracts that they deal with.

New home sales do better as the existing inventories get sold. Today, with the higher interest rates and record costs, that won’t be happening any time soon. That leaves us in the same atmosphere in 2025 as it was in 2023 and 2024 when the builders created the market. That gives us the duty rally, the tariff rally, and finally, the shutdown/supply rally. At no time does it chase the industry into the marketplace to load up.

If nothing else, the trade is consistent. It made a high and then came back down to value, or at least what the charts call it. We spent a lot of time trading like this at $520. Value is determined by the volume traded in that area. $565 has had a lot. Have we moved our value area from 520 to 560? Too early to tell. The algo type selling strains the market but doesn’t represent it. The industry’s next move will. Just remember, business isn’t dead.

Daily Bulletin:
 
The Commitment of Traders:
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

23 Dec 2024
Agriculture, CME, Education, Futures, Hedging, Housing, Lumber, Market Commentary, Market Updates, Research, Risk Management, Weekly Prices rcmagserv 0 comment

LEONARD LUMBER REPORT: A FLARE FOR THE DRAMATICS

Recap:

” A flare for the dramatics.” That’s how the market was described last week. It was meant for futures but can be easily fit the cash trade most of the year. Here all in or all out mentality drives prices more than supply and demand. The fact that this commodity has been in a range now for over 2 years, but the trade can get chopped up, shows us just how difficult this market is to navigate. At the end of the day, the price always represents value. The main takeaway from last week was that this market is working to redefine the trading range higher. If you look back over the past few weeks, many cash items were back near their lows. That’s not a consolidation higher, but it’s not a confirmation of value. The futures market better defines the overall market as it is a broader indicator of prices and attitudes. Last week we saw a rally of about $40. Yes, it was all in one day and actually all in a matter of minutes, but the fact that it didn’t give it all back tells us that the value area is higher. If all economics remain the same the market has suggested the new value area to be $560 up from $520. The buy zone has moved up. The sell is the premium offered when out of line.

Technical:

It’s hard to find a mirror today’s chart pattern in any markets. The looming gap down to $540 will keep most technicians out of the market. The idea mentioned above of a new value area and how this market trades technically are opposites this week.

The roll has allowed a long algo to trade again. That will be the key to direction this week. That said, with rising open interest in the commercial longs and in the fund shorts, I’m worried more about the downside more than the upside during the holidays. Again, the roll will bring in buying. The best trade of the week is to shut off the computer and come back on January 6th.

Daily Bulletin:
The Commitment of Traders:
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

16 Dec 2024
Agriculture, CME, Education, Futures, Housing, Lumber, Market Commentary, Market Updates, Research, Risk Management, Weekly Prices rcmagserv 0 comment

LEONARD LUMBER REPORT: THE MARKET IS IN TROUBLE

Recap:

The market is in trouble. Last week’s trade was the giveback for futures hitting $620. Now what? The trade was out of sync all week. Futures headed lower while the industry was buying. The selling was met with large buy orders all the way down. These opposing dynamics create a bearish atmosphere. Between the industry buying back shorts, the roll and the makeup of the open interest there is much to unpack. Let’s give it a try.

The industry shorts liquidated 1339 contracts in the last reporting period. I have to start by saying that the number is more spec short than actual commercial. My guess is that most of the 1339 contracts were not tied to a cash contract. My point is a spec trade will exit sooner than a hedge trade. The drop in the commercial shorts (specs) will not create an imbalance.

The roll is not typical. Today there are 995 short funds in the market. Many of those may already be sitting in March. They will not be a factor. The likelihood of the market going from a -30 to a -10 this time is small. There might be some creep in, but nothing of substance.  This is the time that the market gets some positivity out of the roll. Without it, the market stays under pressure.

The cash market just can’t find a bottom. SYP continues to be the market barometer since the moves are so extreme. SPF can’t move away from that fact. It’s the bitcoin of lumber.

Technical:

The January chart sets off a lot of warning signs. It is not very attractive. A commodity chartist called me today and said, “wow you’re going to 0.” We reviewed the weekly chart only to see more of the same. Lumber futures are not reacting to an extreme RSI or stochastic anymore. It now has a lagging reaction time. Most cash traders would agree that in the cash market the same occurs and the need to retime the buy has to develop. It’s less about the deal. Less about the RSI and more about timing.

A good suggestion for those who have to write a 2025 report for the company is that we may be getting closer to our typical $129 trading range. I think the market is going to be forced sharply higher at some point, but for now set up the parameters or bookends for the year.

Daily Bulletin:
 
The Commitment of Traders:
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

25 Nov 2024
Agriculture, CME, Futures, Hedging, Housing, Lumber, Market Commentary, Market Updates, Research, Risk Management, Weekly Prices rcmagserv 0 comment

LEONARD LUMBER REPORT: Coming into the week we were expecting a sloppy trade

Recap:

Coming into the week we were expecting a sloppy trade. With a later Thanksgiving and the recent run up, a technical correction was not out of the question. The problem is that lumber futures have a tendency of unwinding gains in a hurry. That’s what we saw in January futures from Wednesday on. There was no change in market conditions to warrant a rollover so what caused the steep selloff?

The lumber market has changed. There will be times of tightness exclusively caused by supply reductions. JIT from here on out will keep you undersupplied in a trending higher market. That said, the standard operating procedure will remain the same in 2025 with the boss calling for no losses on excess inventories. That’s a receipt for price spikes. Most will agree that it will be harder to buy something in a rallying market. What holds many back is the fact that once the cycle is over there is no support. That is what we are experiencing now. The futures market can settle back towards its original value. With the cash and futures prices so close, I would not expect the futures to return to 560. The discovery period of the next level should be higher. The issue I see is that there are about 15 trading sessions left between now and the new year to gain some momentum. It might be the algo/fund buying or the cash trade picking up again. This is a tough environment for price discovery. Buy the mistake.

Technical:

The market was able to fall to the 595.15 retracement point. The major support point is the 50% mark at 586.25. The RSI is 44.50% and the stochastics are heading lower. Both indicate a market that had pressed higher than value and now is giving it back. If this was a court of law a new precedent of 623.50 is on the books. The 200-day moving average is 566.70.

The key takeaway is how to trade the basis. There needs to be a recalibration of the model. $40 or $50 basis is still great. The issue is when. The first spike could be followed by another so now you are managing the futures. It looks like the trade switch could be one that the trade makes money on the cash side now. All these are signs of a change in trend. We are still in a sideways market. The trend is only a minor factor in the overall trade. If you have too much wood, hedge it.

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

11 Nov 2024
Agriculture, CME, Futures, Housing, Lumber, Market Commentary, Market Updates, Research, Risk Management, Weekly Prices rcmagserv 0 comment

LEONARD LUMBER REPORT: New highs going into NAWLA?

Recap:

New highs going into NAWLA? Now that is different. I think it also shows how this market has been turning early for months now. This lack of supply followed by a lack of demand cycle has kept the buy side off balance. The data indicates that the demand pattern, while not busy, is coming in more often. Buyers are used to a longer lag between buys so are not ready for the next one so soon. There is also an effect on the production side as they drop prices more aggressively looking for a longer lag. I can see the mills taking a more wait and see approach as the buy side stays in. This is all predicated on a bottom for this to be correct.

I made a call for $600 in the July contract back in April. I was surprised on how long the mills would lose money. The windfall from the last few years certainly allowed for some patience. They also have a good understanding of the cycles. This is one that has to play out. Profitability is getting close. My point is there is a lot of unspent capital out there. There is a lot of dry powdered out there. And the economy is good. Not bad for housing.

This is not going to be an easy ride. There just will be less overall pressure. As we speak, they are backing up the Queen Mary to Cape in Florida. The eastern guys have already turned it up. Supply increasing is the biggest headwind to the market. It is no longer rates. The trade is conditioned to back away at any sign of extra supply. When the wholesale community is in the middle there is this false sense of extra wood available. As I said, it’s not going to be and easy ride from here, but it is better. If the mills start to hedge they will keep the market tight.

Technical:

Going back to what was said above, the market this time did not correlated to the norm. The July to Sept run up, followed by the October lows never materialized. This year the market slowed into September only to walk itself up. The technical picture had turned neutral from negative. That wasn’t enough to buy the market but indicated a change. My point is that all three turns in the technicals to become a trade may not work here. There are times where a lag skews the osculators. This was one. If that remains the case, it indicates some downside in front of us in futures, but just enough to get the tech pic neutral. It continues to lean towards hedging. That hasn’t changed.

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

04 Nov 2024
Agriculture, CME, Education, Futures, Hedging, Housing, Lumber, Market Commentary, Market Updates, Research, Risk Management, Weekly Prices rcmagserv 0 comment

LEONARD LUMBER REPORT: It was a very healthy week for both cash and futures

Recap:

It was a very healthy week for both cash and futures. As a combination, it was the best week for price movement all year. The key was the market went higher on its own. There was no outside noise to push it. It was all demand driven. That leads us to three simple scenarios. The first is that the market is still underbought and will stay tight. This could be the case as the “off the market” mill is back in the game. A slow buy could drag the market higher since we’ve had a few years for the buy side to be engrained with less is more. The next scenario is that the market is searching for a new trading level, which would be higher. Futures may pull back and wait for cash but shouldn’t break sharply. Maybe good selloffs followed by rallies. Finally, the typical futures trade. Here, futures drop at least 61% back, often in a quick second.

My first thought is that the reduction in production is noticeable when demand picks up and then fades into the background as the market slows. We have a good handle on the industry’s inventory capacity. Without a logistics issue, capacity will always put a top in the market. Today’s question is whether we should remain confident in the numbers when supply is limited. The trade is content to stay the course. No one has seen any demand creep yet. This run is only a shot over the bow.

A critical factor in this industry is interest rates. Most haven’t noticed, but since the Fed cut on September 18th, the 30-year mortgage rate has risen by 80 bps. Going into 2025, the builders will negotiate the marketplace at a 6 to 7% rate. The Fed is looking for a 3.5 to 4% nominal rate, up from 2%. That will keep the 30-year locked above 6%. I go back to my “check the boxes” strategy. The multifamily guys will find a way to make the higher rates work. There is a ton of money in this sector that likes condos and apartments. They don’t like to “divest”. They value this sector. Our multifamily guys should look for an uptick next year in bidding. I’m not sure SYP isn’t already signaling things are getting better there.

Again, this is a multifaceted industry. The financial drivers go well beyond the mills and distributors.

Technical:

Jan had a $41 run from last Friday’s lows to the highs this week. That’s big. The stochastics were the first indicator of a possible rally. The other oscillators followed. Last week, I commented that the outside spec trade would see lumber as a buy. I’m not sure how much they participated, but we saw a big push through a small hole. Coming into this week, the signal is to sell. With a January RSI of 82.77% and a lag to the rally, they will see weakness and room to the downside. My point is that the futures market is overbought. The cash market isn’t.

Note: the driver in this market is SYP. Follow it for the trend.

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

28 Oct 2024
Agriculture, CME, Education, Futures, Hedging, Lumber, Market Commentary, Market Updates, Research, Risk Management, Weekly Prices rcmagserv 0 comment

LEONARD LUMBER REPORT: Lumber is a very complicated commodity

Recap:

Lumber is a very complicated commodity with the most moving parts of any I have dealt with. That said, it is a commodity and commodities trade value. Lumber is only $20 either side of a trade and can’t get there. If you look at a weekly chart you’ll need a microscope to see the trading ranges for the last 5 weeks. Someone said last week that this market is coiling ready itself for a blowup. I said the same thing 12 months ago. I’m hoping he is closer to right than I was. My point is that the market is draining all the excesses caused by Covid a few ounces at a time. The shutdowns just aren’t showing up in a way that can cause a panic. It looks like more of the same.

A few recap points.

A mill reported a 3rd quarter loss last week. Let’s take a step back. Futures contracts are designed to protect the producer in a falling market. Mills presences will actually put a floor in prices. We have little mill participation today. I’m hoping they take a deeper look into the financial design of futures.

All week I heard complaints about certain items not being available. It is not a free-flowing cash market out there. Now, yes, there are some cheap and available items, but for a flat market things are getting tight. Unless it’s a basis trade, this is a tough place to sell futures. The funds are rolling and exiting. The report this week is up to Tuesday, so it missed the 3 strongest days for the week. It all comes down to momentum. Outside money creates momentum in the lumber futures market. Shutdowns, fires, and strikes all have a very limited effect. The algo and the funds are today’s day-to-day drivers. The lack of that push keeps us flat. Now, it may be defined as flat, but I wouldn’t be short.

Technically, we are married to trying to push to a new high in futures. Cash hasn’t recently allowed it but that too is moving up. In November the last high was 538.00. Today, its 200-day moving average sits at 554.07.

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

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