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14 Nov 2022
Agriculture, Lumber, Market Commentary, Market Updates, Risk Management rcmagserv 0 comment

THE LEONARD LUMBER REPORT: TODAY YOU CAN’T LOOK AT THE HOUSING MARKET OR THE LUMBER INDUSTRY WITHOUT LOOKING AT THE MACROECONOMY

Weekly Lumber Recap 

11/13/22

Today you can’t look at the housing market or the lumber industry without looking at the macroeconomy. There are no longer sectors, but one big unit of trade and we are married to that fact for a while. Thursday the markets reacted favorable to a better that expected CPI. Equities went higher and rates fell. The best quote I heard was that the market can finally see a bottom. It isn’t close but can be seen. What that means is that we know there will be a bump in layoffs. There probably will be a few companies that go under, but that is all part of the fix. Since the housing industry has such a long timeline new construction planning could be on the horizon. The industry can handle higher rates if in place and expected. A break in home prices will bring about a market again. Low home inventories, less supply of wood, no inventories in the field these are all positives. Things will slowly get better unless there is a blowup, and the fact is that rising rates breaks something. It always happens. Could that be bitcoin?

A $38 billion company with ties to hundreds of firm’s files for bankruptcy. The CEO says, “sorry my bad.” WTF…. I’m not sure that is enough to shake the entire global economy but will do some damage to many sectors from advertising to net worth of a generation. The generation we need to buy homes. It is too early to tell how much damage was done.

This downturn will take time to play out. Prices have to come down. These high prices for homes are unsustainable. With all this wait and see we could expect a sideways lumber market for some time. Rallies will come from a buy round followed by the slow pull back. The buys are only a temporary fix for the mills. They can’t build momentum off of them. Out in the trade price isn’t the driving factor. It is more based on need and as we have seen there isn’t much difference between $430 and $530 if it is needed.

Buy January calls and take the rest of the year off….

NEW CONTRACT:

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

31 Oct 2022
Agriculture, CME, Lumber, Market Commentary, Market Updates, Research, Risk Management rcmagserv 0 comment

THE LEONARD LUMBER REPORT: THE KEY TAKEAWAY FOR THE WEEK WAS A FALLING FUTURES MARKET AT A TIME WHEN THE SHORT FUNDS WERE COVERING

Weekly Lumber Recap 

10/30/22

The key takeaway for the week was a falling futures market at a time when the short funds were covering. The quietness in the cash market was the feature. We are seeing a sharp drop in open interest as the funds exit. While expected it still is worrisome to not see any support from it. What is apparent is the fact that the industry is in drift mode. It is a buy only what you need market. No one can project what impact the rates doubling in 6 months is going to have on the entire industry. This guarded tempo is warranted. If this last rally was caused by the election bubble we expected then it could be a long cold winter. Let’s look at a few issues.

This is an industry with rapidly changing dynamics. The key driver is the Fed. We know they are out to slow the housing market and will do a good job of it. What we are now watching is the big ones. The first indication of a slowdown is liquidity. Most believe that something needs to blow up but that isn’t the case here. What we will see is companies looking inward and slowing most activity. This is the quiet bleed. The other major issue will be when companies start to put the “lists” together for layoffs. This is really the telltale sign. It took almost 15 years to get labor back to a stable level and now they may have to let people go. So, at this point we expect a liquidity crunch followed by layoffs. So that’s the macro picture. What is the micro picture?

As said earlier, we may have pulled forward business expected from the election bubble. We have seen a draw down in inventories to a level that keeps the trade in the market. Granted housing is eroding but the on-hand inventory will always be limited. I did expect to see much better basis business in the last few weeks. What we saw was a very big push back to build inventories or make margin calls. This looks like a one up and three weeks down marketplace. Those are very tradable. Going into next week I think there are three dynamics to watch. The first is that rates have doubled in 6 months and are now called to level off and hold through 2025. That’s not a typo. Next is expectations. Forward-looking reports indicate a slowing of both production and demand. 2023 could look a lot like 2019 as far as the trade goes. Is 402 the low? Lastly is the housing market itself. Some are calling it a meltdown, but it looks too busy to me to call it that. This looks more like a bear market that trades. Use the sell offs to own cheap wood for next year.

NEW CONTRACT:

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 Oct 2022
Agriculture, CME, Lumber, Market Commentary, Market Updates, Research rcmagserv 0 comment

THE LEONARD LUMBER REPORT: Another Positive Week With Futures Adding Another $45

Weekly Lumber Recap 

10/23/22

It was another positive week with futures adding another $45. That’s a run of $148 from low too high in 16 sessions. The first takeaway is that historically lumber liked 16-day cycles so it could be nearing its end. The other takeaway would be the fact that the futures market has only rallied $148. Yes, after hitting a low not seen since June of 2020, one would think it deserved more. The question is if this is a one-time cash buy or if there can be more? I’ll take two looks at the question.

First is the cycle. This cycle has a much better dynamic than the ones seen for the past 6 months. Two weeks ago, the buyer was able to buy cash and flip it in almost the same day. That is typical. The difference in this cycle is if a next buy round occurs the buyer will have a premium futures market to lean on. There is an out. That is something we haven’t seen in a long time. That might be just enough to generate more cash buying. It did in the past, I’m just worried the headwinds will keep most out.

The other and most difficult part of this industry is the gap in value from today till next month. There has always been a gap of some sorts but today many are worried that what they buy today will have no value down the road. It is a very real problem. We have already experienced it in 2022 and 2021. There was a time when a product didn’t hold anywhere near the value it was bought at. With today’s uncertainties most don’t want to be caught in it. That will probably limit the next buy round once the needs are filled in regardless of the futures premium.

Another issue I would like to touch upon is the economic future. There is a constant barrage of economic data hitting us daily. It is all over the prediction scale. I want to go back to an analysis I sent out a few years ago about money and housing. There is a lot of data using the last few recessions to gauge how this one will look. I have to warn you that this will be the first recession since the late 70’s/early 80’s that won’t have money thrown at it. Since 1987 every slowdown has had money push into the system. This recession could be ugly. The one caveat is that just possibly we have pushed enough into it, pre-recession, to be an offset. That didn’t help the Roman Empire but just maybe it can help us. This industry will be back on its heels for months. It will probably take until the second quarter to get a clear picture of housing. That doesn’t necessarily tell us not to hold inventory……

NEW CONTRACT:

Lumber Futures Volume & Open Interest

https://www.cmegroup.com/markets/agriculture/lumber-and-softs/lumber.volume.html

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 May 2022
Agriculture, Lumber, Market Commentary, Market Updates rcmagserv 0 comment

The Leonard Lumber Report: The Fundamentals of our Market are Sound

Change for the Week:

May Futures:    1000.10 -39.60

Open Interest:   2503 -184

Commitment of Traders:   -105 industry longs -104 spec longs

The fundamentals of our market are sound. Repeat; the fundamentals are sound, and there is a strong backlog of business. More business appears every day, and the marketplace is accepting these price levels. That makes today’s market fundamentally sound. The issue is that a lot of that new business has already been bought, and there is prompt wood all over. That leads to the trade having to define its value areas. 

It is complicated to define value today. The manufacturing of this widget has too many components to peg a price to, and it wasn’t long ago we saw a survey that had 83% of respondents calling for a run back to $1,700. Today you have an industry frozen because of last Mays trade, and we end up with a sideways trade. 

The best way to judge price with so many outside issues is to look at the technical read and the trend. A picture is worth a thousand words — the futures market is in a firm channel down, and the high channel sits at $915 while the low end is at $640. This is a 3-month channel that is slow moving, and it could take a month to get to the $640 area. On the flip side, the market would need a change in dynamic to run through $914 and stay. 

Take a look at the chart below. A correction should close the gap above, which was left on Friday. If we don’t correct this by Wednesday, July may be back in the $600 quicker than most want.

 

Open Interest and Commitment of Traders

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

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

About The Leonard Report

The Leonard Lumber Report is a new column that focuses on the lumber futures market’s highs and lows and everything else in between. Our very own, Brian Leonard, risk analyst, will provide weekly commentary on the industry’s wood product sectors.

26 Apr 2022
Lumber, Market Commentary, Market Updates rcmagserv 0 comment

The Leonard Lumber Report: It Was A Grind Higher Week in Futures

Change for the Week:

May Futures: 1002.60 +113.60
Open Interest: 2848 +66
CoT: + 108 Industry   

It was a grind higher week in futures as the cash trade found traction. The timing of this cash buy has come about earlier than many would have liked. Logistics and timing continue to be the issue, and these issues have pushed the trade to the futures for some upside risk management. In today’s volatile environment, most find risk management to be a must. The futures did see light selling by Friday, but it mainly was Dow-related.

It’s time to reintroduce the elephant. The great debate is whether there will be a soft or hard landing. In either case, the ship is going down, and the question is how hard it will hit. While that is an interesting debate, we know the housing sector will be the first to show the negative signs regardless.  

Today the buy-side of the industry is trying to navigate the great unknown. There isn’t a big push to own wood, which keeps the marketplace slightly underbought. Contracts and programs are just enough to keep the pipeline flowing. Logistic issues are now having a negative effect on buyers. Instead of a rush to own enough, the buyer is stepping back and just filling in. Another panic buy is looming out there, but the quantity may be less this time. That is troubling long-term.

 

Let’s Get Technical: 

A while back, the support and resistance channel in May showed an intersection at the $1000 mark, and here we are. Today we have the 100-day moving average meeting the top of the Bollinger band at 1049.60. The 200-day is meeting the bottom of the bands at 861.80. That typically would lead to a breakout. Today it could be signaling a sideways trade. The chart pattern calls a sideways trade from $1200 to $800. The bands are calling it $1050 to $860.00.

 

Outlook: 

There is a change in this cycle’s features going on. Those who limited exposure for the last few years also limited their profits. The cycle is now moving towards those who limit their exposure will be limiting their losses. While that isn’t the case today, the momentum is swinging back. This new feature of limiting exposure is creeping into the industry at a time when demand is good. That leads to tightness. Every dollar higher also leads to less buying. This creates a positive cycle staying in place for a long period. That is what the market indicators are telling us. The short-term investment could be long lumber futures and shorting ARC…..

Open Interest and Commitment of Traders

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

 

About The Leonard Report

The Leonard Lumber Report is a new column that focuses on the lumber futures market’s highs and lows and everything else in between. Our very own, Brian Leonard, risk analyst, will provide weekly commentary on the industry’s wood product sectors.

Before You Go…

RCM Ag Services put a unique spin on National Agriculture Day by going international. That’s right, we jumped right into international waters with Maria Dorsett from USDA’s Foreign Agriculture Services for an interesting discussion about linking U.S. agriculture to the rest of the world.

Each year, March 22 represents a special day to increase public awareness of the U.S.’s agricultural role in society, so why not take it one step further by bringing in a global component? As the world population soars, there’s an even greater demand for producing food, fiber, and renewable resources. That’s why we’re taking a deeper dive into the USDA’s trade finance programs, like the GSM-102, which supports sales of U.S. agricultural products in overseas markets and supports export growth in areas of the world that are seeing some of the fastest population growth.

So, jump aboard (no passport needed), as Maria discusses how U.S. companies use GSM-102, what the program features, and the benefits that it offers!

18 Apr 2022
Lumber, Market Commentary, Market Updates rcmagserv 0 comment

The Leonard Lumber Report: The feature of the week was easily the $122 swing this past Monday

Change for the Week:
May Futures 889.00 -$60.90
Open Interest 2782 +15
CoT + 245 Industry -143 Long Funds

 

The feature of the week was easily the $122 swing on Monday. May went from $40 higher to $80 lower in a matter of minutes. The feature may be more about how it was received than the distance, and it was met with a lot of yawns. What is noticeable is the collective sigh of relief from the whole industry on limit-down moves in futures. People need wood again. Looking at the commitment of the trader’s report, there is a continuing gain in the industry longs. These are forward buys in futures at the discount. They keep stacking up, keeping the cash side slow, and that will turn into business at some point. I would look for that to slow now that cash is close to futures. Any push in that market will cause a futures rally as short hedges cover. That is how the futures swing from a discount to a premium and bottoms cash. 

While we expect the froth starts to come off the housing market, it won’t happen tomorrow. The market has slowed enough to allow the wood to ship in real-time, and it has not solved the logistics issue. We saw back in February reports of the rail sector staying tied up through the summer. Reports over the weekend of nitrogen producers seeing their car allotment shrink have turned the ag community on its head. Planting and growing seasons could see a shortage of fertilizer. If the rail side limits cars to that sector, we can’t see them freeing up more to the lumber side. That will be a factor in our market if the buyers hold out too long. 

 

Let’s Get Technical: 

The focus here is on a bottoming formation. There is a little-known gap in May from 825.00 to 809.00 set on December 1st. May hit $829.30 last week, putting the gap in play. Also, the bottom of the channel comes in at 795.00. If you are getting long, you can use $829 as your stop area. There’s no reason to wait around for $795. On the flip side, we don’t see a value in shorting the market on a rally. A close over $900 and a loss of the algo will send this thing $100 higher overnight. 

 

Outlook: 

Repeat… We’ve seen this drill before. One day the mills can’t give wood away, and then they are off the market. We hate to say it, but it is going to happen again. The longer this one takes to catch, the less the worthy the “sell in May and go away” will be. We see that $1000 wood could now be the new $1400. The mills should start to sell rallies in futures. 

The trade locked in their second-quarter needs around $1400. Today the fight is at the $1100 mark and getting a lot of pushback. The point is a trading level of $1100. If that is the case, then futures are getting cheap. Cash was quoted at $1030 on Friday with no takers. We recommend staying out of the riptide Mondays in futures and waiting for a better read on Tuesday….

 

Open Interest and Commitment of Traders:

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

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

 

About The Leonard Report

The Leonard Lumber Report is a new column that focuses on the lumber futures market’s highs and lows and everything else in between. Our very own, Brian Leonard, risk analyst, will provide weekly commentary on the industry’s wood product sectors.

 

Before You Go…

RCM Ag Services put a unique spin on National Agriculture Day by going international. That’s right, we jumped right into international waters with Maria Dorsett from USDA’s Foreign Agriculture Services for an interesting discussion about linking U.S. agriculture to the rest of the world.

Each year, March 22 represents a special day to increase public awareness of the U.S.’s agricultural role in society, so why not take it one step further by bringing in a global component? As the world population soars, there’s an even greater demand for producing food, fiber, and renewable resources. That’s why we’re taking a deeper dive into the USDA’s trade finance programs, like the GSM-102, which supports sales of U.S. agricultural products in overseas markets and supports export growth in areas of the world that are seeing some of the fastest population growth.

So, jump aboard (no passport needed), as Maria discusses how U.S. companies use GSM-102, what the program features, and the benefits that it offers!

04 Apr 2022
Lumber, Market Commentary, Market Updates rcmagserv 0 comment

The Leonard Lumber Report: Biggest Takeaways From Last Week’s Trade

The biggest takeaway from last week’s trade is that lumber cycles develop and remain in place. We as an industry try to decipher each outside influence on pricing to help make a call for a reversal or add to the confirmation. That was the case last week as a flood of news, noise, and reactions flipped the bull or bear switch a few times. By Friday, all we had was a lower price for the week. The key to businesses is to judge those cycles to be buying on the way down and selling on the way up. Is that possible today with a different rumor every other day and late ship times?

Cycle: 

Cycles in lumber were generally easier to determine as they tended to relate to expirations, holidays, and seasonals. Today, they still relate but are also influenced more by previous trading and potential upcoming issues. This last upcycle, which may still be in place, has lasted longer than most at this time of year. This late Nov to early Mar run was unusual. But if we go back to where the market started in terms of moves, you can see how it became more underbought than usual and thus extended this upcycle. Another factor was that it took longer for the buy-side to reenter the market after the scaring it just took. That is also why you can’t call this upcycle done because the industry has not returned to the normal inventory building. It probably never will, but it’s always underbought in a good demand-driven market. If that catches up to this market, it will rally again.

Economics: 

The publicly traded homebuilders, distribution, and producers are not the darlings of Wallstreet anymore. And why is that? Higher rates and inflation kills housing markets. The only way to come back into favor with the street is through increased sales. If the home builders can ramp it up for the rest of 2022, all three of the sectors will do better. My guess is the plan will be to increase construction based on the uptick in business showing up on desks.

Outlook: 

The market has two opposing dynamics at work today. The one is good demand that is neither letting up nor getting bought for. The other is rising rates etc. Rates will be an issue, as we can see by Wall Street’s attitude towards the industry, but at the end of the day, this is a micro-focused industry. It looks only at the immediate buy or sells, and today it is looking for that cheap buy. 

** There has been an increase of open interest of about 400 contracts. Almost all of that is from the industry, and it is evenly split between buyers and sellers. Many have realized the benefits of using the board to protect themselves from the ever-present swings.

 

Open Interest and Commitment of Traders:

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

About The Leonard Report

The Leonard Lumber Report is a new column that focuses on the lumber futures market’s highs and lows and everything else in between. Our very own, Brian Leonard, risk analyst, will provide weekly commentary on the industry’s wood product sectors.

 

Before You Go…

RCM Ag Services put a unique spin on National Agriculture Day by going international. That’s right, we jumped right into international waters with Maria Dorsett from USDA’s Foreign Agriculture Services for an interesting discussion about linking U.S. agriculture to the rest of the world.

Each year, March 22 represents a special day to increase public awareness of the U.S.’s agricultural role in society, so why not take it one step further by bringing in a global component? As the world population soars, there’s an even greater demand for producing food, fiber, and renewable resources. That’s why we’re taking a deeper dive into the USDA’s trade finance programs, like the GSM-102, which supports sales of U.S. agricultural products in overseas markets and supports export growth in areas of the world that are seeing some of the fastest population growth.

So, jump aboard (no passport needed), as Maria discusses how U.S. companies use GSM-102, what the program features, and the benefits that it offers!

28 Mar 2022
Lumber, Market Commentary, Market Updates rcmagserv 0 comment

The Leonard Lumber Report: The market has been quiet for over two weeks

One of the smartest guys in the industry always reminded me that once the NCAA brackets came out, the industry went quiet. That couldn’t be more true today. The market has been quiet for over two weeks. Futures were off $175 last week, and even print was down. Putting basketball to the side, this usually is a slow period as construction ramps up. Add to the many storm clouds overhead, and you get an inactive market. That said, the dynamics are still very strong. Let’s look at some pros and cons of the market today.

Pros:

  • New business keeps piling in. While the focus has been on logistics issues and supply chain constraints, business keeps flowing in and is at higher cost levels. One forward sales guy compared it to “taking a drink out of a firehose.” 
  • Supplies of new and existing homes are still near historic lows. 

Cons:

  • Mortgage rates are nearing 5% and moving higher. That will affect the buyers.
  • The mills stay at $1,400 while the industry sits at $600. That is an $800 spread! That just is not seen in any other commodity. 

All this will lead to a lower bottom, followed by another bottleneck. 

 

Let’s Get Technical:

Both the daily and weekly are sitting on support lines. At times, the chart patterns have been looking for a bottom but never turning up. May futures needs to hold the $1,000 mark or could be sitting at $920 in a hurry. Please notice the continuous call for areas to hold, and the key focus for the week is $964. That is the 50% retracement of the whole move starting back at $448.

 

Weekly Round-Up:

For the last few months and again back last spring, the market reacted to one thing and one thing only: if there was a car available or not. Today there are cars available, and they either have to get cheap enough or show a risk of going away again. That is when enough buying comes in to chase away the algo. It would not be surprising if the week was a slugfest. 

 

Open Interest and Commitment of Traders:

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

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

 

About The Leonard Report

The Leonard Lumber Report is a new column that focuses on the lumber futures market’s highs and lows and everything else in between. Our very own, Brian Leonard, risk analyst, will provide weekly commentary on the industry’s wood product sectors.

 

Before You Go…

RCM Ag Services put a unique spin on National Agriculture Day by going international. That’s right, we jumped right into international waters with Maria Dorsett from USDA’s Foreign Agriculture Services for an interesting discussion about linking U.S. agriculture to the rest of the world.

Each year, March 22 represents a special day to increase public awareness of the U.S.’s agricultural role in society, so why not take it one step further by bringing in a global component? As the world population soars, there’s an even greater demand for producing food, fiber, and renewable resources. That’s why we’re taking a deeper dive into the USDA’s trade finance programs, like the GSM-102, which supports sales of U.S. agricultural products in overseas markets and supports export growth in areas of the world that are seeing some of the fastest population growth.

So, jump aboard (no passport needed), as Maria discusses how U.S. companies use GSM-102, what the program features, and the benefits that it offers!

Disclaimer

RCM Ag Services is a registered DBA of Reliance Capital Markets II LLC. Trading futures, options on futures, and retail off-exchange foreign currency transactions are complex and involve substantial risk of loss and are not suitable for all investors. Loss-limiting strategies such as stop loss orders may not be effective because market conditions or technological issues may make it impossible to execute such orders. Likewise, strategies using combinations of options and/or futures positions such as “spread” or “straddle” trades may be just as risky as simple long and short positions. There are no guarantees of profit. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge and financial resources. You may lose all or more than your initial investment. You should not rely on any of the information herein as a substitute for the exercise of your own skill and judgment in making such a decision on the appropriateness of such investments. Opinions, market data and recommendations are subject to change without notice. Reliance Capital Markets II LLC shall not be held responsible for any actions taken based on this website or attached links. Parties acting on this electronic communication are responsible for their own actions. Past performance is not necessarily indicative of future results.