Tag: Lumber

Recap:

November futures fell $11.50 for the week on low volume. The commitment of traders report shows a gain in both the commercial longs and in the commodity fund shorts. Total open interest for the week was up 700 to 10,546. The additional 300 after the Tuesday report will be added to both piles. It indicates that both are committed to their positions. That’s important.

Macro:

Having a long position anywhere in this industry is difficult when rates are making new highs. The longs are locking in lower pricing—a very micro strategy in a market being driven by macro forces. At the same time, the funds are piling into a winning short position as the macro data continues to gain momentum in this commodity. It really is that simple.

So let’s talk about rates.

The 30-year fixed mortgage averaged 7.28% for the week ending October 1, up from 7.03% the week before. That is a meaningful move for housing, especially with so many existing homeowners still locked into cheap mortgages. Through Q2, 49.1% of outstanding mortgages were below 4% and 65.6% were below 5%. Why move???

The part that continues to be ignored is that a 7% mortgage rate is not historically abnormal. The abnormal period was 0% short-term interest rates turning into 3% mortgages. That was not a healthy economic equilibrium; it distorted the global rate market, flooded the system with cheap capital and changed the way consumers think about the cost of money.

The problem today is not simply that mortgage rates are 7%. It is how the marketplace repairs the damage created by years of near-zero rates. Calling for a return to ultra-low rates misses the point. The market has to learn how to function at a higher nominal rate, and that adjustment takes time.

We are still digesting an enormous amount of capital that was pushed into the system. Until that liquidity works its way through, housing has to adjust through time, income growth, home prices and eventually rates. Rates are only one part of the repair.

That creates two problems for lumber. First, affordability gets worse for the marginal new-home buyer. Second, existing homeowners have even less incentive to sell and move. Neither dynamic creates urgency for the lumber buyer. Builders can lock in attractive wood prices, but cheap wood does not offset an expensive mortgage.

More importantly, even a drop in mortgage rates to 5.5% may produce only a marginal bump if home prices and monthly payments still do not create value. The sector cannot simply be bought off with cheaper money again. Real value has to rebuild.

That brings us to the simplest question in housing: is paying 7% on a large mortgage a better economic decision than renting? For many buyers today, the answer is no. Until that equation begins to change, lower rates alone are unlikely to unleash the demand the lumber market keeps waiting for.

This is where the micro and macro stories separate. On the micro side, lumber prices can look inexpensive, mills can curtail production, and a buyer can justify owning futures against future needs. On the macro side, rates are telling the industry to remain defensive. Until that changes, the funds have little reason to abandon a short position that continues to work.

And that leaves lumber with a familiar solution. If demand cannot be stimulated enough to move prices higher, supply has to come down to meet demand. Once again, the burden shifts back to production cuts and mill discipline.

Here we go again…..

Daily Bulletin:

Note: these fires are a real issue. We will see if they have any impact on our market.

We will start the commentary out with Commitment of Traders. It comes out for the Tuesday-to-Tuesday report, so it lags. Up until Tuesday, most of the trade was blowing out. The industry exited shorts and the funds exited longs. From Wednesday on, open interest started to grow again, with the guess being that the industry added longs while the funds added shorts.

What we continue to see time and again is the short funds getting out only to come roaring back. The fact that the housing market continues to tread water year after year is a contributing factor.

So let’s take a macro look at the economy in general and the trickle-down effect.

There are two opposing features to housing today. The first and greatest is the affordability issue. New and existing home prices are not coming off. At 6.5% and a Q2 median home price of 410,700, you have an overbuilt condition. At 5.5% and 350,000, you have an underbuilt condition. A 6.5% mortgage rate puts futures at 570. A 5.5% rate puts futures at 770.

We continue to be in this tremendously volatile situation. The market has been flat for a few years now, but the upside potential continues to grow.

Typically, a commodity will not stay below producers’ breakeven levels for long. The market is not seeing a steep decline in building activity; instead, construction remains relatively steady. With the announced shutdowns, we would expect producers to begin creating some upward momentum.

For the first time, we are seeing a more regionalized lumber market. Canada is dealing with production challenges as well as duties and fees, but its largest customer—the single-family housing sector—remains sluggish. It is the multifamily sector that is holding things together, and that market is supplied primarily by U.S. producers, who have the ability to add production and generally operate more efficiently.

As a result, the Canadian producer is facing a different set of fundamentals than the U.S. producer. That divergence is creating a market dynamic that has not been seen before. That is why we have two separate lumber contracts, because we have 2 separate markets. That is also why the spruce contract isn’t $700 on its way to $800. Pine is a substitute in many cases. 

Today, the raw data is straightforward: the futures market is trading at a deep discount to cash, and the RSI sits at 15.5%. Historically, these are the types of conditions where inventory is added through the futures contract.

With the funds selling once again, any recovery is unlikely to be a roaring rally. Instead, the market will probably have to work its way higher. That brings the $618 area back into focus as an important reference point.

The September roll is also approaching, and the associated buying could provide a modest tailwind to the upside. While it may not be enough to dramatically change the landscape, it could help support a rebound if the selling pressure from the funds begins to ease.

Daily Bulletin:

The focus on trade last week was the final liquidation in July, which initially pushed July prices sharply lower and dragged September down with it. By Friday, September had clawed its way back to nearly even on the week. We did hear reports of numerous cracks in some items in the cash market. As of Thursday, we viewed the September break as primarily July-related. By Friday, that view became less certain, and now there is growing concern that a cash adjustment period may be developing. The market should give us that answer early this week.

Heads up: Over roughly the last 10 sessions, there have been consistent iceberg buy orders showing up at various levels in the September contract. Given that the market was in a liquidation period, it initially looked like position exits. However, last week’s Commitment of Traders data suggests it was a combination of short covering and new long accumulation by funds. Typically, their approach is to buy strength to establish long exposure, but in this case they appear to be building a position on weakness.

That raises an important question—why would funds be accumulating a long position under the current economic backdrop? Not sure but I do know if the market is going to rebuild toward 10,000 open interest, it will require meaningful participation from the funds. Whether this activity is the early stages of that shift is something worth watching closely.

The technical read is very straightforward—an if/then setup. The 200-day moving average sits at 639.10, and September came close to that level on Friday. The market has now traded above the 200-day four separate times but has yet to close above it. If the market settles above 639.00, expect a meaningful short-covering spike in the following session. If funds add to long positions at those levels, it signals a shift in the broader trade dynamic.

On the downside, support comes in at 622.50. A break below that level should invite additional selling pressure. The likely catalyst for that move would be increasingly negative cash market reports.

Finally: The market quietly made a new weekly high last week, with 638.50 marking the highest level since August 2025. Both the futures and cash markets remain in a positive cycle that began in October 2025. The question today is not whether the cycle has turned negative, but whether we have entered a corrective phase—and if so, how deep that correction could be, if at all.

Daily Bulletin: