Lumber Archives - Page 10 of 11

12 Jan 2022

Lumber, Market Commentary, Market Updates rcmagserv 0 comment

The Leonard Lumber Report: January 10

It’s hard to believe that this market has reentered the hyperbole dynamic we saw last year when the market lacked any restraint in upward pricing. The market bottomed on November 2nd at $606 and has gone straight up since. On Friday, the March contract made a new high of $1,250. That is a run of over 100% during the holidays. So, what are the issues causing these spikes? First is the massive contraction of this industry, creating a buy pattern that is out of balance. There are fewer players in the pipeline, making it consistently tight. The other is the new two-week to 30-day pricing that keeps everyone in the market almost daily. A quick summary of today’s dynamic is that when demand is good, there is a constant need to buy, and when demand slows, there is no need to buy under the current model. We started with the latter this time.

The need to buy throughout the 3rd quarter dropped nearly 60%. The new model of only buying when needed and only buying an item that will ship caught the market short. The previous models always had a buying program in place as prices fell, and these guys don’t. If the market slowly turns, there should be enough inventory at the mill side to keep costs balanced. As we saw in November, the slowing of production and shipment issues caused a bottleneck overnight. The market now needs to settle to ease the pressure on prices.

Today, the issue in front of the industry is that they bought great at $700 then added to the pile at $1,000 but are still averaged well. The next time they step up to the trough price will be $1,200, which is off their charts for breakeven.

Let’s Get Technical:

This type of market doesn’t relate well to momentum indicators. That said, March made a new contract high at $1,250 with an RSI of 76.70%. There is a lot of room to the upside. The math keeps bringing the value (volume) areas into focus. The two areas are $1,250 and $1,550. A good indicator on the last run was the Fib extensions. Today the 1.38% move in March is $1497. The technicals are building for a push to that level, and there isn’t much pushback from the trade. It will take a lot of energy to get there, so a pullback in some fashion would be efficient at this point of the cycle.

Weekly Round-Up:

You heard it here first… Because of global economics, if this market goes up to the $1,500 level, it will take out the historic highs, and the momentum build-up will be too great to cool. So, there should be minor issues out there of prices going higher. If you asked us if we would buy it today, we’d say, “I wouldn’t buy it with all of Doug’s money.” You can’t discount the ease of producing this commodity. There is no fundamental cause for this commodity to be over $1,000, and we just have an incredibly inefficient marketplace today.

Open Interest and Commitment of Traders

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

https://www.cftc.gov/dea/futures/deacmesf.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…

The 2021 U.S. grain crop has the potential to be one of the largest on record. Where did all the yield come from, what areas were the hardest hit, and why on God’s green earth are grain prices still so high?

05 Jan 2022

Lumber, Market Commentary, Market Updates rcmagserv 0 comment

The Leonard Lumber Report: 2022 Outlook

What a year. The housing industry plowed through 2021 with record disruptions and record sales. Once a pipeline issue was resolved, another would pop up. We are coming into 2022 with a tight supply and high demand for this commodity. Big dollars continue to flow into the economy, and now a house has reappeared as a valuable asset. There is also roaring inflation which is a double-edged sword for this commodity.

The fact is the housing market is exceptional, and lumber prices are trending higher. The positives are firmly in place, while the negatives will need a dramatic economic shift to come into play. The black swan could be rates or inflation or a greater covid blitz. In any case, it would have to be dramatic. Let us dive into the key factors controlling this industry. Our gut instinct is to rehash the past, and we’ll attempt not to bring up the obvious.

2021 — Year in Review

We came into 2021 at a futures price of $870. While we saw $1,000 the year before, this was much too high for the industry. The refusal to buy put an industry, seeing increasing volume in construction, critically underbought. From there, a panic ensued, and the market went parabolic.

The biggest takeaway from 2021 is that the trade was willing to pay unheard-of prices for wood and passed along the cost. No price level slows buying, and there is no longer too high. What higher prices do is generate a greater supply at a quicker pace. When there is a disruption in the chain, prices go straight up. Today we are either in the middle of that cycle or near the end.

Many would build a plan around the “bookends” of that year’s trade in the past. This is a critical drill for the industry in 2022. The need is to create a value area. We need to look at some of the economics out there to look at the value of this commodity.

Housing starts average in 2021 was 1.586 million. The consensus is projecting a 1.6 number in 2022. That number could be far greater if there were the ability to build. As we said back in 2018, there is only so much capacity to go around. This year, many builders have chosen to scale back building plans so as not to get overextended. Others are adding numbers with lofty goals. Profitability drives their planning, and with the lack of availability still present, profits will stay high.

Where should value sit at 1.6 million starts?

The cost of production is skyrocketing in this industry as in all the rest. The last report showed wages up 9.2%. Yes, that is correct. That means the person who changes the oil in the logger’s truck to the people who do the final cleaning on the home before closing makes about 10% more. And that is if you can find a person to hire.

In the United States, the average monthly job offerings number is around 6 million — The December 1st number was 11 million. The stat that shows the mood of labor is the “quit” rate. This is usually a sub 1% number, and it was a whopping 3% in November. 3% of workings are quitting. These numbers are unsustainable, but many of these costs will not come off.

The best indicator today of the economic issue is the current inflation rate, and in November, it recorded 6.8% with an upward trajectory.

All this is a result of flooding the system with cash. That is flooding a system that was already building strength, and that was not the case in 2009 when the economy was headed lower. We must remember that many funds are circulating in a small economic space today. At this point, it will have to inflate itself out of the problem, which will end the housing run.

We talked earlier this year about how the housing market reacts to a cash-infused accelerating economy. With a better economy, expectations were for the first-time homebuyers to jump into the market after the “lost decade.” We have seen that increase, but more than expected went to the multi-sector. Under these dynamics, an increase in rates will not cause a slowdown in home buying. The norm has been about 38% of first-timers buying new homes, which is now closer to 20%. The troubling statistic is that the 38% group are investors. We do not need to review what happened the last time it was that high.

Projection:

Usually, most outlooks are a counter-trend analysis. Today we see only roses. This industry is highly complicated because of the various amounts of input at all levels. One factor could be bullish at one point and bearish at another. Today, we have numerous positive inputs that will lead to higher prices. At the same time, those factors have a shelf life. The tightness factors are slowing. Last year once those factors were finished, others crept into the equation. The next correction will indicate if that repeats or not. In the meantime, expect the 2021 swings again. It will also look remarkably familiar to the old-time seasonals that would make a top in the first quarter, do the sell in May and go away for the summer, followed by the fall buy starting the cycle all over again.

2022 will show owning lumber products will be a sound investment. Also, owning some type of downside risk management will soften the blow of the wide swings, especially when it is down. It is no longer a “time the buy” market; it is an opportunistic buy market.

About The Leonard Report

Before You Go…

20 Dec 2021

Lumber, Market Commentary, Market Updates rcmagserv 0 comment

The Leonard Lumber Report: The Three “C’s” of the Industry

Introducing the Three “C’s” of the Industry:

The best way to recap the market is to look at its tone. To sum it up, we will introduce the 3 “C’s” or confusion, congestion, and consternation. We’ve heard repeatedly, “how could this have happened so fast?” The trade was not looking for an early start to the yearend run. It also believed that there was enough supply. That proved to be incorrect. Most of the supply issues are related to the congestion at transportation points caused by COVID and weather. Things are fluid but at a pace that allows shipping to stay fluid. That is not at a pace to fill in the needs.

This leads us to the third “C,” or consternation. Concern and anxiety about future wood deliveries have trickled back into the marketplace. All have been caught in that nightmare this year and the nightmare that followed. Most are now working towards not being there again in 2022. So, we are ending the year with a more aggressive buy pattern than usual at a time when things are moving slow.

The issue plaguing this industry is its overall weakness in defining value. At $600, 50% of the industry went hand to mouth. At $900, 80% of the industry is hand to mouth. There is no investment in between. The buy-side has to scale into the market as it falls, and that will take the volatility out of the market. Waiting for the bottom is not a business strategy. We think we are seeing more of that today, but after the fact. When everyone owns $1,200, it will be a long way down again. This commodity fits well between $650 and $750.

Let’s Get Technical:

There is a lot of noise between here and 1,000 in January. Trying to gauge the trend during the holidays is fruitless. We’ll say that January futures were up $20 for the week, but the RSI fell 13%. The market is technically very friendly, but trading during the quiet holidays with some big gaps below takes some enthusiasm away from the long side. The Fibonacci points below could be the range to finish out the year:

38% 929.80

50% 1079.00

61.8% 1228.20

Weekly Round-Up:

This push higher had a lot of energy, and in this industry, the earlier the energy, the quicker the end. We think this market needs to cool some for the holidays, but we, including Rick Santelli, Kramer, the Fed, and everyone else, have never been here before. Today the consumer is accepting higher prices as the norm. There isn’t any pushback; builders are paying up, multifamily guys are paying up, homebuyers are paying up. Next year, we have no actual data to track for possible outcomes. Buying futures here could be the best trade of 2022.

Open Interest:

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

Commitment of Traders:

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

04 Jun 2021

Corn, Crude Oil, Dow Jones, Grain, Lumber, Market Commentary, Market Updates, Podcast, Soybeans, Weather rcmagserv 0 comment

AG MARKET UPDATE: MAY 28 – JUNE 4

Volatility continued this week as the market suffered small loses week over week. Corn planting was seen at being 95% planted this week with the first crop condition rating of the year at 76% g/e. Early yield estimates from Barchart.com have national US corn yield at 173.2 BPA for a total yield of 14.4 billion bushels. This implies 90.5 million acres planted with a 92% harvest rate. These numbers would lead to shrinking US ending stocks for 21/22 – NOTE these are just estimates and it is very early in the process.

This weeks volatility was a classic example of a news driven market. One day weather was the main price mover and another outside forces such as metals and the USD pulled markets down across the board. Old crop corn export sales this week were strong coming in at 531.1 tmt and new crop sales were 439.5 tmt. Both of which are solid numbers where old crop sales were better than expected while new crop were within expectation.

Via Barchart

Contrary to Corn, Soybeans made gains on the week. Planting was seen as being 84% completed at the onset with no crop conditions being reported just yet. World veg oil prices rallied during the week pulling beans up with it while corn struggled. With US exports to China lagging in recent weeks, the bullish stance on beans continues to be robust. Should buying resume, any and all purchases will help the export numbers and further be supportive for the market. This week’s exports were within expectations for both old crop and new crop with new crop leading the way with 180.3 tmt.

Via Barchart

Crude oil continued its gains of recent weeks reaching the highest price in 2 ½ years. The demand for gas continues to grow as lockdowns ease and summer travel, both by cars and air, begins to ramp up. OPEC announced they will up production again in July. While a bearish on the surface it would seem additional increases will be needed to slow this bull. Optimism about Europe’s reopening along with the continuation of good news in the US on covid vaccines and reopening of states has been the main driver. US crude oil inventories were also lower this week than the 5 year seasonal average showing the demand is there.

Via Barchart

Dow Jones

The Dow gained on the week as it strung together several days of small gains with only small pullbacks. The craziness of the reddit trade returned this week with $AMC, $GME and $BB having wild bouts of volatility. Other indexes finished lower for the week as Nasdaq struggled on Thursday.

JBS

JBS was the victim of a recent cyber attack that caused them to have to shut down many plants. All were up and running by the end of the week but between this and the Colonial hack we may begin seeing more of these targeted attacks effect US consumers.

Lumber

Check out our recent post about the lumber market and what all has been going on. Lumber has leveled off here recently but it is still well ahead of where it was before the run up.

Podcast

Check out our recent podcast with Dr. Greg Willoughby: We’re talking with Greg in the new episode about being a “plant doctor”, weather patterns, GMO & organic produce, crop history, technical advances, level 201 education on agronomy, the agronomy equation, Helena Agri, soil biology, American v European agriculture, Greg’s early background in livestock, and the advancement of native plants to modern produce.

https://rcmagservices.com/the-hedged-edge/

US Drought Monitor

The map below shows this week’s drought conditions across the US. Parts of southern Kansas and northwest Oklahoma got relief this week while parts of North and South Dakota may receive much needed rain in the next week.

PRICES

Via Barchart.com

21 May 2021

Agriculture, Corn, Grain, Lumber, Market Updates, Soybeans, Weather, Weekly Prices rcmagserv 0 comment

AG MARKET UPDATE: MAY 15-21

Corn had a decent week following the collapse to end last week’s trading. The biggest news was on the export front where China continued their large purchases of corn adding on to the impressive pace of Chinese buying for new crop. The US weather looks good for planting as some areas continue to try to get their crop in the ground ahead of summer temperatures setting in across the country. Other corn demand news remains positive as the EPA is expected to leave the ethanol mandate unchanged and Brazil’s second corn crop continues to shrink. Brazilian private analysis firm Agro-consult cut their estimate of Brazil’s corn crop to 91.1 million metric tons which is 10.9 mmt (430 million bushels) under last week’s USDA estimate. With a shrinking South American crop the demand for US corn this year should be high. That said, anything under 175 bpa yield could really tighten the balance sheets. US corn was seen as being 80% planted at the start of the week with more progress made this week.

Via Barchart

Soybeans continued its dip down this week as the demand has shifted to Brazil where prices are currently lower than in the US in the near term. Funds have taken profits after holding historic long positions. It will be important for them to get involved if we want another run up as demand and US weather will be the main fundamental drivers for the near future. Soybean planting was seen as being 61% complete to start the week as more progress was made this week. Good weather vs a slowing in demand has given the bears momentum this week but there is still a long way to go and we know China is likely needing to make additional bean purchases along with corn.

Via Barchart

Dow Jones

The Dow has made small gains on the week as the markets remain volatile with up and down days. Covid around the world delaying reopening’s are causing some issues in places, like Japan, which has the worlds 3^rd largest economy.

Lumber

Check out our recent post about the lumber market and what all has been going on.

Podcast

https://rcmagservices.com/the-hedged-edge/

US Drought Monitor

The map below shows this week’s drought conditions across the US. Some areas received rain over the weekend improving some areas while others, like the Dakotas and Michigan, remain dry.

Via Barchart

07 May 2021

Agriculture, Corn, Cotton, Dow Jones, Grain, Lumber, Market Commentary, Market Updates, Podcast, Soybeans, Weather, Weekly Prices rcmagserv 0 comment

AG MARKET UPDATE: MAY 1-7

Corn continued it’s hot run this month with a great week in both old crop and new crop prices. As Brazil’s safrinha crop keeps facing a dry outlook, pressure is mounting on the US to produce a great crop to fulfill world demand. The US forecast is turning wetter for many major growing areas but remains cool for this time of year. The cool weather is not ideal for early growth, but the rain will be welcome in areas facing drought conditions (see map at bottom). There is a rumor of more Chinese interest in new crop which helped propel old crop to end the week. Despite poor exports this week, this news, along with South America’s troubles, have been the market moving news this week. The US corn crop is seen at 44% planted at the start of the week beginning May 3.

Via Barchart

Soybeans followed Corn this week as they also saw strong gains. China’s ASF news has slowed as of late which is good for export expectations to China. The world demand has continued to be strong and helpful to prices in both South America and the US, while US beans remain competitive in the world market even at these levels. The recent wet and colder weather across much of the US is not expected to cause any issues for the soybean crop except maybe pushing planting back in some areas where farmers also must wait to plant corn. 25% of the US soybean crop is seen as being planted for the week beginning May 3.

Via Barchart

The big question right now: What is going on with cotton? Cotton has not enjoyed in the rally in 2021 that other commodities have. The demand has been there, but there are already worries about the 2021 cotton crop. Normally these are a recipe for higher prices, right? The fundamentals would agree as higher comparative prices for other commodities may take away some cotton acres by the end of planting season. The technical side has been cotton’s enemy as of late as they have not been able to make new contract highs, unlike the grains. The world shipping bottleneck does not appear to be getting any better and as the US continues to come out of lockdowns along with other countries demand will only make it worse. This problem needs to be solved sooner rather than later.

Via Barchart

Dow Jones
The Dow was up this week while other indexes were mixed with the Nasdaq and Russel falling. As earnings continue to be reported many of the winners of the last year have posted strong quarters but it appears the momentum behind them have slowed as good earnings have sometimes been followed by selling.

Lumber
Check out our recent post about the lumber market and what all has been going on.

Podcast
Check out or recent podcasts with guests Elaine Kub and Kyle Little. Elaine and Jeff discuss grain markets and trading grains while Kyle helps give insight into the Lumber markets and what has been going on.

Listen with Kyle:

Listen now with Elaine

CME
CME Group announced this week that it will not re-open its trading pits that were closed last March at the start of the pandemic. The Eurodollar Options pit will remain open. See the full press release here.

US Drought Monitor
The map below shows the current drought conditions throughout the US as planting continues across the country.

Weekly Prices

Via Barchart.com

21 Apr 2021

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

Lumber: A Demand Driven Rally….On Steroids

If you haven’t been watching one of the more esoteric futures market lately – Lumber – you’ve been missing a rather parabolic up market – up nearly 9% last week, 27% for the month, 78% for the year, and 280% over the past 12 months. Move aside dogecoin!

So how does a $300 commodity that regularly deals with events such as wildfires and sharply higher housing starts now come to be trading at almost $1300?

To answer that question, we checked in with our lumber expert Brian Leonard to get the inside scoop:

Unlike most other commodities, lumber is used in a product with a long decision-making process. Housing has a long timeline. While the production of a 2×4 is rather quick, the cycle from tree to house is much longer. And because of that abnormally long period of time, lumber futures have the possibility of overlapping economic cycles and seasons. With that amount of lead time available how did this commodity get so under-bought, so under-produced and so under-supplied to cause a 300% increase (!!!) from it’s typical price?

#1 is the effect on housing due to the increase in federal funding (or QE as we now call it). It is the way for the Fed and Treasury to shore up the economy which leads to the building of wealth and ease of access to funds at a low interest rate. In doing so, there can be a positive affect on the stock market, as we’ve seen – and in typical fashion, the housing market tends to increase in tandem with the stock market and the U.S. economy. In this case, history serves as an indicator in three occasions of this excessive capital spike in recent history. The first was the run in the late 1940’s after WWII, then in the mid 2000’s caused by a substantial drop in cold war funding in the 90’s and September 11^th. Today the flood of funding has been caused by Covid, and the numerous stimulus packages and prevalence of low rates – which can generate excessive demand.

Today what we have is one of the greatest economic “perfect storms” ever seen in a commodity; one that has been brewing for years. This current explosive market dates all the way back to 2006 when annualized average new housing unit starts hit a historic high of 2,273,000 (Census.gov) with close to 50% made up of second home buys and limited credit – we saw a top and the net result was a saturated housing market.

Note: (That was occurring at that time when the bug kill timber out of BC was peaking keeping production abnormally high.)

The oversaturation slowed building month over month and by the second half of 2007 the starts number fell below the teardown rate. For baseline, the teardown rate is considered between 850 and 1 million homes tore down or destroyed each year. Construction from mid-2007 to mid-2012 was less than teardown and was the longest period in history for such a low number of new homes built. The “great recession” of 2008 to 2010 was the biggest factor causing the depressed state of construction.

One of the lasting effects of the recession on the industry was an increase in permanent closing of producing mills in North America. While there were plans already in place because of shifting supplies and landscapes for timber etc….the recession seemed to ramp up the pace.

A second factor under the radar of economists was the effect the recession had on many families, especially future first-time home buyers. The ones we called the “lost generation” in housing which were those who graduated between 2008 and 2012. This group had difficulty finding a job that would earn enough to pay off their student debts let alone marry and buy a home. The housing market now lacked those first-time home buyers and there was a major shift to apartment living in the urban areas. Pubs and pups was the new mantra – marriage, kids, and house was no longer a goal of most.

The period from 2013 to 2018 saw a steady slow growth in housing led by the boom in multifamily. Single family construction was still lagging. 2018 showed the first signs of an imbalance between supply and demand in lumber causing a sharp run up in futures to a new historic high of $659. The previous all time high of $493.50 was made in 1993 and caused initially by the spotted owl issue. The 2018 run up had many other issues such as a tax duty, long commodity funds and an industry short. There was also a more aggressive embrace of just-in-time inventory management and these factors combined were setting a bullish tone Firms were set up to be under inventoried and forced to pay higher prices.

Today, the biggest factor changing the landscape was the Covid-effect. This market was likely heading higher due to the low housing supply (requiring more lumber demand) and going to see issues regardless, but the Covid reactions have multiplied them.

The biggest factors that have led up to this run up:

A drawdown in production capacity of dimension lumber
A low inventory of new single-family homes
Historic lows in mortgage rates
Historically high amounts of capital flowing into the system
Greater wealth caused by a sharply higher stock market
An unprecedent shift to single family homes

Adding Covid to the mix; we saw a stoppage of production at mills with only a marginal slowdown in construction. At the same time, we saw rail and trucking slow, and to this day rolling shutdowns at some mills and rail remain. Another issue affecting lumber prices is trucking and the lack of available drivers; we currently have the smallest pool of new drivers in recent history. T This shrinking pool has slowed or stopped any increase in available trucks as Covid has shifted many to Amazon.

Real Time Issues:

Inability to increase production causing supply constraints
Buyer paralysis either mentally or financially… financially could be a low credit line and over budget all because of a $160K train load of lumber.
Unprecedented rush to single family homes with a yard (no more commuting, work from home effect?)
Reduced distribution chain which points back to issue 2 above

So where is the relief? The relief from higher prices will only come from a slowdown in demand. That slowdown might be self-inflicted because of the lag in the building chain either because of the lack of OSB (Oriented Standard Board), appliances or a paint color. This will slowdown construction down and allow some of the froth to be lopped off the top. It will not decrease construction plans, but maybe just draw them out. The greater relief valve will be a slowdown in traffic going into the summer. The higher prices for homes and the longer time frame for construction will start to weigh on the market. But this also will only give temporary relief. A fundamental change in buyer sentiment needs to happen. In the meantime, if you cannot or will not build inventories, the marketplace will always be short. It is that simple.

– Brian V. Leonard
Brian Leonard is a 30+ year veteran in the commodities trading space. Brian began his career as an assistant in the Soybean pit in the early ‘80s, and moved on to wood products in 1994. Brian’s current role for RCM Ag Services is to serve as a Risk Analyst, specializing in the wood products sector. His customer base spans a large spectrum ranging from wood producers to home builders with all different types of risk management needs. Brian also assists with risk management within the currency and fuel sectors. Brian recently received an MA in Pastoral Studies at University of St. Mary of the Lake, and uses that to work with churches in low income neighborhoods in the Chicagoland area.

19 Apr 2021

Agriculture, Corn, Cotton, Dow Jones, Grain, Market Commentary, Market Updates, Soybeans, Weather, Weekly Prices rcmagserv 0 comment

Ag Markets Updates: April 10-16

Corn had a good week as we reach new contract highs in May for old crop. As you can see in the 1 year chart below after trading in the $5.30-$5.60 range for a couple months corn has seen a strong response since the Projected Plantings report came out. The export numbers this week were not great, yet corn was still able to post a positive day following the report as the number was still 10 million bushels above the weekly total needed to meet USDA estimates. Analysts are expecting Brazil’s safrinha crop to potentially lose 5 million metric tonnes due to the late planting and stress from the drought conditions that have been present for a while. Ethanol stocks are the lowest mid-April they have been since 2014 showing that demand has ramped back up as re-openings continue. Some corn planting has started in areas across the country but this week’s cold weather will bring it to a stop as many areas will have to wait for it to warm back up to continue planting.

Via Barchart

Soybeans saw small gains on the week, but for the most part it was a quiet week for beans after a slight dip then gains. The news in the market around soybeans has been limited which is why the corn and bean chart are starting to look different. The cold weather that will delay/pause planting in some areas will not have much, if any, effect on soybean planting as they usually begin later anyway. Beans are now well off their contract highs for old crop and until we get back to those levels do not expect any strengthening look from the charts. Soybean’s will continue to move with exports and if anything crazy happens in South America but will probably slowly follow corn just how corn followed soybeans until now for the short term.

Via Barchart

Cotton continues its rebound from the recent lows as world demand continues to increase and consumer spending rebounds. The dollar has also weakened recently supporting commodities as well. Retail sales for the month of March were reported this week climbing 9.8% as stimulus checks were spent and consumers get back out in the market. With cotton prices where they are compared to other crops many farmers are stuck with a difficult decision on which to plant. In some cases, farmers in areas such as west Texas, currently suffering from bad drought conditions, may elect to plant sorghum (milo) as a cheaper to produce alternative that has a much wider planting window. The drought conditions are a problem (see map below) in many areas, but when 40% of the cotton crop is expected to be planted in Texas the supply and demand story come the fall comes into play.

Via Barchart

Dow Jones

The Dow gained on the week despite the news that the Johnson & Johnson vaccine distribution will be put on hold after 6 cases of a rare blood clot after giving out over 7 million doses. The reopening strength has still been playing in the markets as many consumers are out and about again after receiving stimulus checks.

Lumber

In case you have not been paying attention to it, lumber prices have been high for a while now but continue to climb. In the cash market any wood that is for sale is bought immediately and this is also being reflected in the futures market with it now trading over $1,200. This plays out in the cost to build houses in a real estate market that has been hot the last year in the US despite the pandemic.

US Drought Monitor

The map below shows what areas of the US are currently suffering from drought conditions and as you can see it is widespread. As planting begins in many areas some areas will be delayed as they wait for a good rain to help them get in the field. The drought in Texas will have the biggest effect on Cotton as over 40% of the US cotton crop is expected to be planted there.

Weekly Prices

10 Aug 2020

Agriculture, Corn, Cotton, Lumber, Market Commentary, Market Updates, Soybeans rcmagserv 0 comment

Ag Markets Update: August 1 – 7

Corn took it on the chin this week, again, as crop conditions and weather forecasts continue to point toward the potential of a record yield. With strong conditions and weather moving forward, most of the corn belt, with the exception of parts of Iowa suffering from severe drought, are running out of time for many weather factors to effect the crop. Keeping an eye on forecasts for Ohio and Michigan will be important to farmers as they could use some rain in those areas but are not desperate, yet. If the forecast continues to look promising there is not much bullish news out there to help find support with a 180 bpa crop still in play. Keep an eye on exports as we continue to see strong export numbers but little positive price reaction as a product of it. Yield estimates range from 178-183 bpa from what we have seen from across the spectrum, showing that many top experts believe a record yield could be seen this year.

Soybeans had a tough week like corn because high yields are still very much in play on top of already strong stocks. Without China ramping up their purchases to try and at least act like they are trying to reach the Phase 1 Trade Agreement; beans are running into a demand problem. Bean yields are looking to potentially be 52+ bpa with a 73% G/E rating this week saw prices take a hit. Beans and corn have been moving lower over the last few weeks as few weather issues and no large surprises in demand have come to fruition. Any problem that China has with the Three Gorges Dam area could lead to more purchases but a total failure of the dam would be a disaster as it could cause a massive loss of life along with flooding of large areas of farmland.

Cotton has seen a boost this week as it, like other raw materials have seen a boost as demand around the world starts to come back. Another supportive factor for cotton has been the continued decline in the value of the US Dollar. The threat of Hurricane Isaias effecting the crop in the SE helped give a boost early in the week but how much damage it actually did to the crop remains to be seen. If prices can breach and stay above 65 cents that would be a good level of support.

Phase 1 Trade Agreement Meeting
The US and China are set to have their first check-in meeting to assess how Phase 1 is going (spoiler alert: not great). This is on top of recent tensions over the closing of embassies and spying allegations. Not sure that anything good can actually come out of these talks but they will be worth keeping an eye on August 15^th. Hopefully we see a commitment to ramp up and get a boost to start that week following.

Lumber
Lumber continues its upward trend to price levels we have not seen since 2018. Lumber is a commodity the is easily produced because of the sheer quantity of it available supply is not an issue to slow down consumption. As many purchases and contracts are done well in advance the demand has not wavered as much as the pipeline of getting it from A-Z has. In a volatile market like this, especially during this kind of positive run for price, nobody ever wants to call the top so looks like everyone may want to ride it out and see what happens.

10 Jul 2020

Agriculture, Corn, Dow Jones, Lumber, Market Updates, Soybeans, Wheat rcmagserv 0 comment

Ag Markets Update: July 4 – 10

Corn had a choppy week only to end $0.09 lower after last week’s shockingly bullish USDA report. The main price mover this week was the uncertainty in the weather outlook. The weather post July 15^th has been in limbo of hot and dry or cooler with some rain. Hot and dry would hurt the crop for the long run lowering yield, which is when we saw the prices rise on certain days. The post July 15^th to August 1^st period is very important to keep an eye on moving forward as the weather will be the key mover and the August 10^th USDA report is worth keeping an eye on. The eastern corn belt looks to have extreme heat and dryness over the next week after a round of rain earlier this week…but let’s be honest, the weather man is only right 10% of the time = changes to the forecast are expected and prices will react.

“Supply side for corn ad beans adjusted due to the changes in planted area, so nothing too exciting there. But corn demand got cut quite a bit. Even so, the ending stocks are below trade expectations,” Scoville says (agriculture.com)

Soybeans had a similar week to corn with some up and down price movement after the rally last week. The hotter and drier outlook in parts of the Midwest will have an adverse effect on the crop like it will for corn. The lack of sales to China is are still holding back the market as Phase 1 continues to trail behind trade goals. Like corn, keep an eye on weather moving forward but as mentioned before. And big purchases from China would be a promising sign, but it doesn’t seem like that’s bound to happen any time soon:

Meanwhile, trade relations between the U.S. and China remain relatively frosty. President Donald Trump noted earlier today that relations are “severely damaged” after each has accused the other of mishandling the coronavirus pandemic. Trump indicated a planned phase-two trade agreement is still on the table but is not a priority right now. (farmprogress.com)

Wheat got a boost this week (+$0.42) as Russia and Europe’s wheat crops look to come in well below pre-harvest estimates. Low harvest numbers from the rest of the world is bullish for U.S. wheat prices as our growing season continues. This boost is very welcome following the last few months of declining prices. The markets will keep an eye on Russia and Europe as they progress through harvest.

Via Barchart

Dow Jones
The Dow continues to move on any news related to COVID-19. A lot of uncertainty hangs over the U.S. and the markets as spikes in cases continues around the country. An important thing to keep an eye on for the markets will be what schools decide to do in the fall, as going back to school is being used as a tool to also try and continue to reopen the economy.

Lumber
September lumber futures reached a multi-year high this week and are now up +82% from their April multi-year low. The best way to sum up the market place is by watching it print. It was up $48 – $498 since Wednesday. There isn’t enough wood to supply the needs, and mills are raising prices at will. It is a market squeeze that only ends once the pipeline is filling or prices shut down purchase order books.

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Tag: Lumber

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