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Tag: Lumber

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

Leonard Lumber Report: There is still too much wood out there

Commentary: 

There is still too much wood out there. This week the euro traders had to not only deal with a soft market but also with the basis wood getting cheaper daily. Add to the mix that every Friday those with contract wood start off in the negative and you get this extreme malaise. With the amount of construction going on out there the market is either telling us the slowdown will be drastic or we are undervalued. Neither will be answered anytime soon so for today the market is the true indicator. Futures are on day 13 of this sell off. The rally lasted 16 days so the market could be close to bottoming. The resiliency of futures the last few days in light of all the algo selling pressure tells me it is close. What the bounce will look like is anyone’s guess, but the conditions are for a better grind higher market into the spring and not a spike up from the low.  So, prepare for the spike and how for the grind.

Economic:

The housing starts report this week added to the confusion already lingering throughout the industry. Today multifamily units under construction are at the highest level since 1973. Combined single and multifamily there are 1.7 million units under construction. That number bumps up against the record. These are seasonally adjusted numbers. That said, there is near record construction going on with a third of the country dormant because of winter. When digging down into the numbers one must wonder with construction at this pace are we really under built? Rents are sticky, so I would expect that pace to remain in place while single families continue to fall off. The construction dynamics bare some resemblance to the housing market in 2004-2005. That is when the housing bubble burst. The housing sector was in a bear market well before the 2009 economic meltdown. The pace of today’s construction will lead to an overbuilt industry at some point. In a year from now we will not have 1.7 million units under construction. Now let us add to the confusion. The fact is today there are 1.7 million units under construction and that makes $382 way too cheap.

Technical: 

March futures objective is for the January settlement of $344. The gap will be closed at $359.00 but the market is searching for value and that is the last expiration. The fact that the market is headed back to that area is troubling long-term. It indicates that $344 wasn’t a onetime fluke. It was considered a value the first time down and now is the area of rebuilding. The next rally up may just have to correct back again to this area. Momentum is oversold and a correction is coming but the market is not stair stepping higher yet. My only hope is that it isn’t a continuation of the stair stepping lower mode. In any case these are good levels to own wood going into the spring.

Below are the option links to the new contract. Please take a look at the quote page for options.

Quote page: https://www.cmegroup.com/markets/agriculture/lumber-and-softs/lumber.quotes.options.html#optionProductId=10192

Calendar Page: https://www.cmegroup.com/markets/agriculture/lumber-and-softs/lumber.calendar.options.html#optionProductId=10192

 

CFTC Commitment of Traders report still delayed!!

 

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

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

LEONARD LUMBER REPORT: The market just experienced a long needed buy round

Commentary: 

The market just experienced a long needed buy round. It started as a fill in and turned into a fill up. The buy side had the futures to lean on so many stepped up their buying. The problem with that was the fact that futures fell quicker than expected and now there is more wood out there than needed. You throw the Euro wood into the mix, and we have more wood chasing too few dollars again. In traders’ terms “the market lost the bid again.”

Economic:

The key to housing fundamentals is labor. We went all through the teen years without enough skilled labor. Finally, prices were forced up enough to allow wages to rise and get the needed labor. We have not seen any layoffs in the home building sector so far. That is a sign of confidence on the home builder’s side. Today we are all data dependent. The builders are not seeing big downturn in the numbers but its early.

Technical: 

It is hard to believe but the week gap left by the expiration is coming back into play. That gap is 419 to 344. Please remember the last time I talked about the gap the market rallied $100. This time I don’t think the timing is right for a rally. The downside channel comes in at 379.50. The expiration pushed the market over the channel not market conditions. This area has become relevant again today but is also now defined as cheap.

The market of the past few months reminds me of the typical “controlled burn” markets of the past. You have to hold inventory because the spikes are quick and violent. We are back to the first buy is good and then not. The difference on this one is there just may be a premium to sell in futures to stop the bleeding. That’s what just occurred. The other positive is now futures are headed for a deep discount allowing forward pricing again. That is a controlled burn. There is a path to mitigate risk and invest.

 

CFTC Commitment of Traders report still delayed!!

 

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

06 Feb 2023
Agriculture, Lumber, Market Commentary, Market Updates, Research, Risk Management, Weekly Prices rcmagserv 0 comment

LEONARD LUMBER REPORT: The futures market lost momentum last week but still remained near its 3-month highs

Commentary: 

The futures market lost momentum last week but still remained near its 3-month highs. The indifference trade was caused by a flat cash market. It is hard to tell if the resilience shown in futures was from a better outlook or from funds covering shorts. We have been flying blind the last few sessions as an outage in statement reporting at many firms has stopped the CME from being able to report open interest accurately. It has also prevented the CFTC from issuing the commitment of trader’s report for last week. What we do know is that the housing market, like equities, has support. Mortgage rates are back down to 6.09% which equates to another 3 million buyers who now qualify. Traffic is reported to be better than expected. While it is down sharply from the Dec 2021 highs, it still shows potential. After Friday’s jobs data we can be confident that there are buyers out there and they have jobs. All past housing downturns remained negative because of job losses. This isn’t the case this time. The key takeaway from last week was that once the froth is off the market and when homes become affordable again there is a market waiting. Let’s take a broader look at the economics.

Economic:

The Economic downturns have a timeline from when it reaches recession, pushes capital into the system and then recovers. This process tends to take time. Milton Friedman called it “the long and variable lag.” Today, unlike ever before, there is enough capital in the system to move the economy out of a recession. Since we have never been here before no one can tell us what it will look like. That said, the consensus seems to be leaning to a longer timeline for things to turn. The typical move would be to cut rates and boost confidence. Without that type of stimulus, money will only trickle into the economy. The markets are acting less nervous and more confident. If this economy has its way the market will move from point A to point B instead of heading to Z from A.

Technical: 

Things are as not bad as we thought they would be at this point, and the rally in the lumber market just confirmed it.  The upside focus is on the 200-day moving average. It is sitting at 564.75. That’s a $200 futures run in a short period of time. The market got caught short. The slight sell off last week allowed a few of the momentum indicators to correct. That’s mildly friendly and consistent with reports from the field. Builders were projecting cutting production by 40%. It turns out that they only cut 20% so far. A 20% reduction from lofty highs isn’t a reason for $335 cash but it also isn’t a reason for $600 cash. The technical read is right.

Notes:

There is a lot of confusion about the commodity funds in general and especially those in lumber. The funds that participate in the lumber futures market are generally ones with either a focus on a basket of products or purely momentum. The long fund that is getting all the press recently is a fund that carries a basket of commodities on the long side. This Rogers fund has been around since the early 2000’s. We haven’t seen it for a while during the big run up but seems to be back. The last commitment of traders report two weeks ago had the long fund count at 393. We have no way of knowing if that is all Rogers or if it is made up of a few funds. I have heard that smaller funds were looking at lumber futures when it was in the $300’s so it could be spread out some. On the other side are the short funds. Those looked to be mostly momentum funds that add to a winning position. They hit a high of 1955 open interest a few weeks ago. The last report had them down to 954. These types of funds carry defined positions based on equity. They are designed to add as the market goes lower and exit when it rallies a certain distance. There is no opinion of market direction. When the futures market was breaking $400, they were adding. When the market failed to continue lower and turned, they began to exit. The question today is of how much they will liquidate instead of rolling because of the switch of the contract. These funds are designed with strict liquidity rules. They will not accumulate open interest in an illiquid market. That said, if this is one fund or a big fund with tags attached, it has been making a windfall in this market. Their design has worked extremely well so I would expect them to stay around but the downside momentum model could be less profitable from here on out.

 

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

01 Feb 2023
Agriculture, Lumber, Market Commentary, Market Updates, Research, Risk Management, Weekly Prices rcmagserv 0 comment

THE LEONARD LUMBER REPORT: The futures market ran $95 higher last week and is now up $165 from its lows

Recap:

The futures market ran $95 higher last week and is now up $165 from its lows. The cash market also had a good week, rallying $55. It is up almost $90 from its lows. While the previous week’s rally was mostly fund buying this week was very well rounded. My thoughts of a tight ranged slog are out the window. The industry is settling into the thick of the economic issue and finding that it isn’t that bad. Many had to enter the cash market sooner than expected to lock in jobs. The market would typically digest after a sharp move, but what we saw in futures on Friday may prevent that. There were two 100 lots bid within a dollar bid. That raises numerous issues and red flags.

Economics:

The completion chart I showed last week indicates a topping housing market. Most would agree that home building has slowed, but would also agree that the rapid pace of construction was not sustainable. The economy as a whole will spend the rest of the year bouncing from sector to sector with bad news. This type of economic cycle will lower home prices and pressure interest rates. That’s a plus for our industry. With a better outlook, less Euro wood and Canadian production we can see the lumber market finding some type of balance. Add in a China opening, and the US supply and demand curve is closer to equilibrium. I can’t stress enough the fact that any indication of an over bought or oversold market equates to a big move today. This market is no longer conditioned to move $70 on news. It’s conditioned to move $300 or more. The reason being is all the consolidation the industry has gone through over the last 20 years.

Technical:

The focus last week was on the looming gap below the market. Today it is still the focus but this time with a positive spin. The gap was created by an expiration and not better business. (At least I thought) Today that gap is still in place and has created a very supportive trend line. It comes in at $397.70. It’s not often we see a pattern reversed from negative to positive on a long-term chart in just one week. That’s what happened here. The long-term pattern is now showing a possible V bottom. The issue today is the short-term pattern. With an RSI of 88% and the slow stochastics turning down there should be some type of correction coming. A $50 pullback would not influence the cash trade. It will be a technical correction in futures. Basis traders need to be aware of this possibility to liquidate the trade.

Note:

If you created a simple math equation in 2000 for the breakeven price of lumber by 2020 it would come out to be roughly $380. Now add the fact that from 09 to 11 the industry did not build enough to offset teardowns and you get closer to $420. Add covid logistic nightmares and the number is higher.

Summary:

The market broke out a month earlier than the industry wanted. The higher wages are going to allow buyers back into the market. As I said before, inventory is an investment not a liability. Buy it. You can always sell the futures if you don’t like it.

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

23 Jan 2023
Agriculture, Lumber, Market Commentary, Market Updates, Risk Management, Weekly Prices rcmagserv 0 comment

THE LEONARD LUMBER REPORT: The open interest in fund shorts dropped almost 30% for the week

Commentary: 

The open interest in fund shorts dropped almost 30% for the week. That answers where the robust buying in March came from. It also shows that the funds are outright liquidating. They did abruptly stop buying as of Wednesday dulling the futures trade. Without the fund buying the futures premium to cash comes into focus. I’ll talk about the chart formation when I write the technical piece, but I would suspect a sloppy week is coming.

Economic:

The positives of the housing industry need to be mentioned often to reenforce the potentials. The chart below is of housing completions since 1968. It shows a modest uptrend for the last 8 years. A mild pullback in construction will smooth out the covid spike but also keep the trend in place. Housing isn’t dead. It just got ahead of itself. The chatter out there is that if rates were 6% 8 years ago and wages were rising at today’s pace demand would have stayed the same. That’s interesting. Today it is all about affordability. The market priced the buyer out of the game. We now have to wait for convergence. Existing homes are down $50K since June. Rates are down to 6.15%. There is still a way to go, but it is going in the right direction.

Technical: 

That’s one hell of a gap below the market. This upcycle has extended most of the momentum indicators enough to warrant a correction. Those two factors indicate a pullback is coming. The question is how much? As far as futures go any selloff is met with good support. The futures quickly become oversold whereas the overbought side takes time. I’m sticking with the current range projection of $392 to $456 with $411 now representing a pivot area.

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

 

09 Jan 2023
Agriculture, Lumber, Market Commentary, Market Updates, Research, Risk Management rcmagserv 0 comment

The Leonard Lumber Report: The market continued its drift lower as the cash market was silent

Commentary: 

The market continued its drift lower as the cash market was silent. At this point I think you need to begin the process of determining value. March futures sit at $370. That is the lowest price seen since April of 2020. $370 is not low if you compare it to the last 50 years. It is low if you compare it with the last 5. So, the question today is whether the recession is going to be deep or mild? If you answer the recession question, then you also answered the value question.

A recession is slowed by infusing the system with capital. We have never had so much available capital in the marketplace in history. That money sitting there needs to be used. Is that enough to soften the recession? I don’t know. I’m guessing that the recession doesn’t need to be that deep, but the trickle-down funding process could keep it dragging on. That won’t kill the housing market. If the recession is going to be mild, then this industry needs a buy round. There hasn’t been a good buy since October. One is needed today just to get the players back in the game. It will be short and not cause much of a rebound but is needed. Buying wood at $330 or lower is a low-risk investment. It’s hard to believe the pushback. I’m not looking for a reversal in the trend. With supply and demand going in opposite directions the clean-up will take time.

Technical: 

The fundemental and technical picture is one in the same today. The RSI in March is at 34% at its contract low. That is not bullish. It keeps making new lows and not getting oversold. If you look at cash it also keeps trading lower and not finding any interest. While both are due a bounce, the bottom building process is just that a process. A good visual is if you draw a line from the high in Feb of 2010 at 327.50 straight accross till today. The market has some downside potiential and a hell of a lot of upside. The shortside of the trade is difficult from now on. Tell that to the funds.

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

03 Jan 2023
Lumber, Market Commentary, Market Updates, Research, Risk Management rcmagserv 0 comment

LEONARD LUMBER REPORT: 2023 Lumber Market Outlook & Affect on Housing

2023 Lumber Market Outlook & Affect on Housing

The following report summarizes today’s lumber industry and housing. I use past data to project future scenarios. What can’t be measured is the buyer attitude, cultural norms, and trends. The data is going to paint a troubling picture while in fact the housing market has tremendous underlying strength because of the cultural shift to homeownership. There is a whole generation out there of new home buyers. Today they are just waiting for it to be affordable again. Hopefully by the end of this report we have some type of idea whether that will happen in 2023 or not.

Interest Rates:

“The Fed wants housing dead.” If you want to curb inflation you attack the largest segment of the growth wheel. Powell is laser focused on our sector. The is no reason to enter into the debate of whether it will be a “50 or 25” move. Our focus should be on the ratio of wages, home prices and rates to get a better read of trajectory. The average mortgage rate over the last 50 years is 7.76% according to mortgagerates.com. The current rate of 6.30% seems manageable. Weekly wages jumped 6.20% last year. The is the highest rise in wages since the early 1980’s. The dominant factor is home prices. The explosion of prices post covid has taken many out of the game. Home prices and the CPI tend to track well together. A cooling CPI will not necessarily cause a fall in home prices but will lead to home value erosion. It will be purely a mathematical change. The prices will be forced to relate to the marketplace. Today the math adds up to a marketplace will accept rates close to 5.5%, median home values are under $400K and wages that are consistent with inflation. Those points are closer than most think. The issue, as always, in 2023 is if the Fed overshoots. This is the key factor for housing in 2023. A stagflation model will keep demand and construction underwhelmed.

Cost of Production:

The cost to produce, from logs to transportation and also wages has gone up substantially over the past few years. What we have experienced in other commodities after their spike was a return to a level about 35% over their 30-year average. There is a strong correlation here. Those markets found costs higher after the fact. Doing the math that puts the low end of lumber prices to be near $420. Over time that number will be a feature and should be factored into your business plan. Our all-in and all-out cycles make it hard to buy value.

Starts:

Home construction is slowing with expectations of it continuing. From the forward-looking statement coming out of the builders to the reports from those who feed the home builders, things are going to get slower. If you look at the chart below the analysis shows the starts number to close in on the 1.1 mark. The defined business plans in 2023 from the home builders is fluid. It is going to be developed quarter by quarter. The structural decade plan was for a 1.4 pace. Covid accelerated that number and now it is pulling back but construction can be turned on in a short time period given many plans are already in place. In this scenario the longer the pullback the quicker the rebound.

Import/Export:

Here is a component of pricing that has never had as much an impact as it does today. The sheer number of traders in the Euro space is a factor in overall pricing today. They can drive the market. That has never been the case before. We are currently seeing how much downside pressure it is putting on the market. The question now becomes as we move into 2023 and shipment are curtailed will that boost prices? The other positive is the fact that Asia exports are off substantially. There is a lot of capital available to build in China. The increase in exports overseas will at a minimum tighten up certain markets. There are some possible green shoots for the market in this sector.

Wages/Employment/ Money:

Wage growth is currently sitting at 6%. As we try to compare that growth to years back, we must recognize that most families are dual income today so 6% is a big number. The buyer isn’t too far off affordability. There is that natural drift away from buying after such a spike, but incomes will allow home buying. It will take time to accept the higher level. Employment is the key to all this analysis. If unemployment takes off the housing market will go into a freeze mode that takes months to thaw. My analysis calls for a continued rise in unemployment but leveling off at some point in the 3rd quarter. Most will be comfortable with their employment status. And finally, with have a very large amount of excess capital out there. From infrastructure to chip building the dollar amount is enormous. That capital spending will trickle into housing.

Summary:

A drag across the bottom could be unsettling in 2023 to all who haven’t lived it. Not just in the lumber industry but in most others. There will not be an all-good signal until the cycle plays out and that won’t be for many months. That said, any signs of a turn in the market will bring in a robust buying environment that will fail. What is needed is a guarded deliberate buy program to build a value area. Inventory will become an investment not a liability. There won’t be a perfectly timed buy. It must be ongoing. There also won’t be the volatility we are used to. This will be a grind year with spikes higher. Grind is good.

The recession is the key to the 2023 housing market. Gold and silver, yes those old men investments, are showing a inclination to a heavier recession than what is projected out there. The other side is talking about copper and its positive tone indicating no recession. None of this will help our current issue of liquidity but could project the distance of the problem.

 

Happy New Year!

 

Brian Leonard

[email protected]

312-761-2636

19 Dec 2022
Agriculture, Lumber, Market Commentary, Market Updates, Research, Risk Management rcmagserv 0 comment

THE LEONARD LUMBER REPORT: The liquidity issue in the marketplace seems to be getting worse not better

Weekly Lumber Recap 

12/18/22

Happy Holidays!!

The liquidity issue in the marketplace seems to be getting worse not better. At this point in the cycle, we should start to see a few green shoots. None were to be found last week as futures hit a new low on Friday. The outside markets are having a bigger than normal effect on our trade. Mostly due to the lack of news here. I’m confident that overall production on January 1st. will be less than the amount produced December 1st. The market seems to agree but throws in the fact that there will also be less homes starting on January 1 than started on December 1. The question becomes of how long the drifting lower will remain in place.

Look at the chart below. It has a Fibonacci measurement from the contract low during covid to the highs in 2021. Look to the left and 2019. The sideways price channel for the year was developed with an average of 1.29 starts. If that is the number, we are looking for 2023 then a sideways trade for a year could be expected. I’m not sure if that will develop but it does look like the current futures market wants to test that theory.  I’m in the camp that next year will be somewhat subdued, but at a higher level. Next week will be more of the same unless the short funds start to cover. It hasn’t shown up yet so that is even a limited wish.

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

12 Dec 2022
Agriculture, Lumber, Market Commentary, Market Updates, Research, Risk Management rcmagserv 0 comment

THE LEONARD LUMBER REPORT: What a difference a year makes

Weekly Lumber Recap 

12/11/22

 

What a difference a year makes. This week 12 months ago saw a $170 trading range with a high of $1069. Last week we saw a $50 trading range and a high of $436. Last year the market was in a full panic. Today it is not. The reason I bring this up is that it has been one hell of a run and now we are suffering from the hangover. No one can argue that we are in full stop mode that has pushed prices to the lowest level since the covid shutdown. Is it sustainable? Probably not. Will it go lower probably. All that said, this market is going to start working itself out of this spiral lower trading. What are those indicators?

This market has sold off sharply because of two issues. The first is the drastic slowdown in construction on the horizon. The other is an industry with no appetite for inventory. The first is a known value. The estimates of a 30% reduction in building are getting announced almost daily from builders large and small. The distribution side of the industry is in for some real pain and is drastically trying to curb supply. That brings us to the other issue and that is the fact that everyone is curbing inventories. Everyone is off at least 30% of volume by now. That is a formula for the downward spiral to end. That does not indicate a turn but shows a limited downside from here. If you add in the technical read, we get the same conclusion.

The weekly outlook shows a pattern of limited downside. The futures market has traded between the moving averages and the lower band since June of 2021. Today the spread between the lower band and the averages is $100. That spread was over $300 for almost 2 years. The lower band sits at 374. The averages sit around 473. The market could take the 373 band out, but history tells us that it will recover. That band will lower but it isn’t indicating that today. This pattern also shows us how much resistance there is at the 473 level.

To sum it up the call is for a bottoming action followed by a sideway trade. Most of our headwinds are not supply and demand related anymore. They are driven by outside economic issues. This week’s Fed announcement could upset our market, but regardless we have started the process to find equilibrium. The lack of the roll has been surprising.

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

05 Dec 2022
Agriculture, Lumber, Market Commentary, Market Updates, Research, Risk Management rcmagserv 0 comment

THE LEONARD LUMBER REPORT: IF YOU HAVE BEEN AROUND LONG ENOUGH YOU HAVE SEEN TIMES WHEN THERE IS NO MARKET

Weekly Lumber Recap 

12/4/22

If you have been around long enough you have seen times when there is no market. It was always caused by some event. This time the focal point is on the free money causing an overbuilt/overpriced housing sector. The market now has to digest the run up. Commodities in general will have extended swings as traders are either 100% in or totally out. The issue today is that the buyside continues to add cheap product to the pile for the first quarter. This could be a Peter and Paul moment. We are going into a critical week for the market. There needs to be a shift in interest level going into the end of the year. We shall see.

I talked about the futures market starting with a 3 handle back in late July. It took over 4 months to get there. Except for a few corrections the futures market has traded sideways. Only when the cash market accelerated down did futures finally sell off. Futures were building the bottom end of the range. Today they are just following an unhinged cash market. My point being that futures is looking at the low $400 as a tradable level. That is not a buy recommendation, just a value area. I have been around too long to think the mills will find a bottom anytime soon. Firms today really believe that all this will end soon, and things will be back to normal. There is little planning going on to limit exposure. It will take time.

The technical picture could be friend or foe. On the friendly side the whole momentum complex has come together. Rarely has a market continued its trend without some type of correction. With the RSI at 29% there may be more downside but with the pattern and going into the holidays I expect a little pop. Now on the foe side the Bollinger bands are moving sideways but January futures closed under the lower band. Futures tend to bounce right back into the band area. If futures continue down, it will take time and distance for the bands to catch up. Doing the math today that level would be $307.80. There is the shock.

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

Disclaimer

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