The Lumber Market:
We are closer. The end is near. No that is not a biblical prophecy, at least I hope not. Most of the announcements should be done in the next two weeks. That will hopefully put an end to all the chaos. Last week the market continued to walk itself higher. The main takeaway is the fact that the short funds are exiting their position. We saw that in Friday’s commitment of traders. We are also seeing it in the way the futures are trading. Normally the short funds will throw selling at the market to see if it could reverse the trend. We haven’t seen any of that. That is mildly bullish. Without their selling the only player left are the spec longs. They continue to push the market higher, but the discount mutes the intensity. Those are the mechanics we have been watching in the futures market. But what about the cash market?
If you step back and look at the cash dynamics, you will expect more of the same. Rallies occur when the market thins out and then falls right back after it. This steady takeaway business is three years old now. It does not create margin expansion and that limits any speculative buying. Today the speculative buying is going from 30 to 90 days inventory for jobs already booked. It is efficient and will not move the needle. The rally cry now is for more expensive wood making the inventory bottom line look better. I’m not sure that is a business plan to base the business on.
September is 667.00. In the next two weeks we will shift from analyzing what value should be to what value is. The guessing will finally get answered. That’s why I believe if we are going substantially higher it will have to be in the next few weeks.
Technical:
The futures market has now checked off all the objectives up to the gap. Momentum definition showed that if the market hit $650 it would go into the gap. It was the same in July noting a close over $600 sets it up for a run to the gap. There is nothing from here up that will call for a new higher objective.
The technical read that has not been recognized is the fact that September hit a high of 714.50 back in late March. The futures market was higher not too long ago. It also traded volume at those higher levels. The low $700’s are a real objective in Sept. Nothing fundamentally has changed since then excepted for a few more closures. Buy the rumor, sell the fact created a run up followed by a selloff of $120. Hedging is a must but continue feeding them in. Given the current demand equation, getting through the gap will be the challenge.
Daily Bulletin:
Southern Yellow Pine:
The Commitment of Traders:
About the Leonard Report:
The Leonard Lumber Report is a column that focuses on the lumber futures market’s highs and lows and everything else in between. Our very own, Brian Leonard, risk analyst, will provide weekly commentary on the industry’s wood product sectors.
Brian Leonard
bleonard@rcmam.com
312-761-263
Soybeans gave back the recent gains as well last week before the report on June 30th. Beans will likely continue to trade in the range they have been until we receive news to direct the market either on the trade agreement side or weather. The Planted Acres report had 83.38 million acres, slightly below expectations. The tax bill going through congress right now may give beans some help by getting rid of a 45z tax credit loophole but until this thing passes everything is on the table to get cut from it. Weather is good for the next 2 weeks so the market needs positive news from a US and China trade deal to give it a boost.
