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
312-761-2636