The Leonard Lumber Report: Futures Drifted Lower With Cash 

Futures Drifted Lower With Cash 

Last week’s feature was a very sloppy cash market, which dragged futures lower on light volume. We are sure of two things going into this week — The first is that the industry wants to buy cash, and the other is that they don’t want to today, which would be a reason for the slow grind lower of futures. It is anticipating a buy. Starting Tuesday, the front month is January, and all the focus for the first quarter will be on it. The trade is looking closely at forward sales, but the fact that mill prices continue to inch lower daily has taken some out of the game. It’s interesting how many in the industry will hold out for the last $25 down, risking $100 up. We expect a better tone after the Thanksgiving holiday. 

Supply and Demand 

As the industry gears up for the next push, we must look at supply and demand issues again. On the supply side, we saw a decrease in shipments from Canada last month and are expecting the same in November number and again in December — These are transitory numbers. The production and shipments should go back to normal after the new year and new stumpage costs. Now, when exactly that extra supply hits is in question, the effect on the market will be driven by demand.

Reports of a Robust Q1

Reports of a very robust first half of the year are numerous. If that alone were the feature, we would be calling for sharply higher prices. With projects still experiencing a start/slowdown/stop cycle, we’re not sure the added production will offset the increase. 

If we are still looking at the $550 area as breakeven, this market is closer to a bottom than a top. Having never been too involved with the dumping/duty issue, it is too hard to make a call. If all the mills go up to $50, it is still cheap.

Let’s Get Technical:

The tail of two timeframes. The daily technical picture has been negative for about three weeks now. They are getting a little overdone if you measure the timeframe, but other than that, they are still showing a negative bias. 

The longer-term picture has been positive, just showing a downward wave in a positive cycle. Next Friday will give us a better look at the longer-term outlook.

Weekly Round-Up 

This next week has two immediate features, the basis trade, and the duty. Both are potential bear traps. We still believe that the last three months were just a form of price discovery. The market has most likely seen the bottom end but not yet the top.

Open Interest

https://www.cmegroup.com/markets/agriculture/lumber-and-softs/random-length-lumber.html

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…

For the past year, commodity prices have perpetually soared and continue to trend higher. We’re diving into the fertilizer forecast with a unique guest, Billy Dale Strader, a branch manager for Helena Agri-Enterprises in Russellville, KY., who is truly at the epicenter of the rising fertilizer prices.