Plunge in Lumber Contracts Signals Turning Point for Wood Rally

imageCommodities1 hour ago (May 18, 2021 01:18PM ET)

(C) Reuters. Plunge in Lumber Contracts Signals Turning Point for Wood Rally

(Bloomberg) — While builders are still paying record-high cash prices for lumber, the futures market is signaling that the historic rally could be coming to a close.

The Lumber contract for July delivery fell $63 on Tuesday, the maximum permitted by the Chicago Mercantile Exchange, with the price sinking to $1,264 per 1,000 board feet. That’s the seventh straight session of falling prices for the futures contract, marking the longest streak of declines since September. Lumber’s most-active futures contract is down 27% from its May 10 peak of $1,733.50, a level more than four times above prices a year ago.

While the drop indicates market weakness, with traders saying the preceding rally went too high, builders who need to purchase wood for summer projects are still paying top dollar due to tight supplies at sawmills and strong demand.

The Fastmarkets Random Lengths U.S. Framing Lumber Composite Index soared to a record $1,495 per 1,000 board feet on Friday, the most recent pricing. That is up 6% from the week prior and nearly four times the price of a year ago. A composite index for oriented strand board, a plywood substitute product, jumped 3% from the previous week to $1,426 per 1,000 square feet, five times more than a year ago.

“The mills have this order file where they’ve sold the physical production through the middle of June,” said Greg Kuta, chief executive officer of Westline Capital Strategies Inc., an Ohio-based firm that specializes in lumber trading strategies. “They don’t have to come to the open market here and take counteroffers on their physical cash for at least two to three weeks.”

(C)2021 Bloomberg L.P.

Plunge in Lumber Contracts Signals Turning Point for Wood Rally

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.