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Lumber prices are set for a shakeup with the rollout of new futures contracts
Posted on 7/24/22 at 5:21 pm
Posted on 7/24/22 at 5:21 pm
This sounds like the lumber industry getting ahead of a RE market that is cooling off. The futures market has not been that volatile since interest rates started going up. It seems like they know the market is about to slow even more so they are going to offer smaller contracts since building will continue to slow down.
LINK
quote:
CME Group is launching a new lumber futures contract that could ease price volatility and boost trading volume.
Starting next month, the new contracts will offer one-quarter the amount of wood.
That will allow trucks to make deliveries, instead of just railcars, opening up the potential for more trades.
quote:
Lumber prices have been on a wild ride in the last few years, but they could soon get less volatile, even with trading volume set to soar.
Along with other top commodities, lumber prices have seen big swings since the pandemic. They collapsed below $300 per thousand board feet in early 2020, jumped to $1,000 later that year, crashed again, soared past $1,700 in May 2021, tumbled back down, rebounded to nearly $1,500 in March of this year, plunged yet again, and are now below $600 as the housing market slows down.
Earlier this year, leading lumber futures were so wild that they routinely hit their daily limit-down or limit-up price triggers, freezing trades for the remainder of the session and prompting the industry to look for ways to make the market more liquid.
Now, CME Group is launching a new lumber futures contract August 8 that is meant to facilitate deliveries and draw in more participants, potentially smoothing out prices with a number of changes.
Among them is allowing trucks to fulfill contracts, instead of just railcars. For reference, a truck can carry enough lumber for two houses, while a railcar can carry enough for eight, lumber trader Stinson Dean told Insider.
Since trucks carry about one-quarter the amount of lumber, the new futures contract gives more buyers the ability to hedge off smaller projects that didn't fit the old contract's sizing, he said via email.
LINK
Posted on 7/24/22 at 5:25 pm to stout
Why the frick do we sell wood this way?
Posted on 7/24/22 at 5:41 pm to stout
When the frick is plywood coming down??
Posted on 7/24/22 at 5:56 pm to stout
What are they doing about concrete prices? Can't afford to encase dead bodies these days.
Posted on 7/24/22 at 6:19 pm to stout
So is this good or bad for the privacy fence I’m planning.
Posted on 7/24/22 at 6:52 pm to stout
I have a great uncle who made a small fortune selling dirt. He sold a bunch of land that was intended for development (commercial and residential). The buyer/developer tried to force him off of the land well ahead of the agreed deadline. He didn't care for it. So, my uncle set up a shack and started selling dirt. Day and night dump trucks ran in and out of the property. By the time the transaction was finalized and the new owner/developer took possession of the land, the land was a valley.
People from the area would know the land. It is/was the eventual site of a minor league baseball stadium, among other things.
They tried to sue him, but failed. He was still the legal owner and there was nothing in the contract about the dirt/soil.
ETA: That has nothing to do with lumber futures, but the talk about dirt gave me a flashback.
People from the area would know the land. It is/was the eventual site of a minor league baseball stadium, among other things.
They tried to sue him, but failed. He was still the legal owner and there was nothing in the contract about the dirt/soil.
ETA: That has nothing to do with lumber futures, but the talk about dirt gave me a flashback.
This post was edited on 7/24/22 at 6:54 pm
Posted on 7/24/22 at 9:39 pm to stout
So does this mean wood prices are finally coming down to non-insane levels?
Posted on 7/25/22 at 4:59 am to stout
This article implies that folks were not trading futures contracts to manage the price risk of buying and selling lumber in the physical market. In commodities there is a financial and physical market. In order to use the financial futures market to manage price risk in the real lumber market, the two prices must converge each months before the close of the futures contract. If this does not happen, there is too much basis risk and you cannot effectively use the futures market to manage risk in the real market. The hope is that with the smaller futures contract, more people will enter the futures market, increase the volume and therefor increase the liquidity and the two will converge ! This will make it much easier and effective for managing price risk in the real lumber market ! If your long physical lumber, go short ( sell) futures contracts- conversely if your short lumber, go long ( buy) futures contracts!
This post was edited on 7/25/22 at 5:04 am
Posted on 7/25/22 at 8:54 am to stout
So after all the horseshite, wood is still going to be priced twice of what it was pre-pandemic.
Posted on 9/27/22 at 11:33 am to stout
So is the price going to continue going down or will this stop it from crashing with the RE market?
Daddy needs a new fence.
Daddy needs a new fence.
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