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re: Lumber prices are set for a shakeup with the rollout of new futures contracts
Posted on 7/25/22 at 4:59 am to stout
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 10:04 am to kew48
quote:
if your short lumber, go long ( buy) futures contracts!
Why?
Without some appreciable increase in demand, I don’t see what the driver would be for any price appreciation and with rates hitting +5% that has to be a damper on future building activity
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