re: Lumber prices are set for a shakeup with the rollout of new futures contracts

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does this mean wood prices are finally coming down to non-insane levels?

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My guess it probably not

Not anytime soon anyways

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!

Yadda yadda contango

I got 96 downvotes for not having seen Trading Places. Haha.

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if your short lumber, go long ( buy) futures contracts!

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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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Wood shouldnt be a commodity any more than dirt is.

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You do not know what the definition of a commodity is.

NOUN
a raw material or primary agricultural product that can be bought and sold, such as copper or coffee:

I got 96 downvotes for not having seen Trading Places. Haha.
—-The OT expects you to watch it and give us a full report ;-)

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You don’t understand how the futures market works to manage price risk ! Once your hedged, you don’t care what happens to the lumber market price. It could go or down but your price is locked in.

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I’m buying a contract “today” for a future delivery of lumber and that price that I pay is based on the markets estimate of what the future price.
Correct?

No. The price you pay is the cost of the futures contract for the month you purchased it. When you liquidate or sell that contract at the end of that month- so called clear your contract, you apply the gain or loss to the actual purchase of lumber in the physical market. Of course all this assumes that the closing price of the futures contract and the price of physical lumber converge as it does in a mature -well functioning futures market like natural gas, precious metals etc. These commodities have futures contracts that are deep and very liquid so that there is no trouble clearing your position toward the end of the contract. The only risk you may have is the basis differential that exist between wherever you purchase the real lumber and the location where the futures contract clears for possible delivery. If your in the business , you should study up on this. The rational for lowering the volume of the lumber futures contract is that more people will use it therefore increasing the volume ,liquidity and depth of the market.

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I knew a homeless man that once bankrupted two brothers trading orange juice futures

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Got damn, I love this movie. It's a favorite around Christmas time.