Lumber futures climb into records and more than double for the year, as the epidemic increases demand

Lumber Futures has managed to do something no other major commodity has done than to suffer an epidemic in the economy – more than double the price to touch its highest level on record since the beginning of the year.

LBU20 for September-September contract in futures prices,
+ 3.33%
According to Dow Jones market data, Thursday settled at $ 939 per 1,000 board feet, the highest on record. Prices were up around 132% year on year based on front months.

Both cash and futures reached an all-time high, “past a moon high”, said Greg Kuta, president of lumber broker Westline Capital Strategies, saying the move was “reversed as a parabolic, explosive move.”

Demand for wood was expected to fall due to the epidemic, but demand did not go away – it just happened “late”, and now increased amid shelter-in-place planted to stop the spread of COVID-19 The demand is, some have decided to move to the suburbs, while others, whom Kuta refers to as “weekend warriors”, have used the time to repair and repair their homes. He said demand is easily in the ballpark of 10% to 20% above pre-COVID levels.

“There is still a shortage of wood in the area – at the end-user, retail and distribution levels”, Kuta said. “The demand component still exists more than the supply situation.”

The supply of timber declined in March and April due to restrictions imposed to prevent the spread of COVID-19. Kuta said that there was probably a drop in supply in the market from around 15% to 20%, as production fell significantly due to an eight-week decline in operations. It “does not return in a swoop.”

The September lumber contract is currently considered a spot month, Kuta said, referring to the nearest month for delivery. Nevertheless, he reported that the September contract stands at a “huge discount” for the November contract LBX20,
+ 3.20%,
Which trades at a high volume with an all-time high between September and November. The November lumbar closed Thursday at $ 611.40 for a difference of more than $ 327 from the spot month.

Bottom line: The difference is “not normal, not even close”, said Kuta, who sees a wide range for prices over the next several weeks. He said cash prices paid at the spot market could be vacant in the range of between $ 500 and $ 850 as a floor and $ 1,000 as a roof over the next four to six weeks.

Nevertheless, Kuta does not expect an immediate drop in physical cash prices, as demand is unlikely to fall anytime soon.

“Companies purchasing wood for domestic builders typically work for about 45- to 90 days of working inventory – accumulating inventory continuously based on expected demand,” he said. With COVID, those companies run inventory on the land, stop buying, and demand is so high that they did not get a chance to rebuild the inventory, he explained.

“For QT 2020 and Q20 20 needs” Just in time the purchase model was exposed with COVID and failed miserably, so I expected a return to inventory accumulation.