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Hi all, I was wondering if there's anyone who trade lumber ?
I'd like to know some general idea on what the market is like and you guys' thoughts on it.
Thanks all.
Can you help answer these questions from other members on NexusFi?
I've been watching lumber with great interest lately, as it has completed a parabolic move and might be a good long-term fade at some point. Still gathering information and thought I'd start a topic here.
I traded lumber some years ago, following seasonal patterns. With a sound money management it worked quite well.
But it seems to me that nowadays the chart does not follow the seasonals as well as it did years ago.
The market is very thin, and it is dominated by a few traders. Large unforeseeable (for me) moves were more the rule than the exception. Fills can be (and often are) terrible.
Additionally, the volume of options is extremely thin, thus, in my opinion, it does not make sense to touch them.
I do not trade lumber for on a regular basis for some years, and do not intend to start again.
To trade lumber successfully, it is necessary in my opinion to understand in detail how the small group of large lumber traders is working.
It is interesting to note that the recent strong move of the lumber price happened without a severe change of the COT data, which are more or less neutral for several months. Open interest is extremely low.
Lumber prices have soared to records. Demand for wood is skyrocketing. The shares of wood suppliers are surging.
And yet, trees themselves are dirt cheap in places like Louisiana, where timber supplies are plentiful.
The so-called stumpage fee, or what lumber companies pay to land owners for trees, for Louisiana pine sawtimber on March 31 was $22.75 per short ton, according to the latest data from price provider TimberMart-South. That’s the lowest since 2011.
Lumber
Lumber is an incredibly hot commodity right now, but the volatility means as a result it’s become hard to actually trade lumber. Right now if the price of lumber on the commodity exchange moves too much one way or another, it triggers a shutdown of the market, an event that has happened in 25 of this year’s 35 trading sessions. The shutdown is designed to prevent a disorderly market, but it’s actually created a pretty nonfunctional one. In order to keep the wood flowing, the Chicago Mercantile Exchange will increase the daily trading band by another 90 percent, meaning that starting on March 7 the maximum amount the price of a thousand board feet can move in either direction in a given day is capped at $57. For perspective, before the pandemic a thousand board feet went for $350.
