by Macro D
For the first part, please click here or hit the link below.
What's next for Lumber
Let’s start with the technical dynamics. Lumber futures are traded through the CME on the Globex® trading platform. These are financial derivatives traded with leveraged exposure to the softwood market.
Since I consider history to be the gateway to an unknown land where thought can be exercised with greater detail, I start right there. However, I don’t intend to take you back to the days when man first pulled pile dwellings from his hat. I’ll stop first.
The year was 1982, specifically November. What happened? With the decline in interest rates, lumber prices rose, as measured directly by lumber futures contracts traded on the Chicago Mercantile Exchange. For example, the November lumber futures contract hit a low of $128 per thousand board feet on September 30, but closed at $145.50 on November 15 (the day the contract expired). If we then consider the January contract (the closest delivery month), it oscillated from a low of $139 per thousand board feet on August 13 to a level above $160 and then closed at $170.40.
Let me summarise. What is the common thread that links what happened in 1982 to what (in my humble macro view) could happen from now on?
The rate cut opens the banks’ doors to those who voluntarily stayed away (even more so if one believes—as I do—that the Fed’s rate cut isn’t a flash in the pan but the beginning of a strategy that will be repeated in the future). Typically, mortgage requests are based on the need to have the funds available to purchase (or build) a home. And here we come to lumber. If the cost of money decreases and mortgage rates fall, then lumber prices will rise even higher. The time jump was quite abrupt: 43 years, from 1982 to 2025.
And what’s in between?
Let’s explore further.