Lumber looks set to build a new rally

Last week fund managers piled into lumber futures at their fastest weekly pace in 19-months. Yesterday prices rose to a key resistance level.

Charts (2)

Perhaps professional fund managers know something about lumber prices that we don’t, judging from the weekly commitment of traders report. According to CFTC data (Commodity Futures Trading Commission) managed funds increased their net-long exposure to random length futures at their fastest pace in 19-months last week. The report also revealed that managed funds also flipped to net-long and gross short exposure fell at its fastest pace in 11-weeks. If funds managers are correct to expect higher lumber prices it could exacerbate inflationary forces further along supply chains (and of course support lumber prices).

Last week fund managers piled into lumber futures at their fastest pace in 19-months.

This comes as a time where inflation in the US is already twice the Federal Reserve’s target, bottlenecks in the supply chain are placing upwards pressure on raw material costs and consumers expect higher inflation a year out from now. Even Fed Chair, Jerome Powell, finally conceded that inflation is not actually ‘transitory’. And rising lumber prices certainly feed into this theme, which we argue is not a theme isolated to the US.

Listening to the ears to the ground

We’re based in Australia but many of the issue here ring true elsewhere, such as soaring house prices alongside the cost of living. From my own DIY ventures, speaking with builders and hardware store retailers, it seems lumber is in short supply yet demand remains strong. According to my local store, timber is flying off the shelf and builders aren’t even looking at the price (as they’re marking up their jobs an extra 20-30% to protect themselves from volatile timber prices). The CEO of one of the largest building firms in Australia was in radio recently saying “if you don’t have to build now, don’t” as prices are high and cues are long. On the face of it, it appears that lumber demand remains high despite the inflated prices. Another takeaway is that the higher prices seen earlier this year remain entrenched in the system despite lumber futures falling -73.4% from its 2021 high.

Lumber futures have risen to retest their October high.

We can see on the daily chart of random length lumber futures that prices have risen to retest their October high. Prices have held above the 10-day exponential average and volumes increased over the past three days as prices rallied back to those higher. From here bulls likely need to break prices above $830 to extend its current rally, and we would also want to see managed funds increase bullish exposure after any potential breakout to confirm it as such. However, if prices break below $800 it risks speculative bulls to close and spark a deeper correction in the process. But for now, the October highs are clearly a pivotal level for traders to monitor.

 

How to trade with City Index

You can easily trade with City Index by using these four easy steps:

  1. Open an account, or log in if you’re already a customer 

    Open an account in the UK
    Open an account in Australia
    Open an account in Singapore

  2. Search for the company you want to trade in our award-winning platform 
  3. Choose your position and size, and your stop and limit levels 
  4. Place the trade

 

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.