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Lumber - Will Falling Interest Rates Lift The Price Of Wood?


  • Lumber goes from king to pauper.
  • Longs get splinters.
  • The Fed is likely to provide fuel for lumber prices.
  • Levels to watch in the illiquid futures market.
  • WOOD, CTT, WY - pick a piece of investment timber that could ignite your portfolio.
  • Looking for more? I update all of my investing ideas and strategies to members of Hecht Commodity Report. Get started today »

The lumber futures market is highly illiquid with only 4428 contracts of open interest. However, lumber is a critical raw material when it comes to construction. I view the price action in the lumber futures market as one of the leading benchmarks when it comes to the overall health of the US and global economies. I often watch lumber, copper, and crude oil prices for clues about economic conditions. The crude oil futures market has an open interest of over 2.06 million contracts, while copper futures on COMEX have almost 283,000 contracts of open long and short positions. The participation in the lumber market pales in comparison, but at times, the price of wood can be a leading indicator when it comes to economic growth or contraction. While I trade in the crude oil and copper futures arena, I avoid lumber like the plague. Since the early 1980s, I never traded even one contract of lumber, even though I watch the price action every day.

Three market products follow the price of lumber and are liquid when it comes to long or short positions. Shares of Weyerhaeuser Company (WY), the iShares Global Timber and Forestry ETF (NASDAQ:WOOD), and the CatchMark Timber Trust, Inc. (CTT), all move higher and lower with the price of lumber futures and serve as proxies.

Lumber goes from king to pauper

The price of lumber futures hit a low at $214.40 per 1,000 board feet in September 2015. In late 2015 and early 2016, most commodities prices found bottoms.

Source: CQG

As the monthly chart highlights, the price of lumber futures climbed steadily through the end of 2015 and throughout 2016 and 2016 and the first five months of 2018. In late 2017, the price of wood moved to a new all-time high, surpassing the previous peak from 1993 at $493.50

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This article was written by

Andrew Hecht profile picture
Weekly commodities commentary and calls, from a Wall Street veteran
Andy Hecht is a sought-after commodity and futures trader, an options expert and analyst. He is the #2 ranked author on Seeking Alpha in both the commodities and precious metals categories. He is also the author of the weekly Hecht Commodity Report on Marketplace - the most comprehensive, deep-dive commodities report available on Seeking Alpha.

Andy spent nearly 35 years on Wall Street, including two decades on the trading desk of Phillip Brothers, which became Salomon Brothers and ultimately part of Citigroup.

Over the past two decades, he has researched, structured and executed some of the largest trades ever made, involving massive quantities of precious metals and bulk commodities.

Andy understands the market in a way many traders can’t imagine. He’s booked vessels, armored cars, and trains to transport and store a broad range of commodities. And he’s worked directly with The United Nations and the legendary trading group Phibro.

Today, Andy remains in close contact with sources around the world and his network of traders.

“I have a vast Rolodex of information in my head… so many bull and bear markets. When something happens, I don’t have to think. I just react. History does tend to repeat itself over and over.”

His friends and mentors include highly regarded energy and precious metals traders, supply line specialists and international shipping companies that give him vast insight into the market.

Andy’s writing and analysis are on many market-based websites including CQG. Andy lectures at colleges and Universities. He also contributes to Traders Magazine. He consults for companies involved in producing and consuming commodities. Andy’s first book How to Make Money with Commodities, published by McGraw-Hill was released in 2013 and has received excellent reviews. Andy held a Series 3 and Series 30 license from the National Futures Association and a collaborator and strategist with hedge funds. Andy is the commodity expert for the website about.com and blogs on his own site dynamiccommodities.com. He is a frequent contributor on Stock News- https://stocknews.com/authors/?author=andrew-hecht

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

The author always has positions in commodities markets in futures, options, ETF/ETN products, and commodity equities. These long and short positions tend to change on an intraday basis. The author is trading WOOD, WY, and CTT from the long side

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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