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A Bounce In Lumber- Weyerhaeuser Shares Remain Near The Lows

May 06, 2020 9:15 AM ETWeyerhaeuser Company (WY)WOOD, CUT37 Comments


  • •Lumber recovers from the April low.
  • •Weyerhaeuser shares tanked.
  • •Lumber is untradeable in the futures market.
  • •WY is a commodity-based REIT.
  • •Low interest rates, the potential for an infrastructure program in the US, and the lowest level in years supports medium to long-term gains in WY shares.
  • Looking for more stock ideas like this one? Get them exclusively at Hecht Commodity Report. Get started today »

Lumber is a critical industrial commodity when it comes to construction. The lumber futures market can be highly volatile. The price of wood futures has traded in a range from $214.40 to $659 per 1,000 board feet since September 2015. The lumber market is particularly sensitive to the homebuilding market. The global financial crisis in 2008 pushed the price of wood futures to a low of $137.90 in early 2009. In the United States, the meltdown in the housing market and mortgage-backed securities market caused the demand for new homes to plunge.

In March 2020, the global pandemic that weighed on markets across all asset classes caused a deflationary spiral that sent the prices of many raw materials appreciably lower. While lumber futures declined, they reached a low of $251.50 per 1,000 board feet, significantly higher than during the 2008 debacle. Lumber futures are illiquid. While I have trades almost all commodity futures during my career, I never bought or sold one contract of lumber. Meanwhile, I watch the price like a hawk as the price of wood is a crucial indicator of industrial commodity demand and a barometer for the housing market. When it comes to taking advantage of opportunities in the lumber market, I like to use proxies. Weyerhaeuser Company (NYSE:WY) is unique as it operates as a real estate investment trust. The company owns and leases timberlands, which provides exposure to the price of lumber. I last wrote about WY on Seeking Alpha in late February, but the markets have changed dramatically since then as the global pandemic spread around the globe like wildfire.

Lumber recovers from the April low

The volatile lumber futures market rose to $659 in May 2018 and fell to a low of $286.10 in May 2019. As the stock market rose in the US and

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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.

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