Saturday, September 25, 2010

Bull Market Rally in Lumber Futures As Economic and Construction Growth May Increase Demand

Sept. 24 (Bloomberg) -- "Lumber futures rose the most allowed by the Chicago Mercantile Exchange, capping the biggest weekly gain since July, as a rebound in demand for U.S. capital equipment bolstered prospects for industrial materials.

Lumber futures for November delivery rose the CME’s $10 limit, or 4.3 percent, to settle at $240.50 per 1,000 board feet at 1:13 p.m. in Chicago. This week, the price jumped 10 percent, the most since the five days ended July 2. The commodity has surged 38 percent in the past year (see chart above, data here).

On Thursday, lumber futures reached $243.50, the highest price since June 4. This week, the Commerce Department reported a jump in U.S. housing starts that revived prospects for construction materials."

5 Comments:

At 9/25/2010 8:33 PM, Blogger VangelV said...

Housing in the US is still quite dead. The entire commodity complex is rising as people start to hedge their USD exposure.

 
At 9/25/2010 8:52 PM, Blogger juandos said...

Can we now call lumber the new lagging indicator?

Supposedly the National Association of Home Builders is quoted in that article I've linked to...

Then again what do the lumber traders know that we don't?

 
At 9/25/2010 11:36 PM, Blogger bobble said...

according to the chart, lumber prices went from $140 in january 2009 to $320 in april 2010. a rise of 130%

and that foreshadowed what? record low new homes sales in the following six months months

i agree with VangelV, this is most likely a commodity price burp, possibly anticipating more quantitative easing by the FED.

 
At 9/26/2010 10:15 AM, Blogger morganovich said...

there are regions experiencing huge housing growth. this is just not one of them. china, brazil, india, etc are a much more important source of incremental demand that in past decades.

this greatly amplifies the dollar issue in the price action as all are seeing their currency appreciate vs the dollar while their demand increases.

the huge rally in lumber in 2009 can be mostly explained by dollar depreciation and inflation, especially if you use the pre 1992 CPI methodology.

how many commodities massively outpacing reported inflation is it going to take before we accept that our current CPI is underestimating prices?

 
At 9/26/2010 3:45 PM, Blogger VangelV said...

i agree with VangelV, this is most likely a commodity price burp, possibly anticipating more quantitative easing by the FED.

I think that it is more than that. While the developed world is having growth issues there is real demand coming from other places that is forcing the price of many commodities higher. Base metals like copper, nickel, lead, and zinc have recovered nicely. Agricultural commodities are rising as the supply side is not working out and demand shows to be greater than anticipated. While we are due for a correction of some kind it would not surprise many observers if prices were heading significantly higher even with a weak US recovery. The scary scenario is the one that sees confidence in the USD collapse and takes prices into the stratosphere.

 

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