Lumber Lingering At Support

Front-month lumber is currently around a significant level of support for the post-pandemic period. In the first year of the pandemic, lumber had a brief time in the limelight as the thinly traded commodity posted massive gains from mid-2020 to mid-2021 on tight supplies amidst strong housing demand. After peaking in the spring of 2021, it has consistently traded lower erasing large portions of earlier gains. On the way lower, it has managed to find support in the rough range of $375 to the low $400s and has recently returned to these levels. Down nearly 10% so far in December, lumber is starting off the new week at the lowest level since August 2021. At current levels (red dotted line in the chart below), lumber is still up 85% off its pre-COVID high on February 20, 2020, but from a technical perspective, a break lower from here would only mean further erasing of what had once been massive gains.

Lumber’s shaky technical picture has poor sentiment data to boot. Recent data from the Commitments of Traders report from the CFTC has shown an overwhelming share of open interest is positioned bearishly in lumber futures. As shown below, a net 48.29% of open interest is short, slightly off the lows last month but still down around some of the most pessimistic levels on record.

As we do each Monday, in tonight’s Closer, we will provide a more complete rundown of the positioning in other assets per the CFTC data.

Given it is a key input for construction, the decline in lumber prices has largely been a result of weakness in the housing sector (which we discussed in aggregate in last week’s Matrix of Economic Indicators). Like lumber, the charts of various construction/housing-related areas leave something to be desired. For example, front-month copper is running up to and failing to take out the past year’s downtrend line while Weyerhaeuser (WY)—a publicly traded American timberland company—does the same. Meanwhile, stocks in the S&P 1500’s homebuilder and building and products industries have both run into resistance at their summer highs. 

(Click on image to enlarge)


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