Lumber looks set to build a new rally

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).

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.

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:

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

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.