The wood boom

The whole commodity market is currently recording significant growth. Futures contracts for oil, copper, maize, soybeans and energy are currently about twice as high as in 2020. However, looking at lumber of random length, we can observe the fourfold growth in futures expiring in July 2021 on a year-on-year basis.

Factors influencing the growth of wood’s price

The impact of excessive timber prices at the retail level is clear. At the retail level, demand for timber and timber products remains high, reflecting the real estate market, which is currently at pre-crisis levels in 2008. The housing starts index, covering new housing projects in the US, reached 1.57 million units in April and 69% of the total number were family houses. The total monthly change represents the largest increase since 2006.

As a result, on the demand side, the US is currently in the housing and construction boom. On the supply side, the timber market is well below market demand due to production downtime, stock sales and the imposition of tariffs on Canadian timber.

Chuck Fowke, president of the National Association of Home Builders, said: “At a time when soaring lumber prices have raised the price of a new home by nearly $36,000 and caused and created millions of middle-class households, the Biden report that the White House does not care about the plight of American home buyers and landlords, who are forced to pay much higher housing costs.”

The attached graph shows the performance of the price of lumber’s futures contracts of various lengths expiring in July 2021. Despite a slight decline in prices due to declining home sales, the price of lumber is close to historical high

Source: Tradingview.com

What does the market tell us?

The decline comes along with a decline in lumber futures, which have fallen by as much as 30% since its all-time high earlier this month. According to Bloomberg, sawmills are catching up with North American demand for home construction. Another factor in expecting a fall in price is the price of futures contracts with a longer expiration date. The mentioned contracts are traded at a significantly lower price than the price of the current contract. It follows that the currently overheated real estate market may gradually stabilize.

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