Lumber Futures Wipe Out 2021 Gains As Supply Builds
Lumber futures on Chicago Mercantile Exchange have officially wiped out all gains for the year on Monday. Prices have been sliding for 44 days, down at least 60% from the record high of $1,711 per thousand board feet from late April/early May. As we’ve noted multiple times, the great lumber bubble has popped.
The drop in lumber prices has been quite dramatic and is a classic commodity blowoff top. The quadrupling of prices over the last year has been bad news bears for builders and do-it-yourselfers. Even with prices around $685, prices are still more than double pre-COVID prices.
Since the early 1990s, lumber futures have been range-bound between $200 to $400, with some minor exceptions when prices jumped above $600 in 2018.
The latest free fall in prices suggests the physical market is resetting after a historic lumber shortage was spurred by a perfect storm of factors during the virus pandemic.
Lumber futures’ term structure reminds us of a rollercoaster – also prices are very seasonal so this is priced in as well.
Chief Executive Officer Greg Kuta, whose Ohio-based firm focuses on lumber markets, told Bloomberg in an email that lumber futures will see “volatility” with price swings between “$550 to $1,200 for the remainder of 2021.”
Paul Quinn, an analyst for RBC Capital Markets, said prices could still drift lower this summer and rally in September, then drop again in November.
“We think 2022 spring prices will see a similar run as 2021, though likely not as high given the incremental capacity adds,” Quinn said, noting that new home construction continues to flourish.
“We still expect prices will be higher than long-term averages going forward.”
Readers may recall we’ve been closely following the lumber bubble:
Lumber Hasn’t Had A Down Day Since March 26… And It’s Sending Home Prices Soaring Even Higher
“There Is No Shortage?” Train Loads Of Lumber Stacked As Far As The Eye Can See
Lumber Industry Has No Interest In New Mills As They Reap Rewards Of Record Prices
Lumber Prices Slump As Historic Boom Hits A Wall
Lumber Prices Record Biggest Weekly Drop Ever As Supply Increases
Lumber Prices Suffer Biggest Monthly Drop On Record
More or less, BMO Capital Markets’ commodity desk noted earlier this month that lumber prices may not return to pre-pandemic levels any time soon.
Mon, 07/12/2021 – 23:00