Lumber, Timber etc.

Lumber, Timber etc.

Postby winston » Wed Feb 18, 2009 10:08 pm

The World's Most Important Commodity By Tom Dyson

The commodity I'm going to tell you about today is the world's most important commodity.

By watching the price of this commodity, you'll know when the recession is ending... before anyone else. You'll know if Obama's stimulus plan is having any effect. You'll know when the construction industry is about to start hiring again or when the banks are about to start lending again. And you'll be able to tell your neighbors when house prices are going to rise again.

Around the office, we say copper has a PhD in economics because it predicts recessions and booms. We call it "Dr. Copper." But the commodity I'm going to tell you about today is a much more valuable indicator for right now, and no one's paying attention to it. Let me explain...

The people in charge of the economic recovery have decided if they can "fix" the real estate market, then everything else will fix itself.

So the Fed has aimed its printing press directly at the real estate market. It will buy $500 billion of mortgages using freshly created dollars. The government has focused many of its plans on the real estate market, too... like its recent demand for the banks to halt foreclosures and Obama's $50 billion mortgage and foreclosure rescue plan which comes out next week.

In other words, the U.S. real estate market is the main pivot in the whole economic mess we're in right now. If you can figure out what's happening in real estate, you can figure out everything else.

The best leading indicator of real estate is lumber. About two thirds of American demand for lumber comes from the homebuilding and remodeling industries... so its price is highly sensitive to strength and weakness in construction.

Take the timeline of the current crisis as an example. The lumber price reacted before any other market: Lumber prices peaked in May 2004. The Bloomberg Homebuilders Index peaked in July 2005. The Case-Shiller U.S. home price index peaked in July 2006. The credit crunch started in February 2007, when New Century Financial collapsed. And finally, the S&P 500 peaked in October 2007.

When the recovery comes, I expect it'll show up first in the lumber price, too... Right now, lumber is down 66% from its 2004 all-time high. A standard railcar load of lumber sells for $17,050 – the same price it was selling for in 1973.

Looking at the monthly chart, there's still no sign of an uptrend... but I can report the lumber price has risen 12% in the last three weeks, up from 1969 prices.

The lumber price holds the key for investors right now. Make sure you keep an eye on it.
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Re: Lumber

Postby winston » Mon Apr 06, 2009 8:22 pm

This Indicator Says Home Prices Are Nearing a Bottom By Tom Dyson

I ride my bike to work, always taking the same route. I pass the same 100 or so houses every day. This week, I noticed two new properties have come on the market. One of these houses is on the beach. The owner has posted a large billboard on the curb. "Foreclosure Sale," it announces. "Online Auction."

Every week I see new for-sale signs along my route. This is the first auction notice I've seen. And although it's an ugly, worn-out old house, it's on prime beachfront property.

Most Americans gauge real estate using the same process I use on my bike. They talk to their neighbors, they notice for-sale postings along their street, and they watch local news reports.

From this "bicycle-seat view," it appears to the average American that the bear market in real estate in still in full swing and getting worse by the week.

Here's the thing: Trying to predict trends in the real estate market by watching house prices is like trying to predict the stock market by watching CNBC. It doesn't work.

Houses are illiquid assets. It can take months for homeowners to accept their houses have fallen in value and lower their prices. Many potential sellers have mortgages larger than the value of their homes. They can't sell. Banks have it even worse. It takes an average 15 months for a bank to sell a property after the first missed mortgage payment. Many foreclosures haven't hit the market yet.

House prices are what economists would call a "lagging indicator." They are slow to react to new trends in the market. For forecasting purposes, they are useless.

To judge what's really going on in real estate, you need a leading indicator. My favorite leading indicator to assess the housing market is the price of lumber.

Homebuilding and remodeling account for 66% of total lumber consumption in the U.S. The lumber market is a small, illiquid market, so it's sensitive to any changes in supply and demand. In the last cycle, for example, lumber prices peaked in May 2004... two years ahead of house prices.

If house prices are going to turn up, you'll see it first in the lumber price... and that's what's happening right now.

In the last three weeks, the lumber price has soared 29%... after making a "quadruple bottom" at $140 a contract. Last week, it broke out to a new high for the year.

This is incredible strength in a market you'd think would be dying. If the trend withers, expect lower house prices ahead... But if it continues, expect a bottom in home prices within the next 18 months.
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Re: Lumber

Postby winston » Fri May 15, 2009 9:10 pm

This Indicator Holds the Key for Investors By Tom Dyson,

To predict the stock market, I watch lumber...

To store lumber, you need a large climate-controlled warehouse with a railroad spur. Even then, it could still spoil within six months, destroying your entire investment.

Because lumber loses its value quickly and it's expensive to store, the investment public at large does not participate in the lumber market. The costs are too high...

The mills use "just-in-time" manufacturing principles to keep inventories to the bare minimum. By producing only what they can sell immediately, they avoid wastage. Lumber customers do the same thing. They only buy what they need that week.

There is a lumber exchange in Chicago where you can trade lumber futures. It's a "professionals only" industrial matchmaking service. If you're a homebuilder and you need lumber for a current construction project, the lumber exchange works fine for you. But if you're an investor looking to hold lumber for a year or more, you'll get ripped off.

First, you'll pay huge storage costs. The market builds these costs into the futures price. Second, there's almost zero trading volume once you get beyond the next three months, so you'll pay a massive premium for illiquidity.

For example, right now, if you want to buy lumber into the future – say a contract that expires one year from now – you'll have to pay a 38% premium over the price of lumber delivered next week.

These costs keep the riff-raff out of the market. This is why I love to watch lumber. The price of lumber is set entirely by commercial money responding to real business conditions. There's no public speculation to muddy the water and generate confusing signals.

Take the 2008 credit crisis as an example. The lumber price was the first to signal a bear market was coming. It peaked in May 2004. The Bloomberg Homebuilders Index peaked in July 2005. The Case-Shiller U.S. home price index peaked in July 2006. The credit crunch started in February 2007, when New Century Financial collapsed. And finally, the S&P 500 peaked in October 2007.

Here's a chart of lumber going back three years. As you can see, lumber bounced like everything else earlier this year, but has not been able to hold its gains.

I take this as a message from the homebuilders and the giant logging companies that the real estate market is getting worse again. And if that's the case, it might be time for stocks to take a breather, too...

Source: Daily Wealth
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Re: Lumber

Postby winston » Mon Jul 06, 2009 11:57 pm

I Received an Urgent E-mail Alert from My Lumber Contact By Tom Dyson, Daily Wealth

A loud cheer went up. Suddenly activity in the pit exploded, and I was almost trampled by more traders joining the fray...

I was at the New York Mercantile Exchange on a day when oil made a new all-time high. This was in 2005 during the big bull market. I was standing next to the crude oil pit at the precise moment it made the new high. The energy was incredible...

Now, imagine a couple of old timers sitting around drinking coffee and telling jokes as they wait for new trades to enter the exchange. That's what the lumber trading pit looks like at the Chicago Mercantile Exchange. Unlike oil, it's a tiny market, for professionals only...

Oil prices are subject to the speculative mood of the market. Lumber's price is not. Speculators hate lumber's high storage and transportation costs. So there are no hedge funds or retail investors to energize the pits.

This makes lumber the perfect leading indictor for business conditions. Because the volume is so small, any change in supply or demand has an immediate and dramatic effect on prices. And it's a "true" price, as there's no speculation to muddy the water. Price movements are driven by the supply and demand of commercial players.

Housing is the most important asset class in America. When house prices fall, banks fail, consumers cut back, unemployment rises, and the economy collapses. But when house prices are strong, the economy rebounds. Is it any wonder the government concentrated its bailout efforts on reviving the real estate market?

Lumber is the raw material of the housing industry, so it's especially sensitive to trends in real estate. CME Lumber prices peaked in May 2004. The Bloomberg Homebuilders Index peaked in July 2005. And the Case-Shiller U.S. home price index peaked in July 2006.

The lumber futures price staged a dramatic rally in the last three months... rising from $140 per thousand board feet in March to over $210 last month. In the last couple of weeks, prices have cooled off and now trade below $190.

I have an "on the ground" contact who's seeing something else altogether... Don runs a large lumber supply depot outside Orlando. Last week, he sent me a "special commodity alert."

"Over the last 30 days," he wrote, "there have been significant increases in the lumber and plywood markets."

Don attached a list of 133 different lumber prices to his e-mail. The list includes treated lumber, plywood, and the more obscure wide dimensions. These are the actual prices Don pays the sawmills for his inventory. Here's a sample of the biggest price increases...

Pine 2x10s have increased 22% in the last 30 days.
Treated pine 2x6s have increased 29%.
Pine 2x6 borates are up 31%.
Spruce 2x4s are up 37%.
Spruce 2x6s are up 44%.
15/32 Oriented Strand boards are up 7%.
15/32 Plywood is up 12%.

It looks like there's something stirring in the lumber market. It could be a local aberration in Orlando... or it could be something bigger. I'm not sure, and neither is Don.

Let's keep an eye on the Chicago futures price to see if it confirms Don's view. In the meantime, I'll hunt for more clues from lumberyards in other parts of the country...
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Re: Lumber

Postby winston » Wed Jul 29, 2009 8:05 am

Lumber Rises on Bets U.S. Housing Recovery Will Boost Demand By Tony C. Dreibus

July 28 (Bloomberg) -- Lumber prices rose the maximum permitted by the Chicago Mercantile Exchange on signs of a rebound in the U.S. housing market.

The S&P/Case Shiller home-price index rose 0.5 percent in May, the first monthly gain in three years, a report showed today. New-home sales jumped 11 percent to an annual pace of 384,000 in June, the biggest gain in eight years, Commerce Department data showed yesterday. Lumber futures are up 14 percent since July 22.

“We had new-home sales that were positive on the markets,” said Paul Quinn, an analyst at RBC Capital Markets in Vancouver. “Then we had Case Shiller, and that was better than expected. The expectation in the lumber market is that there might be some demand in the near future, so prices are up.”

Lumber futures for September delivery rose $10, the CME’s limit, or 5.1 percent, to $207 per 1,000 board feet, the highest since July 8. Lumber surged by the maximum three times in the past four sessions.

West Fraser Timber Co. said yesterday that it would curtail production at three sawmills in British Columbia because of “weak markets and a stronger Canadian dollar.”

The Houston, 100 Mile and Chasm mills will be shut for at least two weeks starting on Aug. 4, the company said. The Canadian dollar today reached the highest against the U.S. currency since Oct. 3, eroding the appeal of Canadian goods.

“There’s a little more rational decision-making on supply,” Quinn said. “In the last three weeks, cash prices have come off as the Canadian dollar came up. Companies see that, and are going to say, ‘We’ve got to make production cuts.’”
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Re: Lumber

Postby winston » Tue Jan 05, 2010 11:16 pm

The Price of Construction Materials Is About to Soar By Tom Dyson

If you want to know what's going on in the economy, you need to watch the price of lumber...

Housing is the most important asset class in America. When house prices fall, banks fail, consumers cut back, unemployment rises, and the economy collapses. But when house prices are strong, the economy rebounds.

In other words, the U.S. real estate market is the main pivot in the whole economic mess we're in right now. If you can figure out what's happening in real estate, you can figure out everything else.

Lumber and building materials are the best leading indicators of real estate.

Take the timeline of the current crisis as an example... The lumber price reacted before any other market: Lumber prices peaked in May 2004. The Bloomberg Homebuilders Index peaked in July 2005. The Case-Shiller U.S. Home Price Index peaked in July 2006. The credit crunch started in February 2007, when New Century Financial collapsed. And finally, the S&P 500 peaked in October 2007.

When the recovery comes, I expect it'll show up first in building materials, too...

So what's happening right now in the building materials markets?

Ro-Mac is a $100 million lumberyard near Orlando, Florida. Ro-Mac supplies central Florida's homebuilders and contractors with building materials like 2x4s, rebar concrete, and gypsum wallboards.

I received an e-mail from Ro-Mac's general manager, Don Magruder, last week. Don says several suppliers announced price hikes in December and he expects "a caravan" of further price increases in January.

"My feeling is that the month of December is the calm before the price storm of 2010," he writes. Don advises contractors and builders to be "wary" of entering long-term contracts.

He says supply is the reason prices are going to rise. Manufacturers of building materials have closed plants, fired workers, and sold their inventories. Many have gone out of business altogether. Don calls it "supply destruction." He says the moment demand picks up, there's going to be an instant shortage of materials.

My wife and I are taking advantage of the situation by doing extensive renovations to our home. We don't need new kitchen cabinets, but my wife and I have found such a good deal, we're thinking about having our entire kitchen remodeled. We're also considering a new roof and an upgrade for our air conditioning system. Last month, we had our yard landscaped front and back.

It's hard to say exactly how much we're saving. But given the low price of labor and materials, I bet we're getting at least a 30% discount.

If you're looking to get some work done on your house, now's a great time. But the easiest way to take advantage of this situation is to buy stock in forest-products companies like Weyerhaeuser and Rayonier. They benefit when building material prices rise.

Source: Daily Wealth
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Re: Lumber

Postby winston » Mon Feb 08, 2010 9:15 pm

This Commodity Has Risen 39% in the Last Four Weeks By Tom Dyson

So far this year, the S&P 500 has fallen around 7%. European markets are down, too. The Germans are down 9%. And in Spain, they've lost almost 16%. The latest news is, Greece is about to default on its debt and plunge the European Union into a new debt crisis...

It's even worse in commodities. Copper is down 16%, oil is down 10%, and silver is down over 20% from its peak in December.

But there's one commodity that's absolutely soaring right now. It's lumber. Lumber trades on Chicago's commodity exchange. This chart shows spot lumber prices. Lumber rose 50% last year. And so far this year, it's up another 39%...

I've said before that lumber is my favorite economic indicator...

Lumber is the raw material of the homebuilding industry. Lumber prices rise when America builds houses and it falls when America stops building houses. So lumber is a great leading indicator of economic expansion or contraction.

You can measure economic activity with other commodities, like oil and copper. But lumber has an advantage over other commodities: No one pays attention to it. Oil and copper prices get distorted by millions of investors and their crazy mood swings.

Lumber's price is set entirely by professionals dealing with other professionals. It's a "pure" reflection of economic fundamentals, in other words.

Take the last cycle as an example. If you had been watching lumber prices, you would have had three years advance warning that a collapse was coming in real estate, the stock market, and ultimately the economy. (Lumber prices peaked in May 2004.)

Here's the thing, normally, I'd tell you this big recent spike in lumber prices is a signal the economy is going to start improving and stocks are going to start rising again.

Not this time.

The current spike in lumber is a result of a one-off event, caused by the earthquake in Haiti on January 12 and the sudden massive demand for lumber. This demand shock – coupled with extremely low inventory of wood, logs, and lumbers in the American lumber industry – created a massive spike in the lumber price.

In sum, while lumber is usually a fantastic economic indicator, don't be fooled by the recent activity in the lumber markets. The earthquake in Haiti created a one-time distortion. So I'm not reading anything further into this.

I'm advising my paying subscribers to maintain a maximum defensive position in their portfolios, and I suggest you do the same.

Source: Daily Wealth
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Re: Lumber

Postby kennynah » Mon Feb 08, 2010 9:53 pm

i guess, if lumber were sold in china... it would be called S-Lumber.....
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Re: Lumber

Postby winston » Mon Feb 08, 2010 9:56 pm

kennynah wrote:i guess, if lumber were sold in china... it would be called S-Lumber.....


Hmmm.... reminds me of some dead-wood in the system who are deaf and slumbering :lol: ;)
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Re: Lumber

Postby winston » Wed Feb 17, 2010 9:06 pm

The long-ailing U.S. housing market is facing a new headwind – a jump in the cost of lumber

Lumber prices have climbed 32% on the futures market this year, a sudden and unexpected surge that could raise construction costs or force builders to swallow an added expense.

"That's the last thing we need right now," Stephen Melman, director of economic services at the National Association of Home Builders, said of the recent price hike.

Lumber's price rise contrasts with a decline in most other commodities, such as fossil fuels and industrial metals. Those are dragging due to fears of weaker demand amid a fragile recovery from the financial crisis.

But lumber prices shot up because of a shortage of supply. When the housing market cratered, mills in the U.S. and Canada slashed production; output plummeted about 45% between 2005 and 2009, according to Random Lengths, an industry data provider.

Source: Wall Street Journal
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