Market Update for October 27, 2021 – U.S. equities dropped from all-time highs today …

Commodities, Futures, Stock Market, Widman

U.S. equities dropped from all-time highs today as economic growth concerns fueled a more cautionary tone from investors. In New York, the Dow Jones slipped 266.19 points to 35,490.69, the S&P 500 lost 23.11 points at 4,551.68, while the Nasdaq squeaked out a 0.12-point gain at 15,235.84. Canada’s main stock index closed higher today amid a broad-based decline and news that the Bank of Canada had moved up its timeline for interest rates hikes. In Toronto, the S&P/TSX Composite Index ended 218.46 points lower at 20,954.99.
At the close of trading today, iShares S&P Global Timber & Forestry Index ETF (WOOD) finished on slightly higher-than-average trading volume down $1.64 (or 1.91%) at $84.35. WOOD dipped lower in trading today lead by the overall weakness in global markets. Today’s close was one of the lowest closes the ETF has settled at since July. In after hour trading, the ETF is showing a strong correction, up $2.40 to $86.75.
The Invesco MSCI Global Timber ETF (CUT) closed at the end of trading today on below-average trading volume down $0.51 (or 1.39%) at $36.00. CUT continues its range-bound pattern between $36.00 to $36.50. In after hour trading, the ETF is unchanged.
CME Lumber Futures have converged to cash, erasing what was nearly a $150 premium earlier in the month. The contract is under a typical seasonal pressure pattern and looks to be heading in a direction that could potentially provide a decent discount-to-cash opportunity for those looking for options to not only take physical delivery of lumber but to save costs through a profitable hedge. Over the past 7-days, there was no EFP, EFR or block trade activity noted.
CME lumber futures final settlements at 3:00 EDT have the front month contract November down $18.40 per Mbf at $630.00. The distant back month contract January closed down $32.10 per Mbf at $700.00.
Cash market trading was not as robust as in previous weeks, but the yield from sales remained unseasonably higher than usual. Mills successfully raised prices across most species and most dimensions and stretched out order files, some mills quoting early December. WSPF #2&btr 2x4s are quoted in a range of $620 to $630 per Mbf. Quotes at this time last year had fallen significantly and were continuing to peel off trading below cash today in a range of $500 – $560 per Mbf.
Lower mill production and inventory protection were evident in many regions from Canada to the Southern U.S. as log costs, shipping and resourcing issues continue to challenge the overall supply chain. Buyer frustration was nearly panic-like at some levels as spot shortages and unusual order file delays hit mills that typically only sell at prompt. Options to export wood from North America were also hampered by massive port constrictions leading some exporters to pull back production rather than facing costly unshippable loaded containers or no containers at all.
The demand side of the equation continues to impress, adding further support to a rare fourth-quarter bullish run in the lumber industry. Both consuming segments, DIY to home builders, are making little headway with project backlogs, burdened by the same logistical and resourcing challenges seen in supply. Home center business is still booming on DIY, evidenced by some mills netting the highest home center invoicing October on record. On the building side reports show the number of U.S. homes under construction, but not yet completed, rose to the highest since 1974. With demand not under any pressure to wind down, even as the calendar flips to November, we expect the direction for prices to become highly mixed as demand seasonally wanes for some items but remain strong for others.

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