Futures File

August 26, 2016

Housing Hoists Lumber Higher

Sales of new homes exploded last month to the highest level since 2007. The US Census Bureau estimated that a seasonally-adjusted 654,000 new homes sold in July, a jump of over 30% in the last year.

More active homebuyers have begun cutting into the inventories for existing homes, pushing prices higher across the board and incentivizing construction crews to hammer out more new homes to meet demand.

This wave of construction has helped to boost lumber prices, which are up by more than a third over the last year, trading Friday for $319 per thousand board feet.

Timber could see a further boost if a trade dispute between the U.S. and Canada isn’t resolved soon. Canada is the world’s largest exporter, and U.S. homebuilders have been increasingly sourcing Canadian lumber, but trade could be restricted by import quotas or tariffs, which would hoist prices higher.

 

Wheat Slices Lower

Chicago wheat prices collapsed below $3.85 per bushel this week, the lowest level in almost a decade. Prices are falling after a bountiful U.S. wheat harvest adds to a record-high global grain stockpile.

For many farmers, the value of their wheat is far lower than the price traded in the Chicago futures markets. Due to oversupply in local markets, some farmers are being paid under $3.00 per bushel for wheat, a ruinous price for those farmers who didn’t lock in higher prices earlier this year.

 

Natural Gas Rises

Prices for natural gas have risen for five consecutive trading days, gaining over 10% in just a week. Gas is gaining as weather watchers expect more demand and see supply threats looming.

Unusually hot temperatures are increasing demand for electricity to run air conditioning, and, in turn, natural gas fueled power plants.

Meanwhile, a storm is brewing in the Caribbean that could knock out energy production in the Gulf of Mexico. The storm’s track is uncertain, but some meteorologists are warning that the storm has potential to develop into a hurricane that would make landfall on U.S. shores.

As of midday Friday, September natural gas was trading for $2.88 per million British thermal units.

For over 18 years, Walt taught his method of trading at Purdue University. His comments on the markets have been featured in USA Today and other national outlets.

Walt's weekly commentary has been published for nearly 25 years. Futures File, written on Fridays for Saturday publication, provides a brief summary of commodity futures market highlights for the week.