The all-time-high price for U.S. random length lumber futures, $493.50, was set in March of 1993. Since then, prices have made it into the $400s only a handful of times including January 1997 ($440), February 2005 ($420), February 2013 ($400), and just this past Monday ($414).
Historically, when lumber prices make it into the $400s they quickly reverse. As of this publication, the May contract price is currently consolidating around the $390 level. In our view, there are a number of tailwinds that could buck this historical trend, and sustain lumber prices well into the $400s for longer than usual.
First, the fundamentals of the U.S. housing market provide significant demand-side support. Second, a mix of macro-economic factors including protective trade policies create relative supply inelasticity. And third, President Trump’s recent statement in support of a weaker U.S. Dollar which suggests a slower pace of interest rate hikes.
We will visit the relationship between gold and lumber, and the U.S. Dollar and lumber, and what this means for the U.S. lumber market in the next posts.
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