Futures?

Ron Wenrich woodtick at lebmofo.com
Sat Aug 29 20:38:51 EST 1998



Larry Caldwell wrote:

> In article <35E7CA46.46FA0164 at forestmeister.com>,
> redoak at forestmeister.com says...
>
> > On the 1 big sale I had last winter, the buyer had it all figured out
> > ahead of time- where each log was going- and he had contracts signed for
> > each log- to protect himself- passing the problem of the volatility of
> > the market to those guys.
>
> So is this all insider trading?  I've never heard of anything like the
> Chicago Board of Trade for wood commodities.  Or are pulp futures traded
> on the Chicago big board just like wheat and hog bellies?

There is a lumber futures market on the CBOT, I think.   It is for 2x4 studs,
so the market runs very much with the housing market.  It is a very volatile
market and fortunes can be won or lost rather quickly.

Lumber marketing is usually being in the right place at the right time.  Any
natural disaster that claims homes, such as fires, hurricanes, etc. will cause
an immediate shortage of lumber.  Lumber prices go up rather quickly and
steeply until demand is satisfied with increased production.  Of course, the
other end is when the market falls, it falls just as quickly and to have too
much high priced product (due to high stumpage or production costs) will slash
profits.

Most mills cannot dictate the price of their product unless they have a direct
outlet.  In hardwoods, most mills stay with consistant markets.  When
production is increased, other markets must be found for the new production.
When markets retract, usually new producers are cut.

The buzzword for hardwoods is value added, instead of increased production.
Small mills are getting into kilns, planing mills, dimension stock, etc.  This
helps keep large mills in check.  Log marketing is dependent on a lot of
different factors, including the European markets.  Germany is now exporting
beech, so their demand is not what it was a decade ago.  Oak, ash, and walnut
veneer has been stable for many years.  Cherry has gotten nuts, but has
stablized at a higher rate, for the time being.

Marketing is also dependent on the quality of the timber.  Average timber
brings average prices.  High quality timber brings very high premiums.
Experienced buyers and producers know what the insides of a tree looks like,
and can grade trees on the stump much better than other professionals.

RDW





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