The Chicago Mercantile Exchange rolled out the physical lumber contract in 2023 to attract more volume for hedgers and other market participants. The physical lumber contract is smaller than the old random-length contracts and has more flexibility regarding delivery and grades. Unfortunately, the volume and open interest have not grown, but lumber remains a significant bellwether commodity. Since lumber is a main ingredient in new homebuilding, wood is an essential indicator of the demand. Moreover, lumber prices are highly sensitive to interest rates as rising or falling mortgage rates dictate the demand for new construction.
In a November 17 Barchart article, I wrote, “As the spring approaches, the odds favor the upside in the lumber futures arena.” In explaining how lumber can lead other commodity prices, I explained:
