With trading volume set to soar, lumber prices could become less volatile, even though they have been on a wild ride in the last few years.
The price of lumber has gone up and down since the outbreak of the swine flu. After collapsing below $300 per thousand board feet in early 2020, they jumped to $1,000 later that year, crashed again, soared past $1,700 in May 2021, plummeted again, and are now below $600 as the housing market slows down.
The industry looked for ways to make the market more liquid after leading lumber futures were so wild that they hit their daily limit down or limit up pricetriggers.
The lumber futures contract that will be launched on August 8 is meant to facilitate delivery and draw in more participants, potentially smoothing out prices.
Allowing trucks to fulfill contracts is one of them. A truck can carry enough lumber for two houses, while a railcar can carry enough for eight, according to a lumber trader.
The new futures contract gives more buyers the ability to hedge off smaller projects that don't fit the old contract's size since trucks carry 25% of the lumber.
In theory, a contract for 25% of the lumber should triple trading volume. As more and more lumber futures watchers become confident lumber futures traders, Dean predicts volumes could increase by eight or 10 times.
The lumber purchased via the new contracts will arrive in Chicago rather than a distant Canadian outpost, which will make it easier for a wider range of buyers.
New types of lumber, including eastern species of pine and fir, will be allowed by the new specifications.
Dean thinks lumber will trade sideways the rest of the year. He said that the new futures contract was perfect for a slowing housing market.
"As price and activity come down, folks will want to buy as little as possible, and the new contract allows them buy one-quarter of the quantity in one contract," he said.
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