The Expert Podcast

Here's an interesting development from the financial industry about trading lumber This is one of the first major developments in lumber . Finance that's happened in decades maybe even a century . Used to be that lumber prices were and lumber futures were sold in rail car volumes Now they're breaking it down into , truckload volumes There's a new contract that you can trade . That will sell two by four lumber batches in smaller loads . with a central delivery point . What does that mean ? What it means is that there's a new lumber futures product . And it's trying to eliminate some of the price swings of the larger thousand board feet . security , the ticker symbol for this will be LBR and it will represent a truckload of boards instead of a rail car . And the delivery point is Chicago rather than a remote Canadian rail junction . The specification will offer Eastern spruce pine and fir . Instead of only Western . fir . Like a doug fir so this is going to be an interesting development where traders and lumberyards . Can get a more specific read on lumber prices because it's a smaller batch . It's about a quarter of the volume of wood for a truck load instead of a rail car . And it's fob Chicago rather than . Out of the country that has to go through
The futures is going to start next month And the current contract expires in may will be the last listed under existing spec So they're going to phase out . The Canadian rail car in about a year . the change is aimed at drawing homebuilders lumberyard sawmills into a market with limited participation . This way it's more reliable . Because you don't have to worry about customs or limited species of wood . And a larger volume . And the old contract , it may could be a big swing It could swing from 176,000 to . It's swinging by 20,000 a day . Up or down . So this is a big deal This is a completely different way to peg . The market for lumber . And . It will make a difference in how lumberyards buy and sell goods . It'll do that because the lower price will have more speculators and liquidity to the market where it's not just going to be the big players that can , you know swing a $200,000 contract Maybe it's a 40 or $50,000 contract this way Smaller companies like . home builders and small lumberyards can buy these futures and trade futures . To help hedge their bets So if you're building a house and by the time you get your permits , And your contracts with . The homeowner property owner I get your footings and foundations in and now you start buying your lumber package . If you've . Pegged or hedged your bets for a lumber futures . It'll keep you from having too much volatility and not knowing what your lumber is going to cost . You may not have to buy the contract , but if you purchase an option on the contract , At least you'll know the maximum you'd have to pay . It'll help smooth out the peaks and valley of your costs . If you're a builder or a lumberyard let us know what you think about this new pricing . And how this works you know the current The current lumber package really have to build six houses to buy that contract . Many builders build one or two at a time . This new pricing is LBR security . You can build one house at a time . And or maybe two depending on the size . And it allows you to hedge your future . Expense cost . For your . At least the build . part of the lumber package you know your labor is still going to be volatile , but at least your lumber package will be established and you'll know what the upside is and your stop loss for the lumber package