With Volatility Checks Removed, May CME Lumber Future Contract Moves to Historic Levels

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With no holds barred, traders bid up lumber to fresh record

CME Lumber Futures soared to new historic heights on Monday and Tuesday. With the May contract set to expire on Friday, May 14, 2021 at Noon (CDT), the limits on trading, which are set to hold volatility in check, have been removed for the final days of the contract. As a result, traders find themselves in the midst of a bidding war. With wood supplies being so tight, market participants are taking advantage of the newly removed volatility checks from the May contract, driving prices ever higher. By contrast, the most-active July contract rose by US$42 on Monday and $63 on Tuesday, the maximum allowed. Stinson Dean, chief executive officer of Deacon Lumber Co. said, the aggressive buying of May futures will continue up until the contract ends on May 14th. Dean went onto say, “The market has been trying to find equilibrium and no limits allows that.” Noting that Monday’s surge is the latest sign of the stunning demand for wood that’s emerged as the U.S. economy picks up. It’s peak home-building season, and Americans, tired of being cooped up in cramped spaces during the pandemic, are seeking to purchase bigger homes. That’s clashing with a lumber supply chain that’s being dogged by everything from trucking delays to worker shortages. Brian Leonard, a lumber analyst for RCM Alternatives in Chicago, believes part of the reason for the CME Futures price increases are also due to traders covering short positions. Leonard said, it’s possible for the May contract to extend gains to as high as US$2,000. Some lumber buyers “have no purpose being hedged right now, so they have to get out of their position,” Leonard said. “They don’t have enough inventory.”

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