Humans have utilized lumber for construction for thousands of years, but due to the heaviness of timber and the manual methods of harvesting, large-scale lumbering didn’t occur until the mechanical advances of the Industrial Revolution.
Lumber is produced from both hardwood and softwood. Hardwood lumber comes from deciduous trees that have broad leaves. Most hardwood lumber is used for miscellaneous industrial applications, primarily wood pallets, and includes oak, gum, maple, and ash. Hardwood species with beautiful colors and patterns are used for such high-grade products as furniture, flooring, paneling, and cabinets and include black walnut, black cherry, and red oak. Wood from cone-bearing trees is called softwood, regardless of its actual hardness.
Most lumber from the U.S. is softwood. Softwoods, such as southern yellow pine, Douglas fir, ponderosa pine, and true firs, are primarily used as structural lumber such as 2x4s and 2x6s, poles, paper and cardboard. Plywood is primarily used in construction, particularly for floors, roofs, walls, and doors.
Homebuilding and remodeling account for two-thirds of U.S. lumber consumption. The price of lumber and plywood is highly correlated with the strength of the U.S. home-building market.
The futures contract trades on Globex, the CME Group’s electronic exchange. The market opens at 9:00 AM CT and halts at 4:00 PM CT. The market reopens at 5:00 PM CT and continues until 9:00 PM CT Monday through Thursday. On Fridays, the market closes at 1:55 PM CT and doesn’t resume trading until Monday.
One Lumber futures contract is 110,000 nominal board feet, or approximately 260 cubic meters. The futures contract pricing unit is in dollars per 1,000 board feet (mbf). The previous settlement price (September 4, 2014) for November 2014 Lumber futures was 340.1, or $37,411 per contract. The most common contract symbol is LBS. The contract is also referred to as Random Length Lumber.
One futures contract price increment or “tick” is $.10 per mbf. A one “tick” move is $11.00. The next tick after 340.1 downward is 340.0, followed by 339.9. Therefore, a price move from 340.1 to 339.1 is $110.
The performance bond or initial margin requirement to initiate one futures contract is $1,760 (as of November 11, 2015). To control that futures contract going forward the maintenance margin becomes $1,600 (as of November 11, 2015).
The daily price limit is $10 per mbf above or below previous day’s settlement price.
The futures contract month listings are January (F), March (H), May (K), July (N), September (U), and November (X).
The futures contract’s Last Trading Day (LTD) is the business day immediately preceding the 16th calendar day of the contract month at 12:05 PM. The November 2014 Lumber futures contract LTD is November 14, 2014 for example.
This particular market is light on trading volume and open interest in comparison to other physical commodity markets. Expect potential slippage.
Sources:
www.cmegroup.com
www.barchart.com
Risk Disclosure
STOP ORDERS DO NOT NECESSARILY LIMIT YOUR LOSS TO THE STOP PRICE BECAUSE STOP ORDERS, IF THE PRICE IS HIT, BECOME MARKET ORDERS AND, DEPENDING ON MARKET CONDITIONS, THE ACTUAL FILL PRICE CAN BE DIFFERENT FROM THE STOP PRICE. IF A MARKET REACHED ITS DAILY PRICE FLUCTUATION LIMIT, A "LIMIT MOVE", IT MAY BE IMPOSSIBLE TO EXECUTE A STOP LOSS ORDER.
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