What is Lumber?
Lumber is wood in any form that’s cut from a tree(s) for use in construction or for paper. When lumber is cut from a tree the process is called 'felling'. Once the lumber is cut up is supplied as either ‘rough’ or ‘finished’ lumber.
Uses of Lumber
‘Finished lumber’ is cut to standard sizes e.g. 2x4 etc. It is primarily used in construction. The majority of finished lumber is cut from softwood trees such as cedar or pine, however there are some rough lumber that are hardwoods and used in high-end wood floors.
‘Rough lumber’ is lumber that is uncut to any standard specifications. It is used for furniture and other manufacturing where specific cuts or shaping is required. Typically rough lumber is cut from hardwood trees such as oak and is available in a variety of sizes ready for shipping. However there are several instances where rough lumber will still have its bark attached.
Risks of Lumber
Lumber futures are traded on the CME. Price movements in lumber futures can be very unpredictable, offering traders a chance to make money on the back of the volatility.
Trading lumber futures involves several risks that affect the underlying commodity. For example; supply of lumber can be affected by mills closing down, changes in environmental regulations and competition from other countries.
The price of lumber in the US is most affected by the demand from the home construction. The need for lumber is often determined by the number of new homes under construction at any time. Demand will also move very quickly if interest rates or other economic factors change and affect housing starts. Weather such as bushfires and the possibility of labour disputes make lumber trading very volatile.