investing beginners

Lumber Futures explained

By Fred Banbury 8 August, 2023 2 mins read

Lumber futures, also known as derivative contracts, are commitments to buy or sale specific amounts at a set price on a particular date. They are a popular way for hedgers to protect themselves from the downside risk of fluctuating lumber prices, while speculators may use them as a means to profit from beneficial price movements.

The lumber markets are influenced by changes in supply and demand. These can be triggered by weather conditions or environmental policies. A surge in housing begins could drive up the price of timber, while mills closing or weather-related shortages can reduce its supply.

Another factor that can increase the price of lumber is a weaker US currency and higher inflation. The market could be affected by a Fed shift to a more hawkish or dovish monetary policy.

Wood prices in dollars tend to move with other commodity markets, including oil, corn, and soya beans. Many other currencies, unlike the US Dollar, have a floating exchange rate. This means they can move faster and more widely than the US dollar.

Lumber futures have surged over $1,500 per 1000 board feet in the past year, and are now at their highest trading levels in three-years. The YOY surge is driven by a global shortage of materials that has pushed up the relative price for shipping containers, raw materials and just-intime distribution networks.

Although this is a good thing for the economy, its growth hasn't kept up with the demand. As homeowners renovate their homes and increase interest rates to cover rising costs, they have seen an increase in home improvements. Chris Robinson, Commodity Channel analyst, says the recent rise of lumber prices has slowed housing recovery.

Lumber market volatility has increased over the past months. Random length framing timber prices soared to above $1500 for 1,000 boards feet by May 2021. By August, the price had dropped to $400 per 1,000 board feet before rising above $700 in October 2021.

As of January 3, random length lumber sold for $374 per 1000 boards feet. This was down 67% on the $1,148 price of a year before and down $1,733 from its previous high. This is a far cry from the $400 pre-pandemic price, but still a 50% increase since the bottom of previous cycles.

The lumber market has entered a downward cycle as mortgage interest rates are rising and the home improvement boom is slowing. Prices are likely to fall again in coming months. However, this downturn could be brief and the lumber industry can recover once the economy improves. Until then, however, investors are advised to stay away from lumber futures. They should instead focus on stocks that provide exposure to the lumber industry.

FAQ

What's the difference among marketable and unmarketable securities, exactly?

Non-marketable securities are less liquid, have lower trading volumes and incur higher transaction costs. Marketable securities are traded on exchanges, and have higher liquidity and trading volumes. Because they trade 24/7, they offer better price discovery and liquidity. However, there are some exceptions to the rule. For example, some mutual funds are only open to institutional investors and therefore do not trade on public markets.

Non-marketable securities can be more risky that marketable securities. They usually have lower yields and require larger initial capital deposits. Marketable securities tend to be safer and easier than non-marketable securities.

For example, a bond issued in large numbers is more likely to be repaid than a bond issued in small quantities. The reason is that the former will likely have a strong financial position, while the latter may not.

Because they can make higher portfolio returns, investment companies prefer to hold marketable securities.

What is the difference in the stock and securities markets?

The securities market is the whole group of companies that are listed on any exchange for trading shares. This includes stocks as well options, futures and other financial instruments. Stock markets are usually divided into two categories: primary and secondary. Large exchanges like the NYSE (New York Stock Exchange), or NASDAQ (National Association of Securities Dealers Automated Quotations), are primary stock markets. Secondary stock exchanges are smaller ones where investors can trade privately. These include OTC Bulletin Board, Pink Sheets and Nasdaq SmallCap market.

Stock markets are important as they allow people to trade shares of businesses and buy or sell them. It is the share price that determines their value. New shares are issued to the public when a company goes public. Dividends are paid to investors who buy these shares. Dividends are payments made to shareholders by a corporation.

Stock markets are not only a place to buy and sell, but also serve as a tool of corporate governance. Shareholders elect boards of directors that oversee management. The boards ensure that managers are following ethical business practices. If the board is unable to fulfill its duties, the government could replace it.

What role does the Securities and Exchange Commission play?

Securities exchanges, broker-dealers and investment companies are all regulated by the SEC. It also enforces federal securities law.

Who can trade on the stock market?

The answer is yes. But not all people are equal in this world. Some people have better skills or knowledge than others. They should be rewarded.

Trading stocks is not easy. There are many other factors that influence whether you succeed or fail. If you don’t know the basics of financial reporting, you will not be able to make decisions based on them.

You need to know how to read these reports. Each number must be understood. You must also be able to correctly interpret the numbers.

This will allow you to identify trends and patterns in data. This will help to determine when you should buy or sell shares.

If you're lucky enough you might be able make a living doing this.

How does the stock exchange work?

A share of stock is a purchase of ownership rights. The shareholder has certain rights. He/she has the right to vote on major resolutions and policies. He/she may demand damages compensation from the company. The employee can also sue the company if the contract is not respected.

A company cannot issue more shares that its total assets minus liabilities. This is called "capital adequacy."

A company with a high ratio of capital adequacy is considered safe. Companies with low ratios are risky investments.

How do you choose the right investment company for me?

It is important to find one that charges low fees, provides high-quality administration, and offers a diverse portfolio. Commonly, fees are charged depending on the security that you hold in your account. While some companies do not charge any fees for cash holding, others charge a flat fee per annum regardless of how much you deposit. Others charge a percentage on your total assets.

It's also worth checking out their performance record. If a company has a poor track record, it may not be the right fit for your needs. You want to avoid companies with low net asset value (NAV) and those with very volatile NAVs.

Finally, it is important to review their investment philosophy. An investment company should be willing to take risks in order to achieve higher returns. If they are unwilling to do so, then they may not be able to meet your expectations.

Why is a stock called security.

Security refers to an investment instrument whose price is dependent on another company. It may be issued either by a corporation (e.g. stocks), government (e.g. bond), or any other entity (e.g. preferred stock). The issuer can promise to pay dividends or repay creditors any debts owed, and to return capital to investors in the event that the underlying assets lose value.

Are bonds tradeable?

The answer is yes, they are! Like shares, bonds can be traded on stock exchanges. They have been for many years now.

The difference between them is the fact that you cannot buy a bonds directly from the issuer. You must go through a broker who buys them on your behalf.

Because there are less intermediaries, buying bonds is easier. You will need to find someone to purchase your bond if you wish to sell it.

There are many kinds of bonds. While some bonds pay interest at regular intervals, others do not.

Some pay interest quarterly while others pay an annual rate. These differences make it easy for bonds to be compared.

Bonds are very useful when investing money. In other words, PS10,000 could be invested in a savings account to earn 0.75% annually. If you invested this same amount in a 10-year government bond, you would receive 12.5% interest per year.

If all of these investments were put into a portfolio, the total return would be greater if the bond investment was used.

Statistics

For instance, an individual or entity that owns 100,000 shares of a company with one million outstanding shares would have a 10% ownership stake. (investopedia.com)
Individuals with very limited financial experience are either terrified by horror stories of average investors losing 50% of their portfolio value or are beguiled by "hot tips" that bear the promise of huge rewards but seldom pay off. (investopedia.com)
The S&P 500 has grown about 10.5% per year since its establishment in the 1920s. (investopedia.com)
US resident who opens a new IBKR Pro individual or joint account receives a 0.25% rate reduction on margin loans. (nerdwallet.com)

Justice Department Closes Investigations of 3 Senators; Burr inquiry continues

investopedia.com

How To

How can I invest my money in bonds?

An investment fund is called a bond. While the interest rates are not high, they return your money at regular intervals. You make money over time by this method.

There are many different ways to invest your bonds.