Latest / The Commodities Economy with Fexingo: Oil, Gold, Wheat, and Raw Material Markets / Why Lumber Is Surging While Housing Slumps in 2026
Transcript
- Lucas: Let's talk about lumber. Because if you look at the housing market right now — starts are down, permits are down, mortgage rates are still above six and a half percent — you'd expect lumber prices to be falling. Instead, they're up about twenty-five percent in the last month. Luna: That's a pretty jarring disconnect. I saw the futures this morning — lumber was at 581.50 per thousand board feet, up another four and a half percent just this week. Lucas: Right, and that's not just a blip. The contract has been climbing steadily since mid-May. So the obvious question is — if builders are pulling back, who's buying all this lumber? Luna: I assume supply-side issues? I've heard about mill closures in British Columbia. Lucas: That's a big part of it. British Columbia has been losing sawmill capacity for years — pine beetle kill, then wildfires, then policy shifts around harvest licenses. The latest blow came in April when Canfor announced it was permanently closing two mills in the interior. That took about 600 million board feet of annual capacity offline. Luna: Six hundred million — that's not trivial in a market that's maybe 40 billion board feet a year for North America. But still, that's around one and a half percent of supply. Does that explain a 25 percent price surge? Lucas: Not on its own. But combine it with a few other things. First, there's the ongoing softwood lumber tariff dispute — the U.S. has a combined duty of about 14.5 percent on Canadian lumber, which already constrains cross-border flow. Second, the wildfire season in Western Canada started early this year. There are active fires near several major timber supply areas, which has created uncertainty about summer logging. Luna: So the market is pricing in potential disruption before it even happens. That's typical for commodities with inelastic short-term supply. Lucas: Exactly. And here's the third factor — it's not just physical supply. The lumber futures market is relatively thin. Open interest in the CME contract is about 4,000 contracts on a good day. So when a handful of speculative traders — or hedgers covering shorts — decide to pile in, the price moves hard and fast. Luna: That plays into the CFTC's new position limits we talked about a few episodes ago. Tighter limits on speculative positions could actually reduce liquidity in thin markets, making these spikes worse. Lucas: That's the irony — the rule intended to curb excessive speculation may amplify the volatility in contracts like lumber. The CFTC's own analysis showed that position limits reduce the number of participants, which means each remaining order has a bigger impact on price. Luna: So we've got a supply shock narrative combined with a structural change in market microstructure. That's a recipe for sharp moves in either direction. Lucas: If walking through the economy with us has made something click — whether it's lumber, crude, or the CFTC rulebook — the way these episodes stay ad-free is listener support. Buy me a coffee dot com slash fexingo. That's one word, fexingo. It's a low-key way to keep the lights on and the topics coming. Luna: Yeah, and honestly, it makes a difference. We hear from listeners who say they use these episodes to understand their own portfolios or even work projects. So if that's you, the coffee link is how you help us keep doing that. Lucas: Alright, back to lumber. The question is whether this rally is real or if it's just speculative froth that will collapse when summer sawmill production ramps up. Luna: Let's look at actual demand. Housing starts in April were at an annualized rate of 1.29 million — down about 16 percent from last year. But that's not the whole story. Lucas: No, because repair and remodeling demand has held up better. And multi-family construction — apartments, condos — uses less lumber per unit than single-family homes, but it still uses some. Plus, industrial and commercial construction hasn't cratered the way residential has. Luna: But still, you'd think lower homebuilding would dominate. Unless the supply drop is just that much bigger. Lucas: Let's look at inventory data. The latest from Random Lengths shows that mill inventories in the Pacific Northwest are running about 15 percent below the five-year average. And the order files — how far out mills are booked — have stretched from two weeks to almost five weeks. That's a sign of real physical tightness, not just paper speculation. Luna: So where does it go from here? The peak homebuilding season is May through August. If mills are already behind, any additional supply disruption from wildfires could push prices toward that 600 level. Lucas: But there's a ceiling. At these prices, homebuilders start substituting — they'll switch to engineered wood products, or they'll simply delay projects. That demand destruction acts as a natural brake. The National Association of Home Builders estimates that every thousand-dollar increase in lumber costs adds about $7,000 to the price of a typical single-family home. Luna: Which just pushes more buyers out of the market, feeding back into lower housing demand. So the rally could be self-limiting. Lucas: Exactly. But in the near term, I think the path of least resistance is still higher, simply because there's no quick fix on the supply side. You can't reopen a mill in a week. And the tariff situation isn't going to resolve before the election. Luna: What about imports from Europe? We've seen some cargoes of spruce pine fir from Germany and Sweden coming into the East Coast. Lucas: They help, but European lumber has its own issues — log costs are high there too, and freight rates add a layer. Plus, the grade specifications can be different. It's not a perfect substitute. So I think the market is going to stay tight through at least Q3. Luna: One last thing — does the broader commodities selloff we're seeing in grains and metals affect lumber? Because corn and soybeans are down about 5 percent this week, copper too. Lucas: Not directly. Lumber is driven by its own micro factors — housing, tariffs, wildfire. The macro commodity cycle matters for sentiment, but lumber tends to march to its own drummer. If anything, the selloff in other commodities might make lumber look like a safe haven for speculators rotating out of grains. Luna: That's a good point. So the takeaway: lumber's rally is rooted in real supply constraints, but the volatility is amplified by thin markets and CFTC rules. We'll see if it holds through summer. Lucas: Exactly. And if you're watching housing stocks — or just trying to figure out why your renovation lumber quote just went up fifteen percent — the same dynamics are at play. Luna: Alright, a good one to watch. Let's move on to energy next. Lucas: Perfect — natural gas is doing its own thing. We'll get into that after the break.