Lumber Prices

A one percent futures basis does not necessarily indicate a one percent decline in lumber costs (as would be indicated in a risk-neutral effective markets setting). Mehrotra and Carter (2017) discover that over the 1995-2013 duration, at 2 months horizon, a one percentage point basis implies a 0.55 percentage point decrease. If spot and futures costs move in tandem, this implies about a 7% decline in the June PPI, and around 20% decline in the July, bringing the lumber PPI back to around where it remained in April.

Source: barchart.com, accessed 22 June 21.

Figure 1: PPI for lumber and softwood (blue, left scale), and close-by month futures, lagged one month (brown, best scale). Source: BLS via FRED, and ino.com.

A wild trip for futures means …

A minimum of, thats what the futures are signalling.

This entry was published on June 22, 2021 by Menzie Chinn.

Do lumber costs (as determined by the PPI) relocation as anticipated by the neighboring month futures? Heres a plot.

Author: NEWS

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