How to trade lumber futures

Lumber futures are a popular way to track the economy due to the reliance of the construction industry on the commodity. Find out how to speculate on the price of lumber here.

Charts (2)

What are lumber futures?

Lumber futures are the contracts used to buy and sell a certain amount of timber that has been cut into beams and planks. Futures contracts are a legally-binding agreement between two parties to exchange the commodity for a set price, on a set date in the future.

Lumber futures are used by companies in the forestry industry to speculate on the cash price of lumber. At each stage of the lumber distribution chain – forestry, milling, processing, wholesale, retail and building – the price of lumber can change because of the period of time between purchase and final sale. By using futures, companies can lock in a price and hedge against their risk exposure.

This risk is essentially transferred onto speculators or investors who want to profit from the price movements.

Lumber has been used in construction for thousands of years, but it wasn’t until the industrial revolution that it became a commercial commodity.

Lumber is broadly its divided into two classes:

  1. Hardwood lumber, including oak and maple wood, which is used for commercial industries and mostly comes as wood pallets, furniture and flooring
  2. Softwood lumber, such as pine and fir, which is structural lumber and is mostly used for building. Lumber futures primarily trade in Western Spruce-Pine-Fir species

Chicago Mercantile Exchange lumber futures

The Chicago Mercantile Exchange became the first exchange to offer lumber futures in 1969. CME lumber futures are called ‘Random Length Lumber Futures’ because no two types of lumber will be identical due to natural differences such as knots, slope of grain and natural wear.

The contracts are standardised as much as possible in terms of dimensions, grade and moisture content. All CME lumber futures trade in Western Spruce-Pine-Fir species, although Hem-Fir, Engelmann Spruce and Lodgepole Pine can also be included. The mills have to be located in Oregon, Washington, Idaho, Wyoming, Montana, Nevada or California, or the Canadian provinces of British Columbia and Alberta.

The specifications are as follows:

CME Random Length Lumber Futures

Contract size

110,000 boards (bd ft) of random length 2x4s

Settlement

Physical delivery

Market price

$ per 1,000 bd ft

Per point movement

$0.10 per 1,000 bd ft = $11 per contract

Delivery months

January, March, May, July, September and November

Last trading day

16th calendar day of the contract month

Trading hours

2 am Monday to 6:55 pm Friday with daily breaks from 9pm to 10pm

Discover our commodity market hours

What moves the price of lumber?

Lumber prices are unpredictable and often volatile due to rapidly-shifting supply and demand. Supply of lumber can be hit by mill closures, weather conditions and changes to environmental policies, while demand changes based on interest rates and economic conditions.

As lumber demand is so heavily influenced by housing starts, lumber prices react quickly to the monthly report released by the US Department of Commerce. A third of all US lumber is used to build homes, so changes in starts and even mortgages play out across the commodity’s price. 

This means lumber has a close connection with gross domestic product too. Studies have shown that if GDP rises by more than 2%, demand for lumber will increase due to the rise in infrastructure projects and housing builds. But if GDP increases at a rate slower than 2%, demand falls as people become more efficient in their commodity usage.

Discover what economic indicators are

How to buy and trade lumber futures

You can buy and trade lumber futures in just a few simple steps:

  1. Open a City Index account, or log in if you’re already a customer
  2. Search for ‘lumber’ in our award-winning platform
  3. Choose your position and size, and your stop and limit levels
  4. Place the trade

Alternatively, you can practise trading lumber futures first in a risk-free demo account.

When you trade lumber futures with us, you’ll be doing so via spread bets or CFDs. You’d open a position to buy lumber if you thought the price of futures would rise – this happens when demand outstrips supply. Conversely, you’d open a position to sell lumber if you though that futures prices would fall, due to supply outweighing demand.

Learn more about how to trade commodities with City Index

Due to the highly volatile nature of lumber prices, trading lumber creates opportunities for profit but also, a large amount of risk. This is why it’s important to learn how to manage your risk before you open a position.

Find out how to build a risk management strategy


Build your confidence risk free

More from Commodities

Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.