Shall we revisit my offer to buy lumber swaps at $1,300 for next two years? I think it’s time for a status update.
So. On that day I hedged at $1500 in the July contract. Long lumber swap at $1300.

I’m long lumber at $200 below futures, aka -200.
I need to roll my July short to September as this is a 2 year price lock. Gonna have to keep my hedges on for a while.

I am expert spread trader* so I buy July back and short Sept (bull spread) at the absolute low of +95 Sept over July.

*hypothetical expert spread trader
That Sept premium of $95 I got to sell into just lowered my breakeven to -295, aka $295 below the futures price.

The math behind that would be something like:
Short LBN $1500
Long LBN $490
($1010 gain rolled into long swap position = BE on swap is now $290)

Short LBU $585
The math checks out. I said I now own lumber at 295 below futures. Sept (LBU) Futures at this point are $585. Subtract $295 and you get flat price BE of….$290!

Much easier to just track your cash basis vs futures. But the math behind it should tie it together.
So- print prices are roughly $500 at this point. I’m long at $290! That’s $210 in unrealized profit. Winning!

Put another way, print prices at -85 vs LBU and I’m long at -295. That’s a difference of…you guessed it….$210!
Alright, now I’ve decided to roll my hedges from the Sept contract (LBU) to the Nov contract (LBX). I’ll do that while selling LBX at a +30 premium to LBU. Again, best spread traded so far in the U/X spread. Lucky me!

Now I own lumber at -325 below November futures!
The math on the trades would be something like this:
Short LBU $585
Long LBU $490
(That’s a $95 profit that reduces my BE on the swap to $195!!)

Short LBX $520 moving forward. *remember I shorted this at a 30 premium to LBU. $490 + 30 = $520!

Check ur math: $520-325= BE $195
A market check-in shows print near $430 and LBX $482.

My current BE in flat price terms is now $157.

I get that by taking my cash basis of -325 and pegging against today’s close of $482. 482-325 = $157.

Unrealized gain of $273!

Or: market is -52, I’m at -325 = $273!
Here’s the absolute best part. Because it’s free. It’s better than free. It’s negative free.

I’m being paid by the market to roll my hedges and carry my lumber in storage. I was paid $95 to carry my lumber from July to Sept. And paid again to store it from Sept to Nov for $30.
BUT WAIT, there’s more. I don’t have any real lumber to carry in storage. I just have a long OTC swap position on a piece of paper I carry in the C-Drive.

So if I’d normally pay $ X/mbf to carry lumber (physical storage costs, interest, insurance) ….I actually have $0.00 costs!
That’s all for now. My flight got delayed 3hrs and now leaves at 12am MST. I’ll respond to questions on this for a while.
(At this point I’m long 15 cars after 5 cars a month w $273 unrealized profit in them).

• • •

Missing some Tweet in this thread? You can try to force a refresh
 

Keep Current with Stinson 🌲🪓 🏠

Stinson 🌲🪓 🏠 Profile picture

Stay in touch and get notified when new unrolls are available from this author!

Read all threads

This Thread may be Removed Anytime!

PDF

Twitter may remove this content at anytime! Save it as PDF for later use!

Try unrolling a thread yourself!

how to unroll video
  1. Follow @ThreadReaderApp to mention us!

  2. From a Twitter thread mention us with a keyword "unroll"
@threadreaderapp unroll

Practice here first or read more on our help page!

More from @LumberTrading

18 Jun
Why hasn't my supplier shown me lower prices:

Suppliers average cost is still very high. They have to buy a lot of cheaper lumber to offset the costs of a lot of expensive lumber.

No one has bought a lot of cheap stuff yet to bring their avg cost down! Market still falling
in a weird way, you're quotes won't come down until the market bottoms. That happens when your supplier steps in to buy more, often making market bounce.

So, once the bottom is in and that lower price works its way into avg costs, THEN quotes get cheaper.
Maybe if suppliers got flooded with new business, they'd itch to buy and the bottom will get set sooner?
Read 5 tweets
20 May
Lumber thoughts:
Things I’m seeing now that are new to this rally:

1- demand side is finally pushing back. Capacity complaints more so than price complaints.

2- lumber yards willing to buy for deliveries 8 weeks out. Trying to get coverage for q3 at record higher prices.

🧵
3- May futures expiration was kinda....boring. If there was a scramble for prompt wood, May contract would have shot up that last week of trading. It didn’t.

4- My business of JIT truck delivery is slow and volatile. Not much panic.

5- Sawmill inventories trending up per data
6- Sawmills haven’t been able to increase prices for a week. Still have sold out into June, but not beyond...yet!
Read 5 tweets
12 Apr
To understand what is happening in the near term lumber market, here are a few scenarios:

Framing packages for home builders were agreed to 30-45 days ago. Lumber yards didn’t cover that commitment anticipating prices would dip soon. No dip, deadline approaching, gotta cover.
Home builders have delayed issuing POs to lumber yards thinking prices we dip. They delayed q4 projects to q1. No dip came, deadlines approaching, gotta start the project no matter what.

Same dynamic as before.
Lumber yards, having been burned so much the last 6 months, covered jobs more aggressively but demand outpaced projections and they are under bought. Scrambling to cover new business that wasn’t budgeted for.
Read 4 tweets

Did Thread Reader help you today?

Support us! We are indie developers!


This site is made by just two indie developers on a laptop doing marketing, support and development! Read more about the story.

Become a Premium Member ($3/month or $30/year) and get exclusive features!

Become Premium

Too expensive? Make a small donation by buying us coffee ($5) or help with server cost ($10)

Donate via Paypal Become our Patreon

Thank you for your support!

Follow Us on Twitter!

:(