Lumber Physical Sep '26 (LBU26)

Description

Humans have utilized lumber for construction for thousands of years. Still, due to the heaviness of timber and the manual methods of harvesting, large-scale lumbering didn't occur until the mechanical advances of the Industrial Revolution. Lumber is produced from both hardwood and softwood. Hardwood lumber comes from deciduous trees that have broad leaves. Most hardwood lumber is used for miscellaneous industrial applications, primarily wood pallets, and includes oak, gum, maple, and ash. Hardwood species with beautiful colors and patterns are used for high-grade products such as furniture, flooring, paneling, and cabinets, and they include black walnut, black cherry, and red oak. Wood from cone-bearing trees is called softwood, regardless of its actual hardness. Most lumber from the US is softwood. Softwoods, such as southern yellow pine, Douglas fir, ponderosa pine, and true firs, are primarily used for structural lumber (2x4s and 2x6s), poles, paper, and cardboard.

Plywood consists of several thin layers of veneer bonded together with adhesives. The veneer sheets are layered so that the grain of one sheet is perpendicular to that of the next, which makes plywood exceptionally strong for its weight. Most plywood has from three to nine layers of wood. Plywood manufacturers use both hard and softwoods, although hardwoods serve primarily for appearance and are not as strong as those made from softwoods. Plywood is primarily used in construction, particularly for floors, roofs, walls, and doors. Homebuilding and remodeling account for two-thirds of US lumber consumption. The price of lumber and plywood is highly correlated with the strength of the US homebuilding market.

The forest and wood products industry is dominated by Weyerhaeuser Company (ticker symbol WY). Weyerhaeuser is a forest products conglomerate that engages not only in growing and harvesting timber but also in the production and distribution of forest products, real estate development, and the construction of single-family homes. The company owns or controls more than 24 million acres of timberland in the US and Canada. To maximize its long-term yield from its acreage, Weyerhaeuser engages in various forest management activities, including extensive planting, suppression of non-merchantable species, thinning, fertilization, and operational pruning.

Lumber futures and options are traded at the CME Group. The CME Group's lumber futures contract calls for the delivery of 27,500 board feet. The contract is priced in terms of US dollars per thousand board feet.

Prices - CME lumber futures prices (Barchart.com symbol LB) on the nearest-futures chart in 2025 closed the year down -2.2% at $538.50 per thousand feet.

Supply - The US leads the world in the production of industrial round wood. In 2024, US production was 319.085 million cubic meters (-2.0% yr/yr), Russian production was 193.121 million cubic meters (+4.3% yr/yr), and Canadian production was 114.879 million cubic meters (remained unchanged yr/yr).

The US also led the world in the production of plywood in 2024 with 8.953 million cubic meters of production (+1.6% yr/yr), followed by Russia with 3.450 million cubic meters (+5.9% yr/yr), and then Japan with 2.506 million cubic meters (-1.0% yr/yr).

Trade - World exports of plywood in 2024 rose by +1.6% yr/yr to 29.913 million cubic meters. The world's largest exporter of plywood is Russia, with a 5.4% share of world plywood exports in 2024, followed by Finland with 2.5%, and the US and Canada, each with 2.0%. In 2024, US exports rose by +2.8% yr/yr to 601,000 cubic meters.

World exports of industrial roundwood in 2024 fell by -1.2% yr/yr to 92.986 million cubic meters. Germany was the world's largest exporter of roundwood in 2024 (with an 8.0% share of world exports), followed by the US (7.1%), Latvia (4.9%), the Czech Republic (4.0%), Canada (3.5%), and France (3.6%). Russian exports of industrial roundwood in 2024 fell by -29.2% yr/yr to 1.183 million cubic meters. US exports of industrial roundwood in 2024 rose by +1.0% yr/yr to 6.585 million cubic meters.

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