Commodities: Lumber

Lumber’s end products are some of the most widely used goods in the world. The lumber industry comprises two types of wood: softwood and hardwood. Softwood comes from trees whose seeds are protected by cones. Since softwoods are easy to saw and nail, they are the primary lumber used in construction. Hardwoods, on the other hand, have seeds that are protected by a covering, such as an acorn. These woods are primarily used in furniture manufacturing and also in wood flooring, construction, panels and kitchen cabinets.

Contract Specifications

Production        

To produce lumber, trees are felled and the branches are removed. Next, logs are created and trucked to various sawmills where, depending on demand, the lumber is cut into various sizes and then shipped via truck or rail. The top wood-products exporters in the world are Canada, the U.S., Sweden, Finland, Germany, Russia and Brazil.

Price Drivers

The average home has nearly 15,000 board feet of softwood. As such, lumber investors closely watch the housing starts report, published by the U.S. Department of Commerce. Price drivers include:

• housing starts/construction
• the U.S./Canadian exchange rate
• interest rates
• demand for various markets, such as paper
• natural disasters and insect infestations (for example, the mountain pine beetle)