In recent years, lumber prices have reacted to supply and demand imbalances with frequent and often extreme changes. Domestic lumber supplies have been constrained due to mill closings, the spotted owl controversy, and other environmental concerns. In Canada, lumber supplies have been limited as provinces move toward sustainable yields, where only enough trees can be harvested as can be replaced in 40 or 50 years. And on the demand side, due in part to economic conditions and interest rate policies, housing starts over the past decade have ranged from record highs to 36-year-lows.
In 1969, the Chicago Mercantile Exchange became the first exchange to offer price protection to the forest products industry with the listing of random length lumber futures contracts.
The lumber futures contract traded at the CME calls for on-track mill delivery of random length 8-20 ft. nominal 2 x 4s. Primarily, the deliverable species is Western Spruce-Pine-Fir, although other Western species - such as Hem-fir, Englemann Spruce, Alpine Fir, and Lodgepole Pine - may also be delivered. Mills must be located in the states of Oregon, Washington, Idaho, Wyoming, Montana, Nevada or California, or the Canadian provinces of British Columbia or Alberta. The acceptable grades are Standard and Better, or #1 and #2 of the structural light framing category; or construction and standard of the light framing category. Grade #2 or standard grade may not exceed 50% of the lumber delivered. Wood must be kiln dried to a moisture level of 19 percent. The random-length tally must conform to size percentage limits. Lumber of each length, for the most part, must be banded together, poly or paper wrapped and loaded on one 73' flatcar.
Schwab offers trading in CME lumber futures.
Lumber futures, Chicago Mercantile Exchange, trading symbol LB. The contract size is 110,000 brd. ft. The minimum tick size is $0.10 per 1,000 brd. ft., worth $11 per contract.
Trade electronically on Globex from 10:00 a.m. U.S. ET until 5:00 p.m. U.S. ET.
Principal trading months for lumber futures include January, March, May, July, September, and November.