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Lumber futures are at 12 year highs after Hurricane Harvey and Irma. Prices have been rallying since the housing crash of 2008 and earlier this year the U.S. administration imposed tariffs on plywood coming from China and lumber coming from Canada. Wildfires across Canada and the western U.S. also pushed prices higher pre hurricanes. In effect lumber futures find themselves in a perfect storm, pardon the pun.

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Since Harvey made landfall in late August near Rockport Texas, lumber futures have soared from near $362 per thousand board feet to $407.50 per thousand board feet Friday on the CME Group's exchange.

With the already bullish structure pre hurricanes and the substantial year-over-year price inflation this year it is hard to see prices pull back significantly for the balance of 2017 unless the speculators have got way ahead of themselves as Committment of traders reports suggest. Though how much of that is construction companies hedging? 

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With NAFTA negotiations going on there is a chance of a rollback on the Canada tarrifs. The U.S. administration is showing a new found willingness to reason in disaster after they revoked the Jones Act for 10 days with Peurto Rico following Hurricane Maria reaking devastation on the island. 

Other than speculators liquidating or a tarrif reduction which would feed that there is little to see prices pullback. It is noticable being in Houston though the length of time it is taking to get remediation done and the existing stock available and coming to town that at this point at least demand has not outstripped supply. This is early days and their are over 180,000 homes affected in Harris County alone. That is a lot of construction needed in Texas, Lousianna and Florida.

The Fed for it's part has been wishing for higher inflation and now with rising oil prices, increases in lumber and other components costs are driving up the producer price index for construction after it has been going nowhere. The last thing those affected need is further tightening, not that affects the Fed's thinking in their closeted worlds.

The sad reality homes have been wrecked across the Gulf Coast and South Eastern United States and not until rebuilding really kicks in will we know the true impact of prices. Lumber goes in everything from flooring, to framing and cabinetry. There are alternatives now such as manufactured wood and tile that give alternatives to those rebuilding. Price may well be the determining factor there.

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For home buyers there is not just lumber that goes into homes, we have all seen the images of floors being ripped out and sheetrock walls being torn down to combat mositure and mold. Sheetrock and also known as gyprock or drywall. The main ingredient is gypsum. 

The market for drywall is very concentrated, and IHS Markit believes: Although the first quarter price increase for wallboard was not as high as 2012 or 2013, we expect the announcement of higher prices this September due to increased demand from hurricane re-construction. Buyers may have difficulty pushing against these increases. After an annual increase of 10%, wallboard inflation is expected to slow down once again in 2018. There are only six manufacturers making up almost the entire industry. It will be interesting to see how consumer watchdogs react should these producers ramp up prices to homebuilders and construction materials distributors.

Insurance payouts will play a large part in the scope and spped of rebuilding, it is estimated that over 80% in Texas did NOT have flood insurance. This means many will not be able to rebuild or will have to in piecemeal amounts. The upper limit for flood insurance is $250,000. 

For lumber traders the major move has happened, from here the next three months will help determine whether price to those 20 year levels on the charts or whether demand and supply finds a level. Outside events such as government intervention can affect, choice and costs. Should another hurricane hit in this intense season than all bets are off.

From The Traders Community Research Desk

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