Cash lumber prices are unpredictable and volatile. Supplies can be constrained due to mill closings, environmental policies and other factors. Demand also tends to shift rapidly based on interest rates and other economic conditions that affect housing starts. As a result, lumber prices react to supply and demand imbalances with frequent and often extreme changes. Highly volatile prices can mean opportunity for large profits. But in an industry like lumber – valued at over $30 billion for the North American market – where costs are high and margins are tight, volatile prices can also mean risk of loss, sometimes devastating loss. This guide provides in depth insights into how these contracts work, who uses them and why. It includes hedging examples, option basics and commonly used trading strategies using these contracts. It also explains exchange for physicals and the detailed contract specifications you need to start trading.
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