As markets approached the Christmas holiday, it was particularly fitting that futures on evergreens were exploding. Rather than representing last-minute Christmas tree demand, the rallying market was actually lumber futures, which were responding to stronger-than-expected housing outlooks.

Last Tuesday, housing starts and building permits numbers exceeded expectations, showing strong construction demand. This was coupled with strong figures for existing home sales and rising prices on Wednesday. Most important of all to builders, a report Friday showed that new home sales reached a ten-year high, signaling strong demand for their handiwork.

Regrettably, lumber supplies have been threatened during the last year by wildfires in the Pacific Northwest as well as trade disputes with Canada, the largest supplier of lumber to the United States.

These realizations shot lumber futures to a one-month high at $450 per thousand board feet on Friday. Higher prices, of course, are no present for those looking to buy a new home in the coming year.

The futures contract for lumber is made up of 2x4s manufactured from fir, spruce, and pine trees, albeit larger versions than the Christmas tree in your house.

Livestock herds expand

Two reports Friday from the USDA showed that cattle and hog herds continue to expand in the United States, likely signaling record beef and pork production in 2018.

For livestock producers, this expansion has been the result of profitable prices, but rising inventories could exceed demand and eventually knock prices lower.

Falling prices could be a boon for grocery shoppers but ultimately hurt producers. Meanwhile, corn and soybean farmers should appreciate rising herd sizes as an early gift, as corn- and soy-fed beef and pork will increase demand for their crops.

The hardest hit market after these reports was feeder cattle futures, which represent young cattle that are old enough to be moved into a feedlot. Demand for these animals may fall as existing herds are already quite large, a factor which knocked prices for March feeders to a three-month low near $1.38 per pound.

Walt and Alex Breitinger are commodity futures brokers with Paragon Investments in Silver Lake, Kan.  They can be reached at 800-411-3888 or paragoninvestments.com

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