lumber was one of 2022’s worst commodity performers and it has been volatile at the start of this year but prices may gain on the back of a housing shortage an overall lack of confidence in us housing amid the sharp rise in interest and mortgage rates in the past year led to lackluster lumber demand contributing to the “precipitous” decline last year in us lumber futures says walter kunisch jr senior analyst at hts commodities “compressing” domestic demand and strong us imports were also a “combustible cocktail” for prices he said the federal reserve’s commitment to combat inflation combined with tighter underwriting standards is “scaring off many wouldbe home buyers and has them running for the…comfort of the rental market” says kunisch randomlength lumber futures lb00 lbh23 lost 67 last year for january prices gained 40—with the mostactive contract subsequently losing over 20 in the first couple of weeks of february they settled at 40270 per 1000 board feet on feb 14 the volatility in the first half of february is “attributed to the limited interest in trading lumber futures” says kunisch the cme cme is delisting randomlength lumber futures after the may 2023 contract expires so “open interest is falling trading volume is low and price volatility is rising” a new lumber futures contract lbr00 lbrk23  which launched in august 2022 and has a much smaller contract unit sizing will replace the legacy contract the new contract’s specifications don’t seem to have “mitigated the market’s concerns to generate increased liquidity” says kunisch still the price uptick early this year came on the heels of a january rise in the national association of home builders’ monthly confidence index after 12 months of straight drops in builder sentiment that indicated that “market participants see potential for increased demand in the next few months which would follow typical seasonal increases in home buying in the spring months and could bode well for builders” says scott reaves director of forecast operations at domain timber advisors the us housing market may see slow lumber demand if the fed remains committed to “containing and combating domestic inflationary pressures” says kunisch the central bank however has signaled that it will take a more “tactical and subdued approach to managing monetary policy” if buyers increase demand for newhome construction as the fed slows or stops raising the overnight lending rate it’s plausible to see an increase in lumber demand he says the fed announced a quarterpercentagepoint interestrate hike on feb 1 the smallest in a year there are lots of “variables at play” for lumber’s us price trajectory says kunisch it will “largely be determined by margins at the us and canadian mills” with margin structure impacting supplies he says and to a certain degree “consumer confidence the health of domestic equity markets and the path of the fed will influence demand” similarly reaves says it’s too early to tell the “true trajectory” for lumber but “we expect continued volatility…based on a variety of factors such as the builder and buyer confidence and normal supplyanddemand dynamics” read us housing starts fall by 45 in january to the lowest level since june 2020 longterm fundamentals “remain strong for housing demand” reaves says a key longterm driver is “population demographics” with the millennial generation “firmly moving into homebuying age” and some estimates putting the current housing shortage in the four million units range “this creates a real push for construction and need for sustainably sourced raw materials” like wood products from us forests certified by the sustainable forestry initiative forest stewardship council and american tree farm system says reaves