Lumber Futures Diverge From Reality?

On today’s show we are looking at a divergence between lumber futures prices and current lumber composite prices. 

These two graphs always tend to track each other, sometimes with a small delay. But the prices always follow the futures. However, this is a moment in time when the lumber futures are diverging. 

The week-to-week framing lumber composite price fell by 0.5% on June 27, 2025, declining to $422 per 1,000 board feet. This was the 12th consecutive week of declines, and the lowest price since October 2024. The falling prices reflect falling demand for lumber as construction starts continue their steady decline. Production also fell in response to the fall in demand. 

But the July Futures price is $615, September is $664 and November is $675. That's a 60% premium over the current spot price.

Holding physical lumber (spot price) incurs costs. This includes warehousing, insurance, and the cost of capital tied up in inventory. Futures prices reflect these "carrying costs" that would be avoided by buying a contract for future delivery rather than purchasing the physical commodity today and storing it. Storing that lumber incurs interest costs if the inventory is financed. So part of the difference in price is explained by the cost of carrying physical inventory. 

There is anticipation of future increase in demand for new construction later this year and into next year. So the market is forecasting growth, even though the market is clearly experiencing a decline over the past 6 months. 

Finally, the trade war is anticipating supply side constraints as we have already seen a 6% decline in lumber from Canada entering the US. This is further anticipated to amplify as the trade dispute continues. 

This will make forecasting of construction costs more difficult for the foreseeable future in the US which will put downward pressure on new construction until the uncertainty is removed. 

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Episode Transcript

(00:01):
Welcome to the Real Estate Express podcast, your morning
shot of what's new in the world of real estate investing.
I'm your host, Victor Minash. On today's show, we're looking
at a divergent in lumber futuresprices compared with current
lumber composite prices. These two graphs tend to track
each other almost perfectly, sometimes with a small delay,
but prices almost always follow the futures.

(00:24):
However, this is a moment in time where the lumber futures
are diverging the week to week. Framing lumber composite.
They'll have a percentage point in the last week of June of this
year, declining to $422 per thousand board foot.
This is the 12th consecutive week of declines and the lowest
price since October of 2024. Softwood lumber prices have

(00:45):
dropped 3.7% over the last month, but they remain about 15%
higher than they were a year ago.
Falling prices reflect falling demand for lumber as
construction starts continue their steady decline and
production has also fell. In response to the fall in
demand. Lumber for US consumption in
2025 dropped to its lowest levelsince 2019.

(01:06):
In the first quarter, the US produced 9.1 billion board feet.
That's 2% lower than a year earlier and imports were down
about 5%. Imports from Canada fell 6 1/2%
to 2.8 billion board feet and non Canadian imports rose
actually slightly by 600 millionboard feet.
The National Association of HomeBuilders continually tracks the

(01:26):
latest lumber prices and futuresprices and they provide an
overview of the behaviors in theUS framing market.
That information is sourced eachweek using the Random Lengths
Framing Lumber Composite Index, part of the Chicago Mercantile
Exchange metrics. Now while the composite numbers
are down, that is the current prices.
The futures prices were up 39% year over year and lumber

(01:48):
futures prices are up 5.9% from a from a month ago.
The structural panel composite price was down 1 1/2% compared
to the previous week. Prices for structured board OSB
that is basically a particle board were flat.
Western for plywood prices were flat and southern yellow pine
plywood prices were down 2.7%. The demand picture has been

(02:10):
difficult to assess and we've not seen a consistent trend over
any 2 consecutive months. Housing starts were at a
seasonally adjusted rate of 1.5 million in December, 1.36
million in January, that's a 9.8% decrease from the month
before, then back up to 1.5 million, eleven percent increase
from January in the February numbers and then in March, they

(02:31):
were down 11.4% to 1.3 and Apriland May continue their decline.
We're now the the main numbers are showing an annualized rate
another 9.8% decline at around 1.256 million units.
That's the lowest rate since Mayof 2020 when we were in the
beginnings of the pandemic. Some of that decline was
definitely in the multifamily segment.

(02:52):
The increase in existing homes for sale is also a factor.
People consider buying a new home when they can't seem to
find what they want in the existing market.
And the number of homes for salehas been steadily increasing
since the start of the year. In January of 2025, nationwide
inventory was at 1.18 million units.
And as of May, the most recent data shows the inventory hitting

(03:13):
1.54 million units. That's about a 20% increase from
the same period last year. So we have falling demand for
lumber based on housing starts. That's pretty clear.
With falling demand, we would expect to see falling lumber
prices and that's precisely whatwe're seeing in the spot market.
And you would think the futures market would be reflecting that
drop in demand, but futures prices are significantly higher.

(03:35):
That reflects uncertainty associated with tariffs.
In my opinion. The futures prices are
incredibly high compared with the actual spot prices.
The July future is at $615 per thousand board foot, the
September futures contract is at664 and the November futures
contract is at $675. Again, comparing that to the

(03:56):
spot price of 422 in the currentmarket, that represents a 60%
premium over today's current price.
So the market is clearly signalling several factors
contributing to that difference in price.
Now, storage costs have always been responsible for a spread.
Holding physical lumber costs money that includes warehousing,
insurance and the cost of capital tied up in the

(04:17):
inventory. These future prices reflect the
carrying costs that would be avoided by buying a contract for
future delivery rather than purchasing the physical lumber
today and storing it. Storing lumber incurs interest
carrying costs for the inventoryif it's financed.
And so part of that difference in price is explained by the
cost of carrying the physical inventory.
There's anticipation of future increase in demand for new

(04:39):
construction later this year andinto next year.
So the market is forecasting growth even though the market is
clearly experiencing A decline over the last six months.
And then finally, the trade war is anticipating supply side
constraints as we've already seen a more than a 6% decline in
lumber coming from Canada entering the US and that's
further anticipated to amplify as the trade dispute continues.

(05:02):
This is going to make forecasting of construction
costs more difficult for the foreseeable future in the US and
that's going to put downward pressure on new construction
until that uncertainty is removed.
As you think about that, have anawesome rest of your day, go
make some great things happen, and we'll talk again tomorrow.