Can Pine Beetles Boost Your Portfolio?
After a swift selloff earlier in the year, bulls are back in firm control of the lumber market. In fact, spot lumber is up 32% from the lows set in mid-June 2013. That makes the commodity one of the top performing hard assets over the past five months.
Take a look…
As you can see, lumber is currently trading near $380 per thousand board feet (mbf). What’s more, notice the commodity is trading in a perfect channel pattern (blue lines). Given the established uptrend, it’s highly likely prices test the March highs of $400 mbf in the near future.
What has lumber bulls running wild?
Fears of a supply shortage are leaking into the market after reports surfaced of two Canadian lumber mills closing their doors. According to a recent Bloomberg article, West Fraser Timber is shuttering their Houston, British Colombia mill while Canfor Corp. is closing the Quesnel mill.
The companies are responding to an infestation of mountain pine beetles that’s destroying millions of acres of timber in Southwestern Canada. Enormous swaths of highly valuable lumber are nearly worthless thanks to the outbreak.
Analysts estimate the mill shutdowns of just these two mills will take half a million board feet of lumber off the market.
And that’s just the start of it…
Another looming problem lies in the fact that huge swaths of US forest are also affected by the same pine beetle infestation. According to the US Forest Service, more than 4 million acres of US timberlands have been destroyed by the epidemic.
And believe it or not, the epidemic is expected to last many more years…
What’s it mean?
Don’t be surprised to see a few US mills shut down due to the lack of merchantable timber. In case you’re unaware, once pine beetles overtake a tree, there’s a limited time to harvest before the lumber becomes unusable for most construction purposes.
Speaking of construction…
The ongoing rebound in the US housing industry is creating a new source of lumber demand at the same time supplies are growing tight. In fact, data from the US Department of Housing and Urban Development reveals residential construction levels are at the highest levels in years.
The mixture of tight supplies and growing demand means lumber prices have one way to go…
…UP.
How do you capitalize on the rising prices?
Unfortunately, there aren’t any ETFs that specifically track lumber futures. However, the Guggenheim Timber ETF (CUT) and the iShares Global Timber and Forestry ETF (WOOD) are made up of companies that produce wood products.
And with lumber prices on the rise, it should come as no surprise that margins will likely expand at companies like Weyerhaeuser (WY) and Plum Creek Timber (PCL).
So if you’re searching for commodity investments that are bit off the beaten path, WOOD and CUT are two great options!
Until Next Time,
Justin Bennett
Category: Commodities
