Random length lumber, when traded on the commodity market, refers to lumber that is supplied at varying lengths while generally adhering to increments of evenly-cut two-foot boards. Lumber has been in use for many hundreds of years, but it was not until the two World Wars that standardised sizing policies were put into use. The Second World War in particular required huge quantities of lumber for both military and domestic applications, and it was this significant demand that required these policies to be put in place, so that mills and lumber traders could meet each other’s demands effectively while not being in proximity to one another. The standard contract size of random length lumber futures is for 110,000 feet of boards of random lengths in the 2×4 format that is standard in construction. Although termed ‘random’, the length of each board should not be less than 8 feet and should not generally exceed 20 feet.
The main unique feature of random length lumber as a commodity is that it has been and remains a staple of the construction industry all over the world. It is also available in different forms, depending on the tree from which the lumber is obtained. Lumber produced from softwood trees such as spruce or pine is used in the production of furniture and paper. Hardwood trees such as walnut and oak however produce lumber that is ideal for heavier construction, flooring and kitchen utensils.
Random Length Lumber is primarily traded on the Chicago Mercantile Exchange (CME), under the ticker symbols LB for open outcry and clearing, and LBS on the CME Globex electronic commodity trading system.
The main business and consumer market of the lumber commodity is the construction industry, with the United States being the leader worldwide in terms of softwood lumber production, producing 66.5 million tons in 2006. It also imported almost the same amount. China is second in terms on lumber import and export, producing around 9 million tons of lumber a year. The lumber market is also strong in Canada, and it is one of the countries main exports, mainly to the United States.
When trading lumber, there are several factors to consider. The price of lumber futures can be influenced greatly by the supply and demand at the time, which is usually dependant on the number of new homes that are currently being produced. As the demand increases, so does the spot price, and those who previously bought lumber futures at a relatively low price are suddenly set to reap the benefits.
Another major factor to consider is the worldwide debate on environmental destruction. Logging has an increasingly tarnished image in the public eye, and lumber companies must be careful not to overextend their sphere of production.
Furthermore, the methods of production can affect the lumber commodity price. Pesticides are almost mandatory in the treatment of lumber, but increasing public awareness of potential health issues is meaning that new, less harmful and more costly pesticides must be sought. This again can increase the price of lumber futures, as manufacturers have to up costs to maintain their yields.
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