Abundant pine trees in the South have made it North America’s most productive lumber region. – Angela Owens/WSJ
Lumber producers have migrated from Canada to the U.S. South. Now lumber-futures trading is heading to the Southern pineries as well.
The exchange operator CME Group said it would launch trading in Southern yellow pine futures on March 31, a response to rising export taxes on Canadian lumber that have pushed benchmark wood prices well above those paid in the South.
The futures contracts—ticker: SYP—will give the South’s loblolly planters, loggers, sawmills, pressure treaters and builders a mechanism to manage their exposure to price swings that is more in line with the local market than existing futures.
The lumber futures that trade now are tied to deliveries of boards made from Northern conifers, namely Canadian spruce, pine and fir. Builders like those species for the wood’s light weight and easy nailing. Existing futures exclude Southern yellow pine, which is a lot heavier and preferred for fences and decks because it works well with waterproofing and stain.
Traders and the exchange have for years discussed Southern yellow pine futures as the region’s production grew to be more than 36% of North American softwood lumber output.
Now that Northern lumber is a lot more expensive, they are saying the time is right.
“There was a breakdown in the correlation between Southern yellow pine prices and the spruce-pine-fir prices, especially since a lot of it came from Canada,” said David Becker, risk-solutions director at Fastmarkets, which owns the lumber-trade publication and pricing service Random Lengths. It reports the Southern pine price benchmark that the new futures will be settled against.
Random Lengths’s Southern Pine Composite Index ended last week at $422 per thousand board feet. Lumber futures, meanwhile, rose to a 30-month high, ending Monday at $666 as traders reacted to President Trump’s swerving tariff threats.
Canfor, which owns sawmills in Canada and the U.S. South, told investors Friday that it believed lumber was among the products that received a one-month exemption from a 25% tariff Trump placed on Canadian goods earlier in the week.
Chief Executive Susan Yurkovich said customs brokers weren’t collecting the 25% tariff. That might not last, though. Later Friday, Trump made fresh threats to add tariffs to Canadian lumber.
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Any tariff the president adds would layer on top of existing export taxes on Canadian lumber, which nearly doubled last year, averaging 14.4% between antidumping and countervailing duties.
Duties on Canadian softwood lumber are expected to rise sharply again this year and are a result of the longstanding U.S. contention that Canada’s sawmills are unfairly subsidized by the Canadian government, which owns much of the country’s timberland. In the U.S., National Forests supply wood to sawmills, yet Douglas fir farms in the Pacific Northwest and Southern pine plantations are in private hands.
Many Canadian mills have been driven out of business in recent years. Wildfires, wood-boring beetles and environmental protections have reduced log supply in Canada’s boreal forest while export taxes have lifted the prices sawmills need to break even.
Canfor is among the Canadian sawyers that have been closing mills at home and adding production in the U.S. South, where a glut of pine trees has kept log prices low no matter how high lumber prices have risen. It opened a new $210 million sawmill north of Mobile, Ala., recently and completed the $130 million modernization of another in Arkansas.
Canfor’s sawmill in Moultrie, Ga., is one of several the Canadian company operates in the U.S. South. – Charlotte Kesl for WSJ
Southern yellow pine doesn’t always work as a substitute for the Northern species favored by home builders. But traders and sawmill executives said the growing price difference is prompting pockets of buyers to swap, including companies that prefabricate the trusses that hold up roofs.
Unlike the existing lumber futures, which will continue to trade, Southern yellow pine contracts will be settled with cash so hedge funds and other speculators can wager on wood prices without worrying about ending up with truckloads of two-by-fours.
“This is the contract that could have parabolic growth down the road and ultimately dwarf the existing contract,” said Greg Kuta, whose Westline Capital Strategies plots futures strategies for lumber producers and big wood users.
While lumber futures have served as a reliable leading indicator for the housing market and offered an early warning of the Covid era’s supply-chain chaos, trading has at times been problematically thin.
Three years ago, the market was plagued by sessions in which the price would surge or drop by the daily maximum allowed by exchange rules and stick there, locking traders into positions for days on end.
In 2023, CME replaced those futures, which delivered railcars of Pacific Northwest lumber to a remote rail junction in British Columbia. The current contract is fulfilled with truckloads of a wider range of Northern species delivered to Chicago.
Lumber-futures trading has since become less volatile but still hasn’t attracted the same type of broad pool of traders as other commodities, such as oil, copper and natural gas.
