Monday, June 17, 2024
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Wood Prices | Economy Browser

The crazy journey of futures means…

source:, Visited on June 21.

Does the price of timber (measured in PPI) change as predicted by the recent futures? This is a plot.

figure 1: The PPI of lumber and cork (blue, left scale) and the PPI of near-month futures lag one month (brown, right scale). Source: BLS via FRED and

A 1% futures basis does not necessarily mean a 1% drop in timber prices (as implied in a risk-neutral efficient market environment). Mehrotla and Carter (2017) It is found that between 1995 and 2013, within a two-month range, a basis of 1 percentage point means a decrease of 0.55 percentage points. If the spot and futures prices change simultaneously, this means that the PPI in June will drop by about 7% and that in July by about 20%, bringing the timber PPI back to the level of April.

At least, this is the signal sent by futures.

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