Lumber prices touched an eight-month high after a state visit to the U.S. by Canadian Prime Minister Justin Trudeau raised expectations that the latest chapter in a long-simmering trade dispute is closer to being resolved.

Futures for May settlement rose 3.6 percent to their daily limit of $291.60 per 1,000 board feet at 12:45 p.m. in Chicago, the highest intraday price for a most-active contract since July 14.
The two nations have long sparred over softwood lumber, with the dispute gathering steam in the early 1980s when U.S. lumber companies complained Canada gave producers access to cheap timber on government land. The 2006 Softwood Lumber Agreement expired last fall and both countries have until October to iron out a new trade accord, after which U.S. companies can file new trade cases against Canadian imports.

Trudeau brought up the dispute at a meeting with President Barack Obama in Washington on Thursday and said he’s confident the two countries can find a solution in the coming weeks and months. Comments from both sides point to the conclusion of a new, compromise deal before the deadline, Bloomberg Intelligence analyst Caitlin Webber said Friday in a note.

A new accord would probably boost prices as imported Canadian lumber will be subject to a tax at the border, Paul Quinn, an analyst at RBC Capital Markets in Vancouver, said in an interview.
"We would expect benchmark lumber prices to rise following the reintroduction of a trade deal," Charles Gross, an analyst at Morningstar Inc. in Chicago, said via e-mail.

Eoin Treacy's view

The relative weakness of the Canadian dollar has acted as a headwind for lumber prices because it makes supplies north of the border more attractive. This weighed on the commodity until recently and the potential that the USA and Canada can come to an agreement on tariffs is a positive catalyst. 

The US Dollar had accelerated to its January peak near $1.47 and has now fallen through its 200-day MA versus the Canadian Dollar. A short-term oversold condition is increasingly evident but a clear upward dynamic will be required to check near-term selling momentum. 

Lumber prices had trended lower for more than two years and the recent rally has broken the medium-term progression of lower rally highs. While a short-term overbought condition is evident a limit down move of $10 would be required to check momentum. 

Lumber is currently trading in backwardation which means near-term futures prices are higher than longer duration contracts; suggesting a dearth of supply right now. The same condition is evident in cotton and it is currently rallying from six-year lows. The contract has been subject to quite extreme bouts of volatility over the last year and will need to sustain a move above 60¢ to confirm more than short-term steadying.