Notes from the Forest 1-13-23 Edition

Ladies and Gentlemen:?

Activity in the lumber and panel markets picked up during the week. No one was loading the warehouse, but instead purchasing for the next 2 – 3 weeks, with a handful of buyers looking for bargains on key items. Much of the activity was being generated at the distribution level as those buyers try to keep up with growing demand from pro-dealers who continue to keep their inventory lite. There were additional curtailment announcements made during the week, even a surprising one from Florida. All of the closures had similar themes, weak economic conditions, market uncertainty, and lack of available and affordable fiber. Mills made outbound calls to buyers to discuss current prices levels vs. cost of production, with many asking buyers to consider purchasing at today’s lower prices. Buyers clearly were able to sympathize with the mills’ situation but many noted that they could not justify purchasing materials and placing them on the ground and financing that inventory without having some idea what their tract, multifamily and mixed commercial building customers would be needing. With many noting that they had heard little from those concerns since late December. Several buyers noted that they could not remember a producer curtailing production because business was too good. ?

A closer look at the Bureau of Labor Statistics Job Openings and Labor Turnover Survey (JOLTS) for November reveals that the construction labor market experienced another month of shrinking job openings, as the housing market continues to slow. The count of open construction positions fell to 388,000 in November from 390,000 in October. The construction job opening rate was unchanged from October’s reading of 4.8%. With data series highest level of 5.5% recorded in April 2022. Hiring in the construction sector softened further in November down to a rate of 4.0%, from October’s 4.3%. In comparison, in May 2020, as the sector recovered from the start of the pandemic, the hiring rate was at 10.4%. In November, construction sector layoffs held steady at 1.7%. In April of 2020, the layoff rate was 10.8%. Since that time construction sector layoffs have remained below 3%, apart from the weather-related issues of February 2021. Finally, the number of construction quits in November was 138,000, well below the 215,000 quits reported in November 2021. ?

Spruce Markets -: ?Activity in the Eastern and Western No.2 & Btr. SPF markets was modestly better than in the previous several weeks. Buyers continued to limit their purchase to immediate needs, but there was enough SPF purchased during the week to help bring supply and demand into better alignment, but production was still outpacing sales. The extension of previously announced production curtailments and additional new closures in B.C., due to a lack of affordable fiber and slower sales, did little to shake the WSPF market. Buyers for their part leaned on local 2-step distributors to provide them with immediate fill in units, while continuing to avoid speculative springtime purchases. Mills started the week quoting at or below last Friday’s levels and concentrated on selling what was either on the ground or scheduled to be produced during the week rather than trying to build up their order files at the current price levels. Low-grade sales remain lackluster. Mills started the week quoting low-grade at or on either side of last Friday’s levels and prices traded in a similar pattern from there. Stud trim sales continue to reflect the overall maladies of the markets. Mills started the week quoting stud trims at or on either side of last Friday’s levels and prices proceeded to trade in a similar pattern from there. Most SPF products are being quoted for shipment anywhere from prompt to the week of 1/23, with inclement weather in some areas a major deterrent to prompt shipment. ?

CME Lumber Futures –: The CME Lumber Future Contract for January is scheduled to expire on Friday 1-13-23, at 12:00 Noon CST. For the past 5 days (1/6/23 – 1/12/23) CME Futures were up 1 day, and down 4 days. For the past 5 days CME Futures have lost $2.30 and are trading above the Midweek Cash Market of $335 by $16.80, CME Futures at $351.80. One year ago, (1/12/22) CME Futures closed at $1212.60.?

Hem\ White Fir -: ?Buyers’ interest in the K.D. Hem\ White Fir Std. & Btr., and No. 2 & Btr., market remains subpar. Even as field inventories remain well below typical mid-January levels. Buyers, although conceding that downside risk was minimal, again this week continued to purchase highly mixed truckloads to meet immediate needs, while doing little to address their mid-February or beyond needs. Mills started the week quoting construction grade at or below last Friday’s levels, but buyers noted, as the week progressed, that discounts on certain key items appeared to dissipate, as supply and demand moved into closer proximity. Low-grade sales varied from species to species and from mill to mill. Mills started the week quoting low-grade at or modestly below last Friday’s levels and prices hovered in a narrow range from there. Stud trim sales remain slow but steady. Mills started the week quoting at last Friday’s overall flat levels, and prices traded at or on either side of those levels from there. Mills are quoting shipment of Hem \ White Fir products for the week of 1/30+/-.?

Green Doug Fir -: The atmospheric river continues to flow across the West Coast, bringing additional rain and flooding into valley locations and heavy snow and ice into the mountains. This not only impacted jobsite activity but also slowed production of Green Doug Fir (GDF) Std. & Btr., and No.2 & Btr. Except for 2x4 pricing, which continues to hold at previously established levels, mills started the week quoting the remaining widths below last Friday’s levels as they seek a trading level and a destination for unsold on ground inventory. Low-grade sales remain reserved as well, mills started the week quoting low-grade at or below last Friday’s levels and prices traded in that narrow range through the remainder of the week. Sales of GDF stud trims remain challenging. With buyers showing little urgency in purchasing, mills showed even less interest in adjusting prices lower. Mills started the week quoting GDF stud trims at last Friday’s levels and prices traded at or modestly on either side of those levels from there. Most GDF products are being quoted for shipment anywhere from prompt to the week of 1/30, but weather-related road and rail track closures delayed shipments. ?

Cedar Lumber -: Western Red Cedar (WRC) lumber producers reported that many of last week’s inquiries turned into this week’s orders. It was, however, obvious that buyers were filling specific inventory shortfalls, rather than purchasing for spring replenishment. Mills fielded additional inquiries during the week and that helped to buoy their outlook for WRC lumber sales for the spring selling season. With sales quickly shaking off the holiday doldrums and weather improving in many parts of North America, mills started the week quoting decking, dimensional lumber, fencing, siding, and timbers at or above last Friday’s levels and turned away buyer counteroffers out of hand. The exception remains the discounts that continue in coastal and inland boards, apart from D&Btr., which sold at a modest premium again this week. ?

Shake & Shingles -: ?The early 2023 level of inquiry for Western Red Cedar (WRC) Shake and Shingle provided much needed encouragement to producers. However, turning those quotes into bonafide orders remains a significant challenge. With log costs climbing, along with labor and insurance in both B.C. and Washington state, the pressure is on for mills to have sales at levels that provide them with more than minimal return on their investments. Nevertheless, the orders that were placed this week were placed at or below last Friday’s reported levels. Which in turn has producers continuing to limit their production to orders in hand, rather than beginning to build inventory for spring. ?

Southern Pine -: ?The Southern Pine No.1 and No.2-dimensional lumber markets continued to build on last week’s increased activity. Buyers are still not willing to speculatively purchase, but there was enough volume needed to bring current inventory levels back to late January levels to allow mills to sell off remaining excess inventory and to begin building order files on selected items. Mills started the week quoting construction grade SYP at or on either side of last Friday’s levels and prices traded in a similar pattern from there, for shipment available for the week of 1/23+/-. High-grade stock remains in tight supply. Mills started the week quoting high-grade at or above last Friday’s levels and shipment times have extended into mid-February. Industrial buyers continue to show limited interest in low-grade. Mills started the week quoting low-grade at or below last Friday’s levels, and prices hovered close to those levels from there. Stud trim sales remain lackluster. Mills started the week quoting studs at last Friday’s levels and prices held at or trended lower from there. Trading in small squares and timbers was mixed. Mills discounted 4x6’s, as they try to move through their excess production. Demand for 4x4 and 6x6 is steadily improving, and mills are quoting both items at or above last Friday’s levels. 5/4 x 6 Standard and Premium Radius Edge Decking sales remain seasonally slow. Mills in the Westside zone tended to hold prices closer to last Friday’s levels, while Eastside mills concerned about excess inventory buildup and wanting to jump start spring sales listened to and accepted counteroffers. ?

Pressure Treated-: ?Pressure treated lumber, panel, and accessories sales remain heavily reliant on the weather. In the Southeast and Texas where buyers for both pro dealers and large box retailers have been keeping their treated inventories lite, warmer weather has increased customer sales, necessitating some highly specified purchases, which always came with the request for prompt shipment. In other parts of North America winter continues to dominate the news headlines and treated buyers in those areas continue to limit their purchases to partial trucks to fill immediate needs. ?

OSB & Veneer Panels Overview –: It may be January 2023, but the markets continue to mirror their mid to late December 2022 orientation. With OSB and plywood prices trading at or modestly on either side of previously established levels, buyers have little to inspire them to consider purchasing beyond their most pressing needs, especially if they still lacked additional details from their tract and multifamily builder customers on their needs for the balance of Q1. Even when mills began quoting production scheduled for the week of 1/23 or beyond, most buyers simply turned to local distribution or an office wholesale with contract ownership to supplement their immediate needs. ?

OSB -: ?The inquiry and sales pace in the OSB markets showed a modest increase in activity during the week. However, buyers continued to limit their purchases to immediate fill ins, while continuing to shun any speculative purchases. This as buyers continue to wait to see if the OSB markets can move beyond their current flat but firm position before considering investing in their early to mid-February and beyond needs. Mills started the week quoting at or modestly above last Friday’s levels and looked for chances to inch prices higher, but that was typically met with buyer pushback. It was being rumored, but could not be confirmed, that later in the week, mills needing to move their production schedules into the early weeks of February, began to make selected calls to ‘valued’ customers offering discounts in varying degrees depending on the volume the buyer was willing to purchase. Office wholesalers continue to struggle with their contract ownership and securing their traditional place in between the mills and the buyers.?

Southern Pine Panels -: Traders in the Southern Pine Rated Sheathing markets noted that the increase in activity that started late last week had carried over into this week. Buyers remain cautious and conservative in their approach to the marketplace. However, when mills began quoting extended production schedules, demand for prompt shipments soon became an issue for buyers with low inventory levels. Mills started the week with a limited number of open market panels available and quoting at or modestly on either side of last Friday’s levels and prices held at or traded in a similar pattern from there. Mill Cert., sales varied from mill zone to mill zone and from one thickness to another. Producers started the week quoting Mill Cert., at or on either side of last Friday’s levels and prices traded in narrow range on either side of those levels from there, for shipment anywhere from prompt to the week of 1/23. The inquiry and sales pace of value-added panels remains slow but steady. Mills started the week quoting concrete form, sanded, siding, and underlayment at or below last Friday’s levels and prices proceeded to trade in a comparable pattern from there, for shipment available anywhere from prompt to the week of 1/23. ?

Western Fir Panels -: ?Western Fir Rated Sheathing buyers remain cautious and conservative in their purchases. An ongoing atmospheric river continues to flood parts of California and portions of the Pacific Northwest, which further limited buyers need to replenish in those areas. Inclement weather in the Midwest and Northeast also served to limit carload volume buyers’ interest in sheathing as well. Mills started the week quoting sheathing at last Friday’s levels and consistently told buyers that current prices are at or close to breakeven levels. Nevertheless, buyers continued to push for discounts and insisted on prompt shipment as a key to issuing a purchase order. Mills hinted at possible curtailments, but no formal announcements have been made. Sales of CD Struct 1, CC, CC PT&S, and Mill Cert., remain locked in their well-established trading pattern. Mills started the week quoting the entire complex at or below last Friday’s levels and prices proceeded to trade in a similar pattern from there. The sales pattern in specialty panels remains unchanged from previous months. Mills started the week in search of a trading level for underlayment, but buyers noted that the discount on those items continues to shrink. While mills started the week quoting concrete form, sanded and siding at previously established levels. Western Fir mills are quoting shipment, depending on the grade of the panel anywhere from prompt to the week of 1/30. ?

Food for Thought-:?As we roll further into the new year it is interesting to see how opinions on the 2023 housing market are starting to diversify.

First, as they say on a podcast I listen to, ‘a little housekeeping’. The information and opinions gathered, whether from written articles or from brief conversations, are simply a snapshot in time. The housing market remains slow but fluid. Secondly, just like in trading in the lumber and panel markets, some of the information reflects the position or the position the information providers wishes he\she were in. ?

Builders’ view of the housing markets for 2023, at least for the initial 4 – 6 months, is certainly less than optimistic. We will of course have additional data when the NAHB\Wells Fargo HMI for January is released on January 17th. Builders have several months of unsold inventory and with higher interest rates on both land and construction loans, holding onto those unsold houses is rapidly eating into their bottom-line profits. There is, however, a glimmer of hope. Large investment firms are continuing to express interest in the build to rent and the rent to own market. Should that interest turn into action, tract home builders in particular, might find an outlet for those homes. As was pointed out, build to rent, can quickly become a rent to own, or a straight-out purchase if the occupant says they are moving and the landlord expresses the idea of the renter saving money and staying put and then offers to upgrade certain parts of the home, or providing help with down payment etc. ?

If builders are less than optimistic, mortgage brokerage firms are sour on the prospects for 2023. Higher home prices have resulted in many would-be buyers being priced out of the marketplace. Higher home prices and increased interest rates have been a double whammy. Add in higher tax rates in many areas due to the increased value of homes and now escrow payments are higher as well. Homeowners who have just refinanced at 3% or lower are not interested in moving. Announcements from large publicly held nationwide mortgage loan initiators of office consolidations and the downsizing of personnel are frequently being made. ?

Realtors are forever optimistic. They continue to report seeing opportunities in 2023. They are based, they say, on the still significant number of new and existing homebuyers who are active in the market, and they anticipate more will be joining as the calendar moves into springtime. They note that the higher interest rates and slower home sales can and are in fact working in the favor of those buyers who are still searching for their forever home. Slower sales have sufficiently slowed the multiple offers being made on a house. At the same time, they are seeing that home sellers are suddenly willing to listen to them as they are hoping for multiple counteroffers so they can get their best deal, having missed the previous year’s bidding wars. ?

Finally, the remodelers. They are starting the year with a backlog of work and they anticipate that those homeowners who are not interested in moving will once again be looking to upgrade their home’s interior and exterior. Lower lumber, panel and building materials prices are certainly working to their advantage.???