Notes from the Forest 1-21-22 Edition

Ladies and Gentlemen:?

A succession of winter storms traversing across North America, followed by bone chilling temperatures has been able to accomplish what higher prices on lumber and panels could not. The weather has temporarily reduced demand for both lumber and panels as jobsites slow or come to a halt. Buyers have quickly reined in their purchases, trying to keep them in lockstep with outbound shipments. Mills with production schedules into mid-February took the weather-related slowdown in stride. With the lull, mills attempted to get caught up on their late shipments. However, an ongoing labor shortage due to a spike in the COVID-19 Omicron variant, which has also impacted all aspects of transportation, limited their progress. Most calls from buyers to the mills or secondaries this week were regarding late shipments, not new orders. ?

The National Association of Realtors? (NAR) reported on Thursday (1-20-22) that total existing home sales, which are completed transactions for single-family homes, townhomes, condominiums, and co-ops dropped -4.6% in December from November to a seasonally adjusted rate at 6.18 million homes. Year-over-year, however, sales are down -7.1% (6.65 million December 2020). At the end of December unsold inventory was at a 1.8-month supply, at the current sales pace, down from 2.1 months November 2021, and down year-over-year from the December’s 2020 rate of 1.9 months. The U.S. Census Bureau reported on Wednesday (1-19-22) that privately‐owned housing starts in December were at a seasonally adjusted annual rate (SAAR) of 1,702,000. This is 1.4% above the revised November estimate of 1,678,000 and is 2.5% above the December 2020 rate of 1,661,000. Single-family housing starts in December were at a rate of 1,172,000, this is -2.3% below the revised November figure of 1,199,000. The December rate for units in buildings with five units or more was 524,000. Building Permits are the forward-looking portion of the report and in December privately-owned housing units authorized by building permits were at a SAAR of 1,873,000. This is 9.1% above the revised November rate of 1,717,000 and is 2.0% above the December 2020 rate of 1,758,000. Single-family authorizations in December were at a rate of 1,128,000; this is 2.0% above the revised November figure of 1,106,000. Authorizations of units in buildings with five units or more were at a rate of 675,000. On Tuesday (1-18-22), The National Association of Home Builders (NAHB) /Wells Fargo Housing Market Index (HMI) reported that builder sentiment in the market for newly built single-family homes edged 1-point lower in January to a reading of 83. The HM has hovered between 83 – 84, for the past three months. Any reading above 50 indicates that more builders view conditions as good rather than poor and that demand remains strong. ?

Spruce & Stud Markets -: The inquiry and sales pace of Western and Eastern Canadian SPF Std. & Btr. and No. 2 & Btr., continues to hold steady. Winter weather continues to take its toll not only on jobsites but is also negatively impacting logging and mill production efforts and shipping. ?With Western Canadian ports congested, some of the product originally earmarked for shipments to Asia is starting to appear on mills’ domestic sales lists. With prices continuing to escalate, buyers have become more cautious and conservative in their purchasing strategies. Concerned about a repeat of the 2021 market collapse. Mills started the week quoting construction grade above last Friday’s levels and prices moved modestly higher from there; for production available for shipment the week of 2/14+/-. Low-grade sales remain active but western mills seemed to have additional product available. Mills started the week quoting low-grade above last Friday’s levels and prices traded close to those levels from there; for production available for shipment the week of 2/7+/-. Demand for stud trims continues unabated, despite winter weather incursion on jobsite activity. Mills started the week quoting stud trims above last Friday’s levels and prices traded at or pushed higher from there; for production available for shipment the week of 2/14+/-.?

CME Lumber Futures –: The CME Lumber Future Contract for January expired at 12:00 CST on Friday, January 14th, 2022. At its close the contract had gained $8.00 for the day and closed at $ 1237.10, trading $ 37.10 above Thursday’s cash level of $1200. The March contract is now the forward month and will close at 12:00 Noon CDT on Tuesday March 15th, 2022. For the past 4- days (1/14//22 – 1/20/22), there was no trading on Monday 1-17 in observance of MLK Day, CME Futures were down 4 consecutive days in a row. CME Lumber futures have lost -$140.30 for the week, and are trading below the Midweek Cash Market of $1220 by $31.30 CME Futures at $1188.70. One Year Ago, 1-20-21, CME Futures closed at $700.00.

Hem\ White Fir -: The inquiry and sales pace of Coastal and Inland Std. & Btr. No.2 & Btr., White and Hem-Fir remains steady to strong. Winter weather and a spike in active COVID-19 Omicron variant cases continues to take its toll on jobsites, as well as on logging and mill production efforts, and shipping. Mills started the week quoting above last Friday’s levels and prices trekked higher from there; for production available for shipment the week of 2/14+/-. Traders noted that congestion at both Western Canadian and Asian ports, has led to an increase in Canadian construction and low-grade product being available for shipment into the U.S. Demand for low-grade appeared to moderate during the week. Nevertheless, mills started the week quoting low-grade at or above last Friday’s levels and prices traded in a similar pattern from there; for production available for shipment the week of 2/7+/-. Demand for stud trims remains unrelenting. Mills started the week quoting above last Friday’s levels and prices climbed higher from there; for production available for shipment the week of 2/14+/-.

?Green Doug Fir -: The inquiry and sales pace of Green Douglas Fir (GDF) Std. & Btr., & No. 2 & Btr., remains active. A mix of traditional and non-traditional GDF buyers provided mills with a larger pool for product sales. A few buyers expressed their concern about the narrow widths topping $1000 MBM, and the markets’ increasing downside risk potential. Several of those buyers decided to step to the sidelines. However, for every buyer who moved to the sidelines, there were 2 – 3 buyers stepping in to take their place. Mills started the week quoting construction grade above last Friday’s levels and prices traded at or moved higher from there; for production available for shipment the week of 2/14+/-. Demand for long lengths (22’+) continues unabated, and mills pushed prices higher, with production schedules approaching early March. Low-grade sales continued to moderate during the week. Mills started the week quoting low-grade at or modestly above last Friday’s levels and prices traded in a similar pattern from there; for production available for shipment the week of 2/7+/-. Stud trim sales remain strong and the spread between KD and GDF continues to make GDF attractive. Mills started the week quoting stud trims above last Friday’s levels and prices pushed higher from there; for shipment available 2/14+/-.?

Cedar Lumber -: The inquiry and sales pace of Western Red Cedar (WRC) boards, fencing, dimension, radius edge decking, siding, pattern stock gained additional momentum during the week. Buyers fearing a repeat of last year’s limited availability and disgruntled customers, stepped up their replenishment activity. Mills continue to report that they are having ongoing production issues. With everything from frozen logs to equipment malfunctions, a labor shortage, to a lack of available trucks and empty railcars, all holding manufacturing and shipments in check. Mills started the week with extended production schedules and supply trailing well behind demand. Mills raised their prices at the start of the week and prices traded at or moved incrementally higher from there. However, many of this week’s transactions were conducted as PTS sales. ?

Shake & Shingles -: The inquiry and sales pace of Western Red Cedar (WRC) Shake and Shingles continues to deal with the impact of winter weather on logging, manufacturing, and transportation. Several B.C. mills remained off market again this week, as they continue to deal with a lack of raw materials, frozen logs, and an acute labor shortage. Producers in Washington State are trying to restart their production, but many are facing problems similar to their B.C. counterparts. Buyers, again this week, searched through the markets looking for product to meet pending jobsite requirements. As in the previous weeks they found little, if anything, available. Mills started the week quoting, as a price guide only, at or above last Friday’s levels. The few transactions that were booked this week were sold as PTS.

Southern Pine Lumber -: The inquiry and sales pace of Southern Pine No.1 & No.2-dimensional lumber continues to benefit from strong demand and limited, but improving, mill availability. However, as prices continue to move towards their historic high levels, and winter weather settles in, buyers have become more conservative and cautious in their purchasing strategies. Vividly remembering last year’s market collapse and the high-priced inventory they had to work through. Nevertheless, if a buyer needed replenishment, he/she needed to continue to buy. Mills started the week quoting double-digits above last Friday’s significant gains and prices pushed higher from there; for production available for shipment the week of 2/14+/-. High-grade sales remain stout. Mills have limited high-grade available and that has led to another week of higher prices and production schedules pushing out into early March. Demand for low-grade continues unabated. Mills started the week quoting above last Friday’s levels and prices pushed higher from there; for production available for shipment the week of 2/14+/-. Stud trim sales continue to accelerate. Mills started the week quoting stud trims above last Friday’s level and prices pushed higher from there; for production available for shipment the week of 2/14+/-. Demand for small squares and timbers continues to grow. Mills started the week quoting 4x4 – 4x6 – 6x6 above last Friday’s price increases, and prices climbed higher from there; for production available for shipment the week of 2/14+/-. Mills that produce 5/4 x 6 Standard and Premium Radius Edge Decking, are limiting production of R.E.D to meeting contracts obligations. This as they use the remaining production time and logs to produce 2x6, which currently have a significantly higher return. Transportation issues abound. This past weekend’s ice and snowstorm did nothing to improve the situation.?

Pressure Treated -: The inquiry and sales pace of pressure treated lumber, panels, and specialty items was noticeably slower this week. A powerful winter storm, with a wide mix of precipitation, along with strong winds and bitter cold temperature started on the weekend and its impact was felt throughout the remainder of the week. Jobsite activity was either slowed or brought to a halt. Pro dealers who last week were busy seeking replenishment, due to favorable building conditions, suddenly lacked motivation and concerns about downside risk dominated conversations with their treater partners. The same inclement weather conditions impacted the large box stores foot traffic. However, many of box store buyers are committed to getting inventory up to springtime levels, sooner rather than later, and with trucking remaining a major obstacle, delaying purchases meant potential product shortfall in the busy weeks ahead. Treated prices remain in lockstep with their brite feedstock costs + treatment and transportation. ??

OSB & Veneer Panels Overview –: ?Activity in the panel markets showed signs of moderating, ever so slightly, during the week. Winter weather and another significant spike in the number of active COVID-19 Omicron variant cases have served to slow or stop jobsite activity. The very same issues are plaguing logging and mill production efforts and disrupting all forms of transportation. Mills are quoting production schedules for mid-February and are prepared to take what they believe is a weather-related slowdown in stride. Mill contracts and extra contract obligations are consuming almost all of their production capacity, which is helping to further support the current pricing structure. Buyers cannot help but remember the panel market debacle of 2021, and most have become extremely cautious and conservative in their purchasing. As they believe higher prices create greater downside risk. That being said, buyers in need of replenishment, especially those without the benefit of contract(s) know they must continue to purchase.?

OSB -: The inquiry and sales pace of OSB remains robust, with demand continuing to outpace limited product availability. Even winter weather and a spike in COVID-19 Omicron variant, which continues to take its toll on jobsites, have not been able to detour the markets upward movement. Mills continue to report contracts and extra contracts are consuming a majority of their production capacity. Once again leaving little to no open market panels available for sale. Buyers in need of replenishment, many without the benefit of contracts, scoured the marketplace looking for coverage but most ended the week empty handed. Producers started the week quoting OSB above last Friday’s gains and prices moved higher from there; for production available for shipment the week of 2/14+/-. The same inclement weather pattern and virus variant is also negatively impacting logging and mill production efforts and shipping. Producers are reporting they are currently shipping 1 – 3 weeks behind schedule. Secondaries sold anything they owned at a significant premium to quoted mill replacement levels. ?

Southern Pine Panels -: ?The inquiry and sales pace of Southern Pine Rated Sheathing continued to moderate during the week. Winter weather and a spike in active COVID-19 Omicron variant cases continues to take its toll not only on jobsite activity, but also logging and mill production efforts, and transportation. Producers continue to report that contract and extra contract obligations are consuming a majority of their production capacity. Leaving limited open market panels available for sale this week. Mills started the week quoting Rated Sheathing modestly above last Friday’s levels and prices held at or moved slightly higher from there; for production available for shipment the week of 2/14+/-. Interest in Mill Cert. perked up during the week. Mills started the week quoting Mill Cert. at or above last Friday’s gains and prices traded in a similar pattern from there; for production available for shipment the week of 2/7+/-. The inquiry and sales pace of underlayment, siding, concrete form, and other specialty panels continues to hold steady. Mills started the week quoting the entire grouping at or above last week’s levels and prices traded at or moved higher from there; for production available for shipment the week of 2/7+/-. Winter weather conditions continue to create transportation bottlenecks. ?

Western Fir Panels -: ?For the second week in a row the inquiry and sales pace of Western Fir Rated Sheathing remained at a pedestrian pace. Winter weather continues to take its toll on jobsite activity as well as logging and mill production efforts and shipping. Buyers have quickly adjusted their purchases to match the outflow of product from their facilities. Thicker panels remain the focus of the limited number of buyers in the marketplace. Producers started the week quoting Rated Sheathing at or slightly above last Friday’s levels and prices traded close to those levels from there; for production available for shipment the week of 2/7+/-. The sales of CD Struct I, CC, CC PTS and Mill Cert also remain on the quiet side. Mills started quoting all of these products at or modestly above last Friday’s levels and prices traded at or inched higher from there; for production available for shipment the week of 2/7+/-. The inquiry and sales pace of value-added panels, underlayment, sanded, siding, concrete form, and other specialty panels continue to hold steady. Producers started the week quoting at or above last week’s levels and prices traded in a similar pattern from there; for production available for shipment the week of 2/7+/-. ?

Food for Thought-: ?My bride and I are big fans of HGTV’s House Hunters. It gives us a chance to see the housing markets in different parts of the country and on House Hunters International, those in foreign lands. Many of the house hunting trips are centered around young couples who are setting out to find their first home together. Many of these couples have lived in cramped apartments, or with friends and family and now after scrimping and saving they are out to find the home of their dreams, with every item on their list non-negotiable. Many appear to be unaware of the current housing market, its lack of affordability, multiple bidding wars and the need to move quickly on a piece of property they like.?

In almost every episode the potential new home buyers meet with a realtor, and they go over their ‘litany of must haves and deal breakers’. It usually starts with 2000 + Sq. Ft., 3-4 bedrooms, 2-3 bathrooms, an office, open floor plan, hardwood floors, white kitchen cabinets, stainless steel appliances, granite counter tops, high ceilings, an in-suite bathroom for the master bedroom, with double sinks, a large soaking tub and separate shower, walk in closets, 2-3 car garage, good schools, with parks, shopping and restaurants nearby. The realtor listens carefully, while jotting down notes and then goes in for the kill – ‘what’s your budget?’ That is when an unrealistic number is presented by the buyers, and the hunt begins. Usually with the realtor starting by showing them everything they want and with a price that is typically tens of thousands of dollars above their budget. ?

It has occurred to me more than once while watching the program, that we are continuing to price first time home buyers right out of the marketplace.

The S&P CoreLogic Case-Shiller National Home Price Index (NHPI) reported that home values increased 19.1% annually in Novembre, down from 19.5% in Octobre. So even while new and existing sales are starting to show the first signs of fatigue, the price of houses continues to rise. When coupled with increase in mortgage rates, many first-time buyers are being priced right out of the market.?

I think we need 2 things: 1) Builders who can build affordable homes for first time home buyers.?They must have some of the bells and whistles, but certainly not all of them. 2) HGTV should start having a show or two, where people have realistic budgets and a realtor that tells them before the house hunt begins that what they want they are not going to find in their price range. Or to put it nicely – ‘you have champaign taste on a diet soda pop budget’ (or something like that.)?Just some food for thought.?