Notes from the Forest - 1-6-2023 The Catch Up Edition

Ladies and Gentlemen:?

Notes from the Forest will resume in its traditional 2-page format next Friday, January 13th, 2023

? “End of the Year - - Start of the New Year - - Let’s Catch Up Edition”?

Traders returned from their two in a row, long 4-day holiday weekends, with many taking additional time off as well, and began reacclimating themselves to the task of preparing to meet mid to late Q1 2023 needs. Buyers began checking on previously placed orders and while on the phone with the mills and \ or secondaries checked on current price and availability. Buyers noted that the lumber and panel mills had taken on a firmer tone on pricing on many key items but were still showing an interest and a willingness to negotiate on items where they still had excess inventory. Announcements of extensions to previously announced end-of-year curtailments, especially in B.C., quickly grabbed buyers’ attention. With many buyers wondering how many more announcements were yet to be made or might remain hidden until Q4 earnings calls are held later in the quarter. Either way as the week progressed some additional, albeit limited to immediate needs, purchases were made.?

For many buyers the inclement weather of the past two weeks has turned into reasons not to purchase any additional inventory at this time. Last week’s Winter Storm Elliot, as dubbed by the Weather Channel, had cold temperatures and even some snow as far South as the Rio Grande Valley in Texas. This week’s Winter Storm Hudson, which has both a warm and cold side has brought copious amounts of snow and ice, and elsewhere rain, thunderstorms and even tornadoes. On top of that the atmospheric river flowing over the West Coast has produced flooding rains, and in the upper elevations copious amounts of snow. Many buyers facing these weather impediments are hoping that deliveries of some their previous purchases can be postponed or will be delayed by impassable roads and rail tracks, as they continue to deal with getting their facilities back up and functioning. ???

Buyers, particularly those working for pro dealer operations, were anticipating that the end of year purchasing embargoes would have been lifted with the start of the new year. However, to their surprise, many were learning that HQ was still insisting on limited to no new additional purchases. This the result of higher interest rates, economic uncertainty, the seemingly unending discussions about the potential of a recession, along with a debate as to its lengths and depth, coupled with the aforementioned winter weather has both home and multifamily builders along with many potential home buyers placing their construction plans and buying dreams once again back on hold. ?

On Tuesday (1-3-23), The U.S. Census Bureau reported that total construction spending during November 2022 was estimated at a seasonally adjusted annual rate (SAAR) of $1,807.5 billion, 0.2% above the revised October estimate of $1,803.2 billion. The November figure is 8.5% above the November 2021 estimate of $1,665.2 billion. During the first eleven months of this year, construction spending amounted to $1,657.6 billion, 10.5% above the $1,499.8 billion for the same period in 2021. Private construction spending was at a SAAR of $1,426.4 billion, 0.3% above the revised October estimate of $1,421.6 billion. Residential construction was at a SAAR of $868.0 billion in November, 0.5% below the revised October estimate of $872.4 billion. Nonresidential construction was at a SAAR of $558.3 billion in November, 1.7% above the revised October estimate of $549.2 billion. ?In November, the estimated SAAR of public construction spending was $381.1 billion, 0.1% below the revised October estimate of $381.6 billion. Educational construction was at a SAAR of $81.3 billion, in November, 0.1% above the revised October estimate of $81.2 billion. Highway construction was at a SAAR of $115.0 billion, 1.0% below the revised October estimate of $116.2 billion.?

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 3 days (1/3/23 – 1/5/23) CME Futures were down 3 consecutive days. For the past 3 days CME Futures have lost $20.10 and are trading above last week’s Cash Market of $345 by $9.10, CME Futures at $354.10. One year ago, (1/5/22) CME Futures closed at $1159.50.?

The one thing that immediately caught my attention as I began preparing to set up the price comparison sheets for 2023 was the difference between the quadruple prices being reported on January 7, 2022, and the anticipated prices that will be reported this Friday, 6th January 2023. With a spread in lumber pricing ranging anywhere from $ 457 - $ 995+ MBM and $ 450 - $ 575+ MSF on panels.??

Food for Thought -: Last year at this time, the lumber and panel markets were all a buzz with concerns about product shortage and what seemed like unending transportation issues. With ports along both Coasts and the Gulf of Mexico, clogged with material and ships waiting for weeks to get unloaded. “Don’t Let Me Run Out!” was the mantra of builders to their suppliers and the suppliers to their mill and office wholesale providers. ?And that was the battle cry through the first 4+ months of the year. ?

Recently words that have not been heard over the past 2? years have resurfaced.?Suddenly, we are once again focusing on the real cost of inventory, and that borrowing money to pay for that inventory has become a real expense and a hit to the bottom line. Inventory turns, something that has always been sweet music to my ears, has also returned as a predominate subject. No more loading up the warehouse and having it ready to go, but more moderation and an acknowledgment that every quarter turn of inventory is worth, almost a point of margin. Real dollars and a clear indication of both sales volume and where excess and slower-moving inventory items can be found and now properly dealt with. ?

It is the first week of January, and thanks to New Year’s Day falling on Sunday this year, we only had 3 days of lumber trading to report and 4 days of panel sales. We have 51 more weeks left in 2023 and as we all know anything can and probably will happen. I do remain confident that we will build new single-family and multifamily dwellings this year. Perhaps not as many as in 2020 – 2022 but I also see renewed interest in repair and remodeling as those with lower interest rates decide to stay put and update and improve their current living conditions. ?

Here’s to a healthy, prosperous and hopefully profitable New Year. ?