Notes from the Forest 1-7-2022 Edition

Ladies and Gentlemen:?

The lumber and panel markets entered the new year being pushed by the tailwinds of activity during the final weeks of December. Mills entered the new year with typical winter weather production and log deck issues and production schedules into the latter half of January, if not beyond. Buyers started the year trying to be conservative and cautious in their purchases and looking for a reason to be bearish. The sudden shift in the Polar Vortex has made outdoor work difficult in some locations, but jobsite activity continues at a steadier pace than many pro dealer buyers had anticipated. As a result, replenishment is necessary to keep inventories at a workable and manageable levels. The mills currently have the upper hand, and it’s buy it today, at today’s prices, or chance having to pay more or not be able to find coverage tomorrow. ?

On Monday (1-3-22) The U.S. Census Bureau reported that total construction spending during November 2021 was estimated at a seasonally adjusted annual rate (SAAR) of $1,625.9 billion, 0.4% above the revised October estimate of $1,618.8 billion. The November figure is 9.3% above the November 2020 estimate of $1,487. billion. During the first 11-months of this year, construction spending amounted to $1,463.2 billion, 7.9% above the $1,355.6 billion for the same period in 2020. Private construction spending was at a SAAR of $1,273.6 billion, 0.9% above the revised October estimate of $1,265.8 billion. Residential construction was at a SAAR of $796.3 billion in November, 0.9% above the revised October estimate of $789.1 billion. Nonresidential construction was at a SAAR of $477.3 billion in November, 0.1% above the revised October estimate of $476.6 billion. In November, the estimated SAAR of public construction spending was $352.3 billion which is -0.2% below the revised October estimate of $353.0 billion. Educational construction was at SAAR of $82.3 billion, 0.3% above the revised October estimate of $82.1 billion. Highway construction was at a SAAR of $102.2 billion, -0.8% below the October estimate of $103.0 billion.?

Spruce & Stud Markets -: The inquiry and sales pace of Western and Eastern Canadian SPF Std. & Btr. and No. 2 & Btr., started the new year with a more energetic pace. Buyers returning from their holiday festivities found limited near-term availability and that prices had continued to move higher in their absence. Mills started the week quoting above last week’s levels and prices proceeded to move higher from there; for production available for shipment the week of 1/31+/-. Low-grade sales remain active as the demand from the industrial sector continues unabated. Mills started the week quoting low-grade at or above last week’s gains and prices moved higher, in varying degrees, from there; for production available for shipment the week of 1/24+/-. Stud trim sales started the week building on last week’s activity. Mills started the week quoting stud trims above last week’s levels and prices pressed higher from there; for production available the week of 1/31+/-. Transportation issues continue to further delay shipments.

CME Lumber Futures –: The CME Lumber Future Contract for January will expire on Friday, January 14th, 2022, at 12:00 Noon CST. For the past 5- days (12/31/21 – 1/6/22), CME Futures were up 3-days and down 2-days. CME Lumber futures have gained $43.50 and are trading above the Midweek Cash Market of $1080 by $111.40 CME at $1191.40. One Year Ago, today (1-6-21) CME Futures closed at $902.00.?

Hem\ White Fir -: The inquiry and sales pace of Coastal and Inland Std. & Btr. No.2 & Btr., White and Hem-Fir remains active, despite weather related challenges. Buyers returning from their holiday hiatuses reconciled current and projected sales with on hand inventory, and previous yet to be received purchases. They then started making outbound calls to mills and secondaries checking on delayed shipments, as well as getting current price and availability on several key items. Many were surprised at the price appreciation and extended lead times being quoted by the sellers. Some took a wait and see approach, but others with obvious needs placed orders. Mills started the week quoting above last week’s levels and prices traded at or moved higher from there; for production available for shipment the week of 1/31+/-. Demand from the industrial sector for low-grade kept upward pressure on pricing. Mills started the week quoting low-grade above last week’s gains and prices traded at or trended higher from there; for production available for shipment the week of 1/31+/-. Stud trim sales remain steady but were not as strong as in the previous weeks. Mills started the week quoting stud trims above last week’s levels and prices pushed higher from there; for production available for shipment the week of 1/31+/-. Transportation issues showed no signs of improvement. ?

Green Doug Fir -: The inquiry and sales pace of Green Douglas Fir (GDF) Std. & Btr., & No. 2 & Btr., continues to deal with a wet weather pattern that has set up over their prime sales areas. Nevertheless, thanks to ongoing sales to ‘non-traditional’ markets, mills were able to start the week quoting above last week’s gains and prices trended in a similar pattern from there; for production available for shipment the week of 1/31+/-. Demand for long lengths (22’+) remains steady but not nearly as strong as in the previous weeks. The price spread between KD and GDF products remains substantial. Again, this week, buyers who can switch between products did take advantage of the lower GDF pricing. Sales of low-grade remained steady this week. Mills started the week quoting low-grade above last week’s price levels and prices traded at or moved higher from there; for production available for shipment the week of 1/24+/-. Stud trim sales remain one or two steps ahead of mill production. As a result, mills started the week quoting stud trims above last week’s levels and prices trended higher from there; for production available for shipment the week of 1/31+/-. ?

Cedar Lumber -: The inquiry and sales pace of Western Red Cedar (WRC) boards, fencing, dimension, radius edge decking, siding, pattern stock started the new year slightly more active than in the previous holiday shortened weeks. With a substantial portion of their production contracted for, and production schedules already into late January, and on many key items well beyond, mills took the market’s ups and downs in stride. Buyers in need of inventory for mid-January made the rounds again early in the week but found little if anything available for shipment in that time frame. Mills bemoaned the lack of available trucks and empty railcars to load finished product on. Traders noted that decking, which has been MIA since last spring, was seeing additional buyer interest. As a price guide only, mills started the week quoting the entire complex at or above last week’s levels and price traded at or edged higher from there. ?

Shake & Shingles -: The inquiry and sales pace of Western Red Cedar (WRC) Shake and Shingles remains steady to strong. Buyers’ need for finished products continues to increase, as many of their customers simply refuse to settle for anything less than real WRC products. Bitter cold temperatures and some additional snowfall in both the Pacific Northwest and B.C. continue to take their toll on logging and production efforts. Mills started 2022 with the exact same issues they ended 2021 with. That is: limited to no new product availability, labor issues, expensive logs that remain in extremely tight supply and late shipments, some closing in on 4 – 6 months behind schedule. As a price guide only, mills started the week quoting at or above last week’s reported levels, and buyers while protesting mightily, if offered anything from a mill quickly offered a purchase order. ?

Southern Pine Lumber -: The inquiry and sales pace of Southern Pine No.1 & No.2-dimensional lumber started the new year, building on the markets’ activities during the final weeks of 2021. Buyers returning from their holiday break started the week in search of replenishment needed to fill the growing number of outages in their on-ground inventories. Mills with limited available inventory started the week quoting double-digits above last week’s levels and prices traded higher from there; for production available for shipment the week of 1/31+/-. High-grade buyers entered 2022 with a list of products needed to support production at manufacturing facilities. Prices on high grade continue to climb, as lead times pushed into early February. Demand for low-grade continues to outpace limited availability. Mills started the week quoting low-grade double-digits above last week’s levels and prices trended higher from there; for production available for shipment the week of 1/31+/-. Stud trim sales remain solid. Mills started the week quoting above last week’s gains and prices traded in a similar pattern from there; for production available for shipment the week of 1/31+/-. Demand for small squares and timbers picked up early in the week. Mills started the week quoting 4x4 – 4x6 – 6x6 above last week’s gains and prices pushed higher from there; for production available for shipment the week of 1/31+/-. Sales of 5/4 x 6 Standard and Premium Radius Edge Decking continued to gain momentum during the week as treaters continued to build their inventory for spring. Mills started the week quoting above last week’s levels and prices edged higher from there; for production available for shipment the week of 1/31+/-. Transportation problems are unrelenting. ?

Pressure Treated -: The inquiry and sales pace of pressure treated lumber, panels, and specialty items slowed further during this first week of 2022. This as successive winter storms made their way from west to east across a wide swath of ?North America bringing rain, snow, colder temperatures, and windy conditions. Which in turn has temporarily slowed or stalled jobsite activity. Many pro dealers bought heavily in December and a sizeable portion of their January inventory needs are already covered. Higher prices for brite feedstock and the resulting higher prices for finished treated products are keeping both pro and large box store retailers on the sidelines for the moment. Transportation issues remain an ongoing problem and winter weather is further slowing product movement be it on truck or rail. ?

OSB & Veneer Panels Overview –: The OSB and plywood panel markets started 2022 with steady to strong demand and limited to no open market panel availability. Buyers without contracts and in need of replenishment searched through the mill and secondary markets looking for coverage but for the most part came up empty handed. Should they find anything it was being offered and sold well above mill quoted replacement levels. A sudden change in the weather pattern, higher prices, and extended production schedules, anywhere from late January through mid-February were given as reasons why some buyers were hesitating to purchase. But for every buyer who was hesitant there were 3 or more willing to step into their place. With many willing to purchase, and that included PTS, if that was what the mill was offering. Transportation problems are unrelenting and late shipments were a frequent topic of conversation between buyers and sellers. ?

OSB -: The inquiry and sales pace of OSB started the new year steady to strong. Several mills started the new year off market having limited to no open market panels available. Many mills hesitated to take on additional orders until such time as the last of their 2022 contracts were signed, and they knew how much production, if any, would be available for extra contracts and open market sales. And this applied to those buyers who already had contracts in place. Mills started the week quoting at or above last week’s levels and prices moved higher from there; for production available for shipment, depending on the mill, anywhere from mid-January through early February. Anything available from the secondary market, be it truck or units out of warehouse, sold at a premium to mill replacement levels.?

Southern Pine Panels -: The inquiry and sales pace of Southern Pine Rated Sheathing experienced renewed interest during the week. Buyers returning from holiday vacation time quickly took action to shore up depleted field inventory levels. If there was any real hesitation, it was around the shift in the weather pattern across much of North America, and the sudden onset of winterlike weather. Mills started 2022 with limited to no open market panels available and whatever they did accumulate was offered to ‘select’ customers. A lack of imported panels continues to make the markets even tighter. Producers started the week quoting double-digits above last week’s levels and prices edged higher from there; for production available for shipment the week of 1/31+/-. Secondaries had limited ownership, but anything that they did have for sale that could ship ‘relatively’ fast was being sold well above mill replacement. Mill Cert. sales remain slow but steady. Mills started the week quoting Mill Cert. at or modestly above last week’s price levels and prices traded in a similar pattern from there; for production available for shipment the week of 1/24+/-. The inquiry and sales pace of underlayment, siding, concrete form, and other specialty panels remains active. Mills started the week quoting specialty panels at or above last week’s levels and prices edged higher from there; for product available for shipment for the week of 1/24+/-.?

Western Fir Panels -: The inquiry and sales pace of Western Fir Rated Sheathing picked up additional energy after a slow start in the new year. Buyers and the market have transitioned from holiday mode to getting replenishment inventory on order to cover late January to mid-February needs. The first question from buyers was related to how soon it could ship? After the when was worked out, came the question of price. Several buyers were unable or unwilling to consider seller quotes for late January and early February; expressing concerns about the market’s ability to sustain current price levels, let alone move higher. Mills started the week quoting Rated Sheathing at or above last week’s levels and prices trended modestly higher from there; for production available for shipment 1/31+/-. Some producers agreed to sell PTS to buyers willing to offer a PO without a known price. The sales of CC, CC Plugged & Touch Sanded, Struct I and Mill Cert. remain slow but steady. Producers started the week quoting these items at or slightly above last week’s gains, and prices traded at or moved higher from there; for production available for shipment the week of 1/31+/-. The inquiry and sales pace of value-added panels, underlayment, sanded, siding, concrete form, and other specialty panels remain steady. Mills started the week quoting at or above last week’s levels and prices traded in a similar pattern from there; for shipment the week of 1/24+/-.?

Food for Thought-: ?When Mother Nature and Transportation are the two wildcards in the lumber and panel markets, what could possibly go wrong??

If what I am hearing is accurate, many buyers purchased significant volume when the markets were at their latest low levels. They did so because they clearly saw an opportunity and wanted to secure materials needed to cover their early to mid Q1 immediate and anticipated needs. Oddly enough, some of the largest participants have been buyers who have rarely, if ever, actually put inventory on the ground. They too saw a chance to increase profit and reduce risk and decided rather than chasing the markets they could have product ready and available in areas where they are scheduled to start projects. These buyers purchased from traditional sources – mills and office wholesalers but they also made purchases on digital platforms. Something many traditional buyers are still not as familiar nor comfortable with. ?

Mother Nature has been more than generous with her December building weather in many locations in North America. I spent the final 2-weeks of December in the Houston Texas area. I was amazed at the amount of construction work that was taking place during a pre-Christmas and pre–New Year’s week. The temperature and humidity levels, I was told, were closer to mid to late April rather than the end of the year. That of course has suddenly changed as the Polar Vortex made an unwanted, but certainly not surprising, dip into the far southern reaches of the U.S. However, the good news that as quickly as it has gotten cold and, in some places, copious amounts of rain and snow, the temperatures at midweek were already in the process of moderating. But its January and we can anticipate the weather will continue to be an ongoing roller coaster ride for a while. ?

As a result, building has continued at a faster than anticipated pace and a large portion of the product that was purchased for those early to mid Q1 needs has in fact been consumed. Which clearly explains why buyers started 2022 looking for additional materials to help rebuild their unanticipated on ground inventory drain. ?

Which leads to the other wildcard - transportation. It may be a new year, but the transportation issues of 2021 have easily carried over into 2022 and there appears to be limited hope for an improvement in truck and empty railcar availability, at least in the near-term, if not beyond. Which means late shipments will continue to be a point of frustration and anxiety for traders on both sides of the sale.?