Notes from the Forest 10-11-19 Edition

Ladies and Gentlemen:

Trading in the lumber and panel markets remained on the quiet side again this week. Concerns about downside risk continue to infiltrate the marketplace and traders are starting to wonder if the traditional uptick in Octobre sales and pricing is actually going to happen this year. Buyers continue to purchase their immediate needs; trying to limit their exposure to a market that is looking for its next direction. Buyers remain confident that should any emerging short-term needs arise, they can cover them easily in the amply supplied secondary markets. Producers are quoting production scheduled for the weeks of 10/14, to as far out as the week of 10/28. Another round of winterlike weather in the Great Plains had buyers pondering if the weather might simply go from summer directly into winter, without a stop for a nice long autumnal building season.

Housing industry news is always scarce this time of the month. However, I did come across this interesting tidbit from the U.S. Bureau of Labor Statistics. In their Septembre Producer Price Index (PPI) they noted building materials prices have declined an average of 0.1% over the past 12 months, with a 0.3% decline being registered in the month of Septembre. The price of goods used in residential construction has risen 1.7% in 2019, which is the slowest year to date growth through Septembre, since 2015. The PPI report further shows that softwood lumber prices increased 3.8% (not seasonally adjusted) in September—the index’s largest percentage increase since prices rose 4.8% in June 2018. However, softwood lumber prices have fallen 8.7% over the last 12 months but remain nearly 15% higher than they were in 2016.

Spruce & Stud Markets -: The inquiry and sales pace of Eastern & Western Canadian SPF Std., & Btr., and No. 2 & Btr., remains underwhelming. Producers with extended order files, tended to lean heavily on those files; while attempting to hold prices at last week’s reported levels. Producers with short, to no production schedules made outbound calls to buyers offering prices that started at $ 3 - $ 8 MBM below last Friday’s reported levels. Trying, once again, to find the elusive trading level that would prompt buyers to reopen their purchase order books. Unfortunately, lower prices did little, if anything, to inspire buyers to return to the marketplace. When they did, buyers only purchased enough to cover immediate near-term needs, oft times from a local 2-step distributor, or mill reload centre. The fact that CME Lumber Futures (see below) are trading above the cash market, continues to send mixed signals about the markets’ direction. The sales pace of both low-grade and stud trims continues on the quiet side. Producers started the week offering modest / moderate discounts on low grade stock and stud trims and listened for buyer feedback. 

CME Lumber Futures – The CME Lumber Futures Contract for Novembre will expire at Noon CST on Wednesday 13th Novembre. For the past 5-days of trading (10/4 – 10//10) CME Futures were Up 3-days and down 2-days. For the past 5-days CME Futures have lost <1.20> and are trading above the Midweek cash market, ($345.00 MBM) by $18.00 (CME $ 363.00).  

Hem\ White Fir -: The inquiry and sales pace of Std. & Btr. No.2 & Btr., White and Hem \ Fir, varied between Coastal and Inland producers. Coastal mills are reporting that their sales are steady. Resulting in prices that are flat, to a few dollars lower throughout the complex. Buyers are reporting that they are having some difficulty in sourcing some key items, especially in K.D. Doug Fir. Inland producers are reporting that their sales are hit and miss, with buyer’s laser focused on the narrow widths. Resulting in prices that, depending on the width and species were flat to modestly lower at midweek and that pricing trend continued through the remainder of the week. Mills are quoting production scheduled for the weeks of 10/14 – 10/21, but local distributors have units available for buyers looking to fill immediate needs. Demand for low-grade stock and stud trims slowed modestly throughout the week. Producers adjusted prices as necessary to make sure low-grade and stud trims did not become an inventory burden.

Green Doug Fir -: The inquiry and sales pace of Green Douglas Fir Std. & Btr., & No. 2 & Btr., remains under downward pressure. With a price correction underway, buyers have quickly retreated to the sidelines. Production schedules are currently less than a week out. In the hopes of counter acting the market’s slowdown, producers started making outbound calls as early as Monday AM. Offering double-digit discounts on all widths, except 2x6 and 2x10, and remained open minded about those items as well. Hearing lower prices, only stiffened buyers’ resolve to remain out of the marketplace until such time as either prices firmed, or they did not have anything – either longer length, or higher grade – that they could substitute. Low-grade stock continues to be quoted and sold at, or modestly below last Friday’s reported levels. Stud trim sales are also slow and producers adjusted prices lower in the hopes of getting buyers to reengage with the marketplace.

 Cedar Lumber -: The inquiry and sales pace of Western Red Cedar (WRC) boards, fencing, dimension, radius edge decking, bevel siding, timbers and pattern stock remains slow but steady. Buyers are continuing to express their concerns about product availability for the new year. Nevertheless, even though they are looking at extended ship times, most buyers have decided to purchase highly mixed truck(s) to cover only immediate needs. While postponing discussions about 1st Qtr., needs for a later date. Perhaps, waiting for the NAWLA Traders Market, which is being held in San Antonio, Tx., Octobre 16 – 18, to talk face to face with suppliers. A labor dispute, which is entering its 14th week, is starting to have a negative impact on the availability of small squares and timbers, along with wide width dimensional lumber, which included appearance grade (no wane and no holes), as well as rough sawn and S4S. Prices are in an upward tilt on these products and production is being quoted for late Octobre / early Novembre. The availability of 1x4 and 1x6 fence pickets remains extremely tight and while prices remain firm, lead times now extend into mid to late January 2020.    5/4 x 6 Radius Edge Decking appears to have found a trading level and prices are being quoted at last Friday’s reported levels.

Shake & Shingles -:  The inquiry and sales pace in the Western Red Cedar (WRC) Shake and Shingles and Eastern White Shingles (EWS), is little changed from last week. Pro dealers are reporting that their sales are on par with traditional mid to late Octobre volume. Producers continue to struggle to find raw materials and as a result, many producers are either running curtailed production schedules, or are completely shut down until they accumulate enough raw materials to piece together about a week’s worth of work. Local 2-step niche distributors are in the process of working their inventories lower, wanting to limit the amount of inventory they will have to carry over through the winter months. Nevertheless, buyers remain focused on purchasing only what they have just sold. Currently, for them, adding to inventory is not a viable option.

Southern Pine Lumber -: The inquiry and sales pace of Southern Pine No.1 & No.2-dimension lumber experienced another week of subpar sales. Concerns about further price depreciation kept buyers on the sidelines. Only venturing into the market to cover their most pressing needs. Over production of 2x6 and 2x12, resulted in another week of double-digit discounts. 2x4, 2x8 and 2x10 were also being discounted, but not quite as deep. Mills continue to quote production for the week of 10/14, but their daily offer sheets have a plethora of prompt shipping dimensional lumber items in all widths, lengths and grades. The inquiry and sales pace of high-grade stock – D.S.S., S.S. and MSR, also moderated over the course of the week. Truss and modular home manufactures are reporting slower, but still steady sales. However, the fact that pricing is vulnerable and trucks are plentiful, is limiting their need \ desire to keep additional inventory on the ground. Prices corrected modestly \ moderately throughout the high-grade complex. Mills are quoting low-grade production for the weeks of 10/14 – 10/21. Producers are continuing to quote prices at, or on a narrow line on either side of last Friday’s reported levels. Stud trim sales remain steady to strong. Mills are quoting production for the weeks of 10/14 – 10/21 and prices continue to trade at a level established 10 weeks ago. The inquiry and sales of small squares and timber, in both the Eastside and Westside zones remain locked into their established patterns. Demand for 4x4s continues to trail other widths in the complex. Again, this week, producers started the week offering additional $ 5 - $ 10 MBM discounts on selected lengths and hoped that would be enough to peak buyer interest. Supply and demand are just about in sync on 4x6s and pricing continues to hold at previously reported levels. Demand for 6x6 remains steady to strong and producers have production scheduled into late Octobre, and prices continue to push higher. The inquiry and sales pace of 5/4 x 6 Radius Edge Decking continues to seasonally slow. The price discrepancy between Eastside vs. Westside production continues to strongly favor Eastside production on selected lengths. Buyers’ focus, again this week, was centered on Standard grade, and prices in both the Eastside and Westside were flat to modestly higher. Demand for Premium decking remains lackluster, and producers started the week offering additional discounts, with the hopes of finding a new trading level.

Pressure Treated -: The inquiry and sales pace of pressure treated lumber, plywood and accessories has once again become regionalized. Cooler temperatures and less humid conditions in the South, has jobsite activity quickly accelerating. Resulting in pro dealers needing to seek prompt replenishment, as many as 2 or 3 times a week. Sales in the Midwest slowed modestly over the course of the week, as concerns about inclement weather had buyers selectively replenishing on a 1 to 1 basis. The beginning of Octobre traditionally signals the end of the treated season in the Northeast. However, this year has been a-typical in many ways and treated sales in the Northeast continue to trend well above mid-Octobre levels. Large box stores are reporting that their sales are seasonally slowing, but there is still steady foot traffic and they anticipate that trend will hold through the remainder of the month. Exporters are reporting fielding more inquiries, but the conversion of them into sales is a grind.

OSB & Veneer Panels Overview –:  The inquiry and sales pace of OSB and plywood remain unusually quiet for mid-Octobre. Concerns about downside risk continue to permeate the markets. Buyers are, once again, purchasing their most pressing, near-term needs and if they can be sourced at the local 2-step distribution level, even better. Mills are quoting production scheduled from next week, to as far out as the week of 10/28, and all points in between. Pricing is heavily dependent on the mill’s production schedule and what benefit they think they will reap from lowering prices.

OSB -: The inquiry and sales pace of OSB remains on the quiet side. Buyers are purchasing only their most urgent needs. If those needs can be covered at the local 2-step distribution level in units, even better. Buyers are on the defensive, with their concerns about downside risk being reinforced by limited mill production schedules and last week’s price cracks in the Southeast, Southwest and Mid-Atlantic zones. For their part the mills have decided to draw the line in the proverbial sawdust. Mills are quoting production for the weeks of 10/14 – 10/28 and all points in between. Producers started the week quoting at last Friday’s reported levels and dismissed counter offers out of hand. Even producers in the South, where panels remain available for prompt shipment, have decided that discounting was not an effective sales tool and were quoting at last Friday’s reported levels as well. That pattern changed slightly after midweek, as sales remained stalled. Office wholesalers with contract ownership reported selling that ownership as a ‘grind.’

Southern Pine Panels -: The inquiry and sales pace in Southern Pine Rated Sheathing remains lackluster. Buyers’ concerns about downside risk are once again limiting their purchases to must have, fill ins and not a unit more. Producers are continuing to quote production scheduled for the weeks of 10/14 – 10/21, but a few mills did take orders for production scheduled for the week of 10/28, late in the week. Pricing varied from zone to zone. Westside producers, many with extended order files, tended to quote from last Friday’s reported levels and turned away counter offers, unless significant volume was part of the sales equation. Producers in the Central zone offered token discounts on thin panels, while attempting to hold thicker panel pricing close to last week’s reported levels. Producers in the Eastside zone are caught between a rock and hard place. With lower prices in the Central zone, and another wave of imported panel arriving at East Coast docks from Brazil and Chile. Which resulted in Eastside mills offering $5 MSF discounts across the complex at midweek and then listening for buyers’ counter offers. With the exception of underlayment, which is showing some pricing vulnerability, the sales of the remaining value-added panels – sanded, siding, concrete form and other specialty panels remain in sync with production. Resulting in another week of pricing that is flat, but firm and production scheduled for the weeks of 10/14 – 10/21.

Western Fir Panels -: The inquiry and sales pace of Western Fir Rated Sheathing remains subdued. Producers are quoting production scheduled for as close as next week, to as far out as the week of 10/28, and all points in between. Truckload buyers continue to be the dominate force in the marketplace. However, truckload buyers have once again further reduced the volumes they are purchasing. As they attempt to limit their exposure to the market’s potential for downside risk. Carload volume buyers in the Midwest and Northeast did check in with producers and office wholesalers early in the week. However, when offered discounts significantly below those being offered to truckload buyers, they decided to remain on the sidelines and wait to see what the markets’ next move might be. Mills with the extended order files tended to hold prices at last week’s reported levels and dismissed counter offers out of hand. Those with shorter production schedules did offer modest discounts as early as Monday PM and then listened to buyers’ counter offers. However, even those counter offers were usually in the $ 2 - $ 5 MSF range. The sales of underlayment, siding, concrete form, and other specialty panels remain slow but steady. Producers are continuing to quote production scheduled for the weeks of 10/7 – 10/14 and prices continue to hold at previously established levels.  

Food for Thought: The internet is clearly a great source of information, and frequently misinformation. The internet can often provide your customers with more information and knowledge about a particular product or services than the person standing behind the counter, or working in the aisle could possibly ever know about it. Again, just another part of living in the electronic information age.

Most companies encourage consumers to review their products and service on their website. Excluding foul language, just about anything a consumer wants to write and review about a product, or service, can be posted in the review section. I don’t know about you, but I find myself drawn to those reviews when I am trying to decide on a particular product or service. Generally, after reading 5 -7 of those consumer reviews, I am more confused and undecided. It’s amazing how one review says the product is terrible and a piece of junk, and the one directly below lauds the product saying it’s the best thing since the invention of sliced bread.

Perhaps these reviews are begging another question. What were the expectations of the reviewer, and are they realistic, or just impossible to be reached? It is my observations that people’s expectation for products or services have become more demanding and somewhat unrealistic. The idea that a 2-star hotel would somehow have the same amenities as a 4 or 5-star hotel, is an example. Another would be that a cheaper cut of meat could taste as good as a Porterhouse or “T” Bone. Yet another, the lowest price decking and railing should perform and look like the more expensive products and of course the list goes on and on.

I am certainly not suggesting that people should lower their expectations, or their standards. However, it is important to temper any expectations with a solid dose of reality. In truth, even today, you still get what you pay for.