Notes from the Forest 10-14-22 Edition

Ladies and Gentlemen:?

Trading in the lumber and panel markets ebbed and flowed throughout the week. There were periods of sustained purchasing activity, which helped to temper buyers’ attitudes about the markets. However, they were typically followed by a period of prolonged quiet, which in turn reinforced buyers cautious and pessimistic view of the markets, as well as the overall economies of Canada and the U.S. As a result, prices traded at or on either side of last week’s established levels. Word that one of the twelve U.S. railroad workers unions had rejected the recently negotiated agreement, put the chance of a U.S. nationwide railroad strike sometime in mid to late November back into the purchasing equation. However, many buyers pointed out that should a strike actually happen, it would come at the beginning of what is typically the slowest time of the year. Trucking is almost back to normal. ?

The U.S. Bureau of Labor Statistics (BLS) reported on Friday (10-7-22), that total nonfarm payroll employment increased by 263,000 jobs in September. The September figure is the lowest monthly job gain in the past 17 months. According to the BLS, in the first nine months of 2022, approximately 3.8 million jobs were created, and monthly employment growth has averaged 420,000 per month. Specifically, looking at the construction industry sector, overall employment increased 19,000 to 7.7 million in September. Residential construction gained 6,400 jobs and now stands at 3.2 million in September. Broken down as 901,000 builders and 2.3 million residential trade contractors. Non-residential construction gained 13.100 jobs in September. The unemployment rate for construction workers declined by 0.5 percentage points to 4.5% on a seasonally adjusted basis. The unemployment rate for construction workers has been trending lower after reaching 14.2% in April 2020, at the start of COVID-19 pandemic. ?

Spruce Markets -: ?Lite and rapidly thinning field inventories and continuing steady to strong sales into the multifamily and mixed commercial building sector had buyers of Eastern and Western No.2 & Btr. SPF in search of highly mixed tallies needed to fill specific inventory shortages. No one was really interested in building inventory, and as a result, speculative purchases were minimal at best. Mills started the week quoting construction grade at or modestly on either side of last Friday’s levels and prices continued to trade in a similar pattern from there; for production available for shipment the week of 10/31+/-. Of note, office wholesalers returned to the market at midweek, attempting to cover some of their shorts. Low-grade sales remain muted. Mills contacted their industrial \ low-grade customers trying to rejuvenate interest in the product and reported having limited success. Mills started the week quoting low-grade at or below last Friday’s levels and prices traded close to those levels from there, for shipment the week of 10/24+/-. Stud trim sales remain lackluster. Mills started the week quoting stud trims below last Friday’s levels and prices proceeded to trade at or trended lower, for shipment the week of 10/24+/-?

CME Lumber Futures –: The CME Lumber Future Contract for November will expire on Tuesday, 11-15-2022 at 12:00 Noon CST. For the past 5-days (10/7 – 10/13) CME Futures were up 4-days and down 1-day. For the past 5-days CME Futures have gained $43.60 and are trading above the Midweek Cash Market of $435, by $63.30, CME Futures at $498.30. One Year Ago, today (10-13-21) CME Futures closed at $758.30.?

Hem\ White Fir -: Traders noted a firmer, more positive tone, in the Hem \ White Fir Std. & Btr., and No.2 & Btr., markets during the week. Buyers remain conservative in their purchases. However, the fact that their multifamily and mixed commercial builder business remains steady to ‘sneaky’ strong, and mill production schedules have, with limited fanfare, pushed into the last week of October, had them in the markets shoring up lite field inventories. Mills started the week quoting construction grade lumber at or on either side of last Friday’s levels and prices traded in a similar pattern from there; for production available for shipment the week of 10/31+/-. Low-grade sales remain on the quiet side. Mills started the week trying to hold prices at last Friday’s levels, but never let a few dollars get in the way of a sale. Low-grade items are available for shipment the week of 10/24+/-. Stud trim sales remain inexplicitly on the quiet side. Mills started the week in search of a trading level, quoting stud trims at or below last Friday’s levels and prices proceeded to trade in a comparable pattern from there; for shipment, the week of 10/24+/-. ?

Green Doug Fir -: The inquiry and sales pace of Green Doug Fir (GDF) Std. & Btr., and No.2 & Btr., continues to baffle buyers. While buyers remain focused on 2x6 and wider, their interest in 2x4 remains significantly below traditional usage levels. However, as supplies continue to tighten, mills this week were able to start quoting the entire complex at or above last Friday’s levels and prices continued to trade at or trended higher from there; for production available for shipment the week of 10/31+/-. The ongoing strike in Oregon and Washington State, by Weyerhaeuser union employees is clearly contributing to the current tightness in GDF market. Demand for low-grade continues to hold steady. 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 shipment the week of 10/24+/-. Demand for GDF stud trims, continues to be tempered by equal to lower prices available in the KD stud trim markets. Attempting to remain competitive GDF mills started the week quoting studs at or below last Friday’s levels and prices held at or trended lower from there, for shipment the week of 10/24+/-.?

Cedar Lumber -: ?The inquiry and sales pace in Western Red Cedar lumber experienced a modest uptick in activity during the week. This as more buyers returned to the marketplace looking for highly specific inventory needs. With log availability and transportation currently a non-factor, buyers feel confident that they can find coverage for any needs without having to consider building inventory at this time of the year. As in the past several months, mills started the week lowering prices on boards, fencing, narrow widths and now 2” decking has rejoined the items being discounted. On the other hand, mills found support at previously established price levels on 5/4 decking, siding, timbers, and wider width dimensional lumber. ?

Shake & Shingles -: ?Producers of Western Red Cedar (WRC) Shakes and Shingles are expressing their frustration in the lack of buyer interest. Especially, as October is traditionally a high activity month for these products. Many mills are expressing their concerns that the past 2+ years of limited product availability, substantially higher prices, and the availability of substitute products, both alternative species and manufactured products, may have altered the Shake and Shingle market more than they had thought. Mills started the week quoting at or on either side of last Friday’s reported levels. They made outbound calls and expressed interest in hearing buyer feedback and firm counteroffers. Buyers for their part were tight lipped. Only saying that they were sufficiently supplied for now, with high priced inventory, that they needed to work through first before considering the purchase of anything else. ?

Southern Pine -: ?The Southern Pine No.1 and No.2-dimensional lumber markets lost additional energy and urgency during the week. Even the market stars of the past several weeks 2x6 – 2x8 – 2x10 have lost most of their sparkle and have since joined 2x4 and 2x12 in search of trading level. Buyers for pressure treaters and truss manufacturers, apart from those who service Florida and the Carolinas, are in the process of reducing inventory and preparing for the onset of winter. Mills started the week quoting construction grade at or below last Friday’s levels and prices traded in a similar pattern from there; for production available for shipment the week of 10/31+/-. High-grade sales continue to hold steady, as did the prices mills are quoting for the product, with shipment available the week of 11/7+/-. Low-grade sales continue to reflect a lack of industrial buyers’ interest. Mills started the week quoting low-grade at or below last Friday’s levels and prices hovered close to those levels from there, for shipment the week of 10/24+/-. Mills started the week quoting stud trims at last Friday’s levels and prices traded at or on either side of those levels, for shipment 10/31+/-. Trading in the small squares and timber markets continues to slow. Demand for 4x4 remains weak and mills started the week quoting below last Friday’s levels. Interest in 4x6 and the fact mills are limiting their production has led to prices being quoted at or above last Friday’s level. 6x6 continues to draw buyers’ attention and mills started the week quoting at or above last Friday’s levels. Interest in 5/4 x 6 Standard and Premium Radius Edge Decking remains muted. Mills started the week quoting R.E.D. at or on either side of last Friday’s levels, for shipment the week of 10/31+/-.?

Pressure Treated-: ?As the calendar moves further into October, treated lumber sales have become more regional. In the Midwest and Northeast, while sales remain average or better, pro dealers and large box retailers continue to keep their inventories lean. Knowing that the weather can change at any moment and carrying over large amounts of treated lumber, panels and accessories is not an acceptable option. In the Carolinas, and Florida the impact of Hurricane Ian has quickly transformed the treated market. With a sudden surge in demand for repair materials needed to rebuild destroyed fences, decks, and docks, taking treaters who were in the process of reducing brite stock inventory, back into the market in search of materials to meet growing customer demand, in those areas. Treaters are reporting that their 2023 contract programs have been well accepted by their current and potential new customers. Many treaters are hoping to have the bulk of their contracts locked up by the first week of November, if not sooner. ?

OSB & Veneer Panels Overview –: Trading in the OSB and plywood markets remains challenging. Even as pro dealers continue to report steady to ‘sneaky’ strong sales to the multifamily and mixed commercial sector. As those buyers remain under strict instructions to continue to keep their field inventory lean and many have been instructed to make them even leaner to assure, they will meet year-end inventory dollar and volume goals. While mills are quoting production for the week of 10/31+/-, if a buyer made prompt shipment the key to a purchase, most mills and secondaries were able to find a prompt truck to meet that requirement. ?

OSB -: ?Overall, trading in the OSB markets remains a grind. There were ripples of energy during the week, especially in the South. However, the activity was limited to many buyers coming to the market simultaneously looking for a highly mixed or single thickness truckload to help supplement their unusually lite field inventories. Mills started the week quoting at last Friday’s levels and prices hovered closed to those levels from there; for production available for shipment the week of 10/31+/-. Secondaries with contract ownership and an obligation to provide the mill with a destination made outbound calls offering that ownership below mill replacement values and still struggled to get a firm price and purchase order from cautious buyers. Some roads on the fringe areas where Hurricane Ian hit, reopened to limited truck traffic during the week. ?

Southern Pine Panels -: Trading in the Southern Pine Rated Sheathing markets continues at a cautious, methodical, and lackluster pace. Buyers continue to limit their purchases to immediate needs and that includes buyers in Florida and Costal Carolinas’ that were damaged by Hurricane Ian. Producers started the week quoting at or below last Friday’s levels and prices proceeded to trade at or modestly on either side of those levels from there, for production available for shipment the week of 10/31+/-. Mill Cert., sales also showed sparks of life during the week. Mills started the week quoting Mill Cert., at or on either side of last Friday’s levels, with much of the attention focused in the Eastside zone, and prices traded in a similar pattern from there, for shipment the week of 10/24+/-. The inquiry and sales pace of specialty panels held steady throughout the week. Mills started the week quoting concrete form, sanded, siding, and underlay panels at or above last Friday’s levels and prices hovered at or traded on either side of those levels from there, for shipment the week of 10/31+/-. ?

Western Fir Panels -: ?Western Fir Rated Sheathing producers are reporting that they were able to sell a majority of their production for the week. As in previous weeks, those sales were only accomplished when the mill was willing to sell modestly below last Friday’s price levels. Even with veneer prices on a steady decline, producers are reporting that their pricing, particularly on ?” 4-ply are at, or below production cost levels, and noted that was not sustainable. Mills started the week quoting sheathing at or below last Friday’s levels and prices proceeded to trade in a similar pattern from there; for production available for shipment the week of 10/31+/-. The sales pattern in the CD Struct I, CC, CC PTS and Mill Cert., markets remain unchanged from previous weeks. Producers started the week quoting the entire complex at or below last Friday’s levels and prices continued to trade at or trended lower from there, for shipment available the week of 10/31+/-. Demand and sales of value-added panels remains unchanged. Mills started the week quoting concrete form, sanded and siding at previously established levels. However, mills are still in search of a trading level for underlayment and prices started the week lower and proceeded to decline further from there. Mills are quoting value-added panel shipment for the week of 10/31+/-.?

Food for Thought -:?What are the builders saying? ?

Multifamily and mixed commercial construction builders are saying that their business activity remains steady, but it is clearly not as robust as it was at the start of the year, or for that matter most of last year. Single-family home builders are reporting that they have had a flurry of cancellations due to higher interest rates. However, over the past 30 – 45 days they have made significant inroads in reducing the number of properties they have available for sale. They accomplished that by working with potential buyers on mortgage points and size of down payments, as well as upgrading kitchen cabinets, counters and back splash as well as appliances above builder grade quality. Others simply sold those homes to investment firms who plan to turn them into rentals or rent to own properties. ?

With many projects wrapping up and many of their homes sold, or apartments rented, builders in all sectors are once again talking about ‘poking’ a few new holes into the ground and hoping to have them under roof before winter really sets in. I must admit I was a bit skeptical about this and was wondering what their motivation might be. Especially, after all the negative news about housing in the past several months. The answer I was told by various sources is Florida. Builders, I have been told, have been struggling to find and retain craftsmen and general laborers. From rough carpenters, to electricians, plumbers, masons, drywallers, painters, trim, and finish carpenters, once you find solid workers you do not want to lose them. If new projects are not started and there is no work for crews during the winter months, they will find builders waiting with open arms in Florida with work, lots of work and they are going to try and sell those crew on the mild winters and the availability of continuous work. They will, of course, leave out the summer heat and humidity and the chances of hurricanes. Some may go as far as to offer moving incentives, which will be tied to the craftsman remaining with the company for a certain number of months. But that also mean for many craftsmen the difficult choice of uprooting their families. ?

What are the pro dealers and buyers for the multifamily and mixed commercial sector who purchase direct saying? ?

Those buyers have their marching orders. Keep inventories lean and lite and limit your purchases to must have fill ins. What a change from the mid-2020 through mid-April 2022, when they were instructing mills not to let them run out. The words used to describe today’s inventory goals are agile and lite. That is lite and agile enough to move in any direction without imperiling your ability to meet end of 2022 inventory goals. ?

If the buying pattern of the past 6-months remains intact, we are about, or have entered into another short bull run, in the midst of a long-term bear market. It will not last long, but there will be more activity that in the past 4 – 6 weeks and prices will temporarily move higher. After that? Well, it will be time for Thanksgiving, Christmas and New Year’s and we will start the entire Mishegoss all over again. Just some food for thought.?