Notes from the Forest-10-19-18 Edition

Ladies and Gentlemen:

The lumber and panel markets are acting like the Little Engine that Could. The markets keep trying to get up and over the hill. While there are some small signs of stabilizing starting to appear, producers are usually only able to sell when they initially discount (albeit smaller amounts and not on all items this week) and then accept reasonable counter offers. This week buyers heard more from producers in regards to slowing or suspending production, due to high costs of raw materials and the depressed markets. Buyers understood the message, but they are dealing with slower sales due to a change in the weather pattern and the now infamous 4th Qtr., inventory goals that must be met. So, while mills may be or are preparing to produce less, it is coming at the exact same time that buyers are going to need even less. 

The U.S. Commerce Department has reported that U.S. housing starts fell <5.3%> in Septembre, to an annual rate of 1.2 million down from 1.27 million in August of 2018. Housing starts fell last month in the South and Midwest but experienced increases in the Northeast and West. Year to date, starts have increased 6.4%. However, the pace has been slowing since May. Permits, the forward-looking part of the report, an indicator of future activity, also declined by <0.6%> to an annual rate of 1.24 million homes. In an earlier report the National Association of Home Builders (NAHB) / Wells Fargo Housing Market Index (HMI), which measures builder confidence in the market for newly-constructed single-family homes, rose one point to 68 in Octobre. The HMI has been in high 60’s since June 2018.

Spruce & Stud Market -: After showing some signs of stabilizing last week, the inquiry and sales pace of Eastern and Western Canadian SPF Std., & Btr., and No. 2 & Btr., have once again lost their traction. Even the rotating strikes taking place at 13 northern BC sawmills, did little to help the markets remain energized. Producers with shrinking order files started the week offering double-digit discounts on 2x4 thru 2x10. Only 2x12 was being offered at previously established levels. Late in the week, the price reduction did inspire a handful of buyers to return to the marketplace, but the volume they purchased was limited and production order files remain less than 2 weeks long. Sales of low-grade stock and stud trims are back in sync with production and sales were being conducted at previously established levels. After being down 4 days out of 5 last week, CME Lumber Futures rebounded on Monday and Tuesday, giving buyers additional confidence in the overall SPF markets.  Monday’s uptick was modest but Tuesday Futures surged almost up limit. Wednesday Future prices dropped as an unfavorable housing start and permit report and some profit taking set in. Thursday the downward trend continued wiping out a large portion of the gains from Monday and Tuesday.

Hem\ White Fir -:  The inquiry and sales pace of Std. & Btr. No.2 & Btr., White and Hem \ Fir, remains less than inspiring. Producers continue to reduce prices, albeit not at the same depths or breadths of previous weeks, trying to get buyers to reengage with the marketplace. Several mills also announced that they were going to slow production down in order to get it back in alignment with demand. Canadian producers continue to make overtures to domestic buyers, which are at a significant discount to U.S. mill pricing. A handful of domestic producers made attempts to meet or beat those prices, but in many instances the buyer was not interested in either offering. For their part, buyers are continuing to deal with the market’s instability, a significant change in the weather pattern, and 4th Qtr., inventory dollar demands and therefore are hesitant to purchase anything beyond their most pressing needs and this only after every possible alternative in stock is considered. Demand for low-grade stock has suddenly evaporated and producers addressed the slowdown by immediately offering double-digit discounts from Tuesday morning through the remainder of the week. Stud trim sales were hit or miss and varied from producer to producer. Some mills were able to sell studs at previously established levels; while others were forced to resort to varying degrees of discounting to get keep production sold. 

Green Doug Fir -: The inquiry and sales pace of Green Douglas Fir Std. & Btr., & No. 2 & Btr., remained on the quiet side this week. Last week’s dramatic price cuts, which saw prices driven down to 5- and 6-year low levels, this after hitting record new highs less than 4 months ago; did inspire a handful of volume buyers back into the marketplace. Enough 2x6 was sold last week that mills were able to establish modest order files and sales were actually conducted this week above last Friday’s reported levels. 2x4 and 2x12 pricing also appeared to be moving towards stabilizing. It was, however, still taking double-digit discounts on 2x8 and 2x10 to keep that production sold.  Demand for low-grade stock and stud trims remains sub par. Producers resorted to double-digits discounting as early as Monday afternoon to keep up with increased low-grade and stud trim production.

Cedar Lumber -: The inquiry and sales pace of Western Red Cedar (WRC) boards, fencing, dimension, radius edge decking, bevel siding, and pattern stock remains subdued. A change in the weather pattern in the Upper Midwest and Northeast, coupled with 4th Qtr., inventory goals for the remainder of the year, have just about canceled out any remaining hope for a late fall, pro-dealer buy-in, in these regions. Demand for timbers and wider width tight knot boards remains strong, prices remain flat but firm and production order files have moved into the early weeks of Novembre on many of these items. On the other hand, demand for any decking item – 2x4 – 2x6 – 5/4 x 6, and narrow width tight knot boards remains minimal at best, and producers continue to make overtures to customers who previously purchased these items, in the hopes of sparking some renewed interest. Buyers with little to purchase for the remainder of the year, are starting to formulate tentative wish lists for 1st / 2nd Qtr., 2019 needs. Concerned about not repeating the transportation SNAFUs of this year, many buyers want to get timbers and other products that are currently in tight supply on order in advance. However, many buyers are indicating that if they are unable to buy PTS, that they are willing to wait until mid to late Novembre, wanting to see if pricing might also ease on these items. 

Shake & Shingles -: The sales pace of Western Red Cedar (WRC) Shake and Shingles and Eastern White Shingles (EWS), remains muted. Buyers continue to keep their purchases to a minimum. Literally purchasing only what they have previously sold and not a square more. Canadian producers facing higher log pricing and quality issues, and the continuation of the Countervailing and Antidumping fees have no choice but to hold their prices firm and hope for the best. Domestic producers although facing similar issues on log pricing and quality were more willing to listen to the few buyers in the marketplace’s counteroffers. A handful of buyers started preliminary discussions on their potential 1st and 2nd Qtr., 2019 needs with producers.

Southern Pine Lumber -: The inquiry and sales pace of Southern Pine No.1 & No.2-dimension lumber remains lackluster. Mills that were shutdown in preparation for and immediately after Hurricane Michael, came back on line early in the week. Providing even more production, for what is perceived, by many buyers, as an already oversupplied market. Producers continue to struggle with the over production of 2x10 and now 2x4 has joined the ranks. On the other hand, it appeared that the downside risk has just about been wrung out of 2x6, 2x8 and 2x12, as mills reported being able to sell limited volume at single-digit discounts. Most producers reported having almost every item, in every grade on the ground for prompt shipment. The inquiry and sales pace of high-grade stock – D.S.S., S.S. and MSR, remains on the quiet side. Limited demand from modular home and truss manufacturers, continue to limit sales. Resulting in prices that are continuing to correct lower. Sales of low-grade stock slowed, after last week’s export orders shipped and excess production has once again forced mills to lower prices modestly and then listen to buyer counter offers. Stud trim sales remain in close proximity with production and prices held at previously established levels for another week. Demand for small squares and timbers continues to show slow but steady improvement. However, it was another week where producers had to rely on discounting in various degrees to keep inventory of slower moving lengths from piling up. Radius Edge Decking producers continue to search for a price that will entice buyers to purchase today, what they will not have need for until mid-1st Qtr., of 2019. As in previous weeks, Standard Decking is a greater challenge for producers to sell. However, this week producers also started to offer modest discounts on selected lengths of Premium, as sales have stalled on all lengths except 16’, where prices inched a few dollars higher.

Pressure Treated -: The inquiry and sales pace of pressure treated lumber, plywood and accessories took a turn to the quiet side this week. A combination of the aftermath of Hurricane Michael, inclement weather in other parts of the country, continued weakness in the replenishment price of brite feedstock, which has resulted in lower priced finished treated products and mandated 4th Qtr., inventory goals, all shouldered some of the responsibility for the slowdown. Pro dealers and large box stores worked to reduce their high-priced pressure treated inventory and purchased only when a substitute product (i.e. longer length or higher grade) was not available. Pressure treaters for their part took the slowdown in stride, noting that the season traditionally starts to slowdown right about now. Treaters continue to report that they are having good success in their 2019 contract sign up campaign. Many treaters are hoping to have their campaigns wrapped up by the end of the month.

OSB & Veneer Panels Overview –: Sales of OSB and plywood remain in the doldrums. Prices are continuing to correct lower, as producers continue to search for the elusive price that will get buyers to reengage with the marketplace. Mills are quoting production scheduled anywhere from this week, to as far out as the week of 10/29, and all points in between. Buyers concerned about price vulnerability, a changing weather pattern and making sure that they hit their 4th Qtr., weekly or monthly inventory goals, limited their purchases to must have fill-ins. When a buyer did enter the market for replenishment they had a plethora of choices (mill direct, local 2-step distribution, or office wholesaler) to make their purchase from. Producers openly discussed with buyers the potential for reducing production, or, outright curtailments, until such time as the markets improve. Buyers responded with a shrug of the shoulders and ‘will wait and see’ attitude.

OSB -: The inquiry and sales pace of OSB remains on the quiet side. Buyers continue to purchase hand to mouth and generally believe that the market is overproduced. This allowed buyers to pit mills, against local 2-step distributors and office wholesalers, to compete for their order. Hurricane Michael has had no immediate impact on the markets. Mills are offering production scheduled for the week of 10/22 – 10/29. This has resulted, once again, in producers in all zone lowering prices, $ 5 MSF - $ 15 MSF at midweek and then negotiating sales levels lower through the remainder of the week. 

Southern Pine Panels -: The inquiry and sales pace of Southern Pine Rated Sheathing remains in the doldrums. Buyers are continuing to buy only what they need and not a unit more. Downside risk and 4th Qtr., inventory goals continue to hold buyers’ needs to replenishment in check. Mills that ceased production in preparation for and immediately after Hurricane Michael, reopened on Monday or Tuesday of this week. Adding even more production to an already over supplied marketplace. Producers in the Westside and Central zones aggressively lowered prices from the opening moments of the week, as they tried to reinvigorate buyers’ interest in the markets. Eastside zone producers dealing with an influx of imported panels, felt less inclined to openly cut prices and quoted at close to last Friday’s reported levels and then listened to buyers’ counter offers. Sales of underlayment, remain weak and mills resorted to discounting from the start of the week, to keep production sold. Although the value-added markets remained quiet, sanded, siding, concrete form and other specialty panels were being quoted and sold at previously established levels.  

Western Fir Panels -: The inquiry and sales pace of Western Fir Rated Sheathing continues to be challenging for producers. Additional price corrections and with the month of Novembre quickly approaching, buyers have reverted back to purchasing hand to mouth. With many of those purchases being made at local 2-step distribution. Carload buyers in the Midwest and Northeast remain on the sidelines, as a sudden change in the weather pattern, in those areas, did little to inspire buyers to purchase any significant volume.  Mills are reporting that they have a small number of unsold panels remaining from this week’s scheduled production, but only a small fraction of next week scheduled production has already been sold. This week, producers seem to be concentrating on lowering prices specifically on their inventory excesses and listened carefully to the firm offer being presented by the buyer. Some counter offers were just a bit too steep for producers to consider, but for the most part, any reasonable counter offer was accepted, as mills tried to get production sold. Mills talked about slowing or curtailing production but buyer’s reaction was a shrug of the shoulders and a ‘will see’. Sales of underlayment, sanded, siding, concrete form and other specialty panels continue to hold steady. Mills have production schedules of 7 – 10 days and that allowed producers to hold prices flat and firm.

Food for Thought -: I worked and continue to worship in what I consider to be a reasonably safe environment. One of our mandatory yearly videos at work dealt with what to do with an active shooter. At first it was a bit unsettling to watch, but the best time to prepare for a situation is before it happens. Similar presentations were made at local churches in the area as well. The information is from the U.S. Department of Homeland Security.

1) Be aware of your environment and any possible dangers.

2) Take note of the two nearest exits in any facility you visit.

3) If you are in an office, stay there and secure the door.

4) Attempt to take the active shooter down as a last resort.

According to the video you actually have 3 choices:  

1. RUN – Have an escape route and plan in mind. Leave your belongings behind. Keep your hands visible at all time.

2. HIDE – Hide in an area out of the shooter’s view. Block entry to your hiding place and lock the doors if possible. Silence your cell phone \pager.

3. FIGHT – This is a last resort and only should be considered if your life is in imminent danger. Attempt to incapacitate the shooter. Act with physical aggression and throw items at the active shooter. Fire extinguishers, staplers, monitors anything that can slow or stop the active shooter.

Finally, When Help Arrives:

* Remain calm and follow instructions. * Put down any items in your hand (jacket, purse etc.)

* Raise your hands and keep them visible at all time, with your fingers spread apart.

* Make no quick movements towards the officer. * Avoid pointing, screaming or yelling.

* Listen carefully and follow all instructions.

I sincerely hope you or anyone in your family never has to use these tips. But they could save your life.