Notes from the Forest 10-22-21 Edition

Ladies and Gentlemen:?

It was a bumpy ride in the lumber and panel markets this week. Nevertheless, producers kept upward pressure on pricing, especially in the narrow widths, and extended production schedules into early to mid-November. With questions about the markets’ ability to sustain their current pricing structure and trading pace, and as a result, concerns about the potential for downside risk resurfacing, buyers quickly moved into a conservative mind set. Disappointing U.S. housing starts, permits and completion numbers for September and a retracement in the CME Lumber Futures did nothing to improve buyers’ perception of the markets. Hoping to avoid potential market pitfalls, many buyers turned to local 2-step distributors to cover their limited needs. Resulting in the secondaries being the mills’ best customers this week. A dearth of available trucks has resulted in shipment delays.

The National Association of Realtors? (NAR) reported that total existing home sales, which are completed transactions for single-family homes, townhomes, condominiums, and co-ops increased 7.0% from August to a seasonally adjusted rate at 6.29 million homes in September. Year-over-year, however, sales are down -2.3% (6.44 million September 2020). At the end of September unsold inventory was at a 2.4-month supply, at the current sales pace, down -7.7% from August 2021, and down year-over-year from the September 2020 rate of 2.7 months. On Tuesday, the U.S. Census Bureau reported that privately‐owned housing starts in September were at a seasonally adjusted annual rate (SAAR) of 1,555,000. This is -1.6% below the revised August rate of 1,580,000 but is 7.4% above the September 2020 rate of 1,448,000. Single-family housing starts in September were at a rate of 1,080,000, virtually unchanged from the revised August figure. The September rate for units in buildings with five units or more was 467,000. Building Permits are the forward-looking portion of the report and in September privately-owned housing units authorized by building permits were at a SAAR of 1,589,000. This is -7.7% below the revised August rate of 1,721,000 but is virtually unchanged from the September 2020 rate. Single-family authorizations in September were at a rate of 1,041,000; this is -0.9% below the revised August figure of 1,050,000. Authorizations of units in buildings with five units or more were at a rate of 498,000. On Monday, The National Association of Home Builders (NAHB) /Wells Fargo Housing Market Index (HMI) reported that builder sentiment in the market for newly built single-family homes edged 4-points higher in October to a reading of 80. Marking the second consecutive upward movement in the HMI. Builder confidence topped at a level of 90 in November 2020. Any reading above 50 indicates that more builders view conditions as good rather than poor and that demand remains strong. ?

Spruce & Stud Markets -: The inquiry and sales pace of Western and Eastern Canadian SPF Std., & Btr., and No. 2 & Btr., remains steady to strong. ?Mills started the week, apart from 2x12 which was flat, quoting above last Friday’s levels and prices trekked higher from there; for production available for shipment the week of 11/15+/-. Traders discussed the gap between CME Lumber Futures and the cash markets. Traders also considered the impact of the pending increase in the US Countervailing Duty, expecting an official announcement sometime the week of 11/22. Demand for low-grade remains strong. Mills started the week quoting low-grade above last Friday’s levels and prices pushed higher from there; for production available for shipment the week of 11/8+/-.?Stud trim sales remain active. Mills started the week quoting stud trims above last Friday’s reported levels and prices moved higher from there; for production available for shipment the week of 11/8+/-. Transportation delays continue to be reported. These delays are definitely giving buyers reason to rethink their purchasing strategy, as the year continues to wind down. ?

CME Lumber Futures –: The CME Lumber Future Contract for November will expire on Monday November 15th, 2021, at 12:00 Noon CST. For the past 5 days (10/15 – 10/21), CME Futures were up 1-day and down 4-days. CME Lumber futures have lost -$93.00 but continue to trade above midweek Cash Market of $615 by $64.00 CME at $679.00. One Year Ago, today (10-21-20) CME Futures closed at $522.00.?

Hem\ White Fir -: The inquiry and sales pace of Coastal and Inland Std. & Btr. No.2 & Btr., White and Hem-Fir, remains robust. Mills started the week trying to catch up with order entry from last Thursday and Friday’s accelerated pace. Limited supply and increased demand from all sectors of the supply chain had buyers on the hunt for replenishment throughout the week. Pressure treaters were especially active. Producers started the week quoting above last Friday’s levels and prices quickly moved higher from there; for production available for shipment the week of 11/8+/-.?Demand for low-grade is strong. Mills started the week quoting low-grade above last Friday’s levels and prices climbed higher from there; for production available for shipment the week of 11/8+/-. Stud trim sales remain steady. Mills started the week quoting studs above last Friday’s levels and prices proceeded to push higher from there; for production available for shipment the week of 11/8+/-. Transportation issues continue to delay shipments. ?

Green Doug Fir -: The inquiry and sales pace of Green Douglas Fir (GDF) Std. & Btr., & No. 2 & Btr., remains energized. The spread between KD products and GDF continued to expand over the week. Buyers who have customers willing to switch between KD and Green products are making the switch to GDF. Demand for narrow widths continue to outpace those for wides. Mills started the week quoting above last Friday’s levels and prices moved higher from there; for production available the week of 11/8+/-. Demand for 22’ and longer throughout the complex remains strong. Demand for low-grade intensified further this week. Mills started the week quoting low-grade above last Friday’s levels and prices climbed higher from there; for production available for shipment the week of 11/1+/-.?Just as in dimensional lumber, the spread between KD and GDF stud trims favors GDF and buyers who can make the switch . . . are. Mills started the week quoting stud trims above last Friday’s levels and prices pushed higher from there; for production available for shipment the week of 11/1+/-. Mills are continuing to report that securing flatbed trucks and curtain vans is challenging. Empty railcars and a lack of available switching crews further delayed carload shipment.

Cedar Lumber -: ??The inquiry and sales pace of Western Red Cedar (WRC) boards, fencing, dimension, radius edge decking, siding, pattern stock and timbers remains uneventful. Buyers spent more time discussing 2022 programs with their producer(s) of choice rather than trying to secure additional materials for the remainder of 2021. Transportation issues continue to delay already late shipments. Giving buyers in the upper Midwest and Northeast cause to ponder whether the weather will prevent some of the materials on order from being used on jobsites before next spring. Current demand continues to support the mill pricing structure on 1” boards, dimensional lumber, various siding patterns, and timbers. As a result, mills started the week quoting at or on either side of last Friday’s reported levels. Limited production of decking and fence pickets has brought sales into better alignment, and mills started the week quoting both items at or on either side of last Friday’s levels. ?

Shake & Shingles -: The inquiry and sales pace of Western Red Cedar (WRC) Shake, and Shingles has changed little over the past 6 – 8 months. There is just not enough production available to meet demand. Log availability has improved, but it is hard to make up for a dearth of supply for multiple months in just a few weeks. Demand for Shingles remains particularly strong. R&R’s and No.1 Perfections are particularly difficult to source, and as a result, the entire Shingle complex started the week being quoted above last Friday’s levels. Demand for Shakes is not as robust. However, limited supply of Shakes has allowed producers to hold pricing steady again this week. Transportation issues are further delaying already late shipments. ?

Southern Pine Lumber -: ?The inquiry and sales pace of Southern Pine No.1 & No.2-dimensional lumber remains strong and prices moved higher for the seventh week in a row. Buyers for truss manufacturers, distributors and pressure treaters spent another week trying to fill specific inventory needs, while avoiding speculative purchases. Demand for narrow widths remains stronger than for wides. Mills started the week quoting above last Friday’s levels and prices proceeded to climb higher from there; for production available for shipment the week of 11/15+/-. ?Increasing demand from MSR and high-grade allowed mills to push prices higher and shipment into the week of 11/15+/-. Low-grade sales remain active. Producers started the week quoting low-grade above last Friday’s levels and prices pushed higher from there; for production available for shipment the week of 11/8+/-. Stud trim sales continue to gain traction. Mills started the week quoting stud trims above last Friday’s levels and prices moved higher from there; for production available for shipment the week of 11/8+/-. The sales of small squares and timbers continue in the pattern established during the previous weeks. Demand for 4x4 and 6x6 continues to outpace supply. Mills started the week quoting above last Friday’s levels on both of those items and prices moved higher from there; for shipment, the week of 11/15+/-. Over production and a sharp decline in demand has 4x6s the odd width out in the complex. Mills started the week quoting 4x6 below last Friday’s levels and mills searched for a trading level during the week. The sales of 5/4 x 6 Radius Edge Decking continued to improve during the week. Mills started the week quoting both Standard and Premium Grade at or above last Friday’s levels and prices traded in a similar pattern from there; for production available for shipment the week of 11/8+/-. Trucking and rail issues are currently adding 1 – 2+ weeks onto shipment dates. ??

Pressure Treated -: ?The inquiry and sales pace of pressure treated lumber, panels and specialty items remains active. Trying to keep their inventories lite and at the same time keeping up with ongoing, and in many cases growing, customer demand had buyers seeking replenishment more frequently than they would prefer. Treated prices continue in lockstep with their brite feedstock components. Resulting in treated prices continuing to move higher. This in turn has both pro dealer and large box retailers once again concerned that at some point the higher prices and extended lead times will trigger the same results of earlier this year …?bringing treated lumber sales to a screeching halt.?Treaters without their own dedicated fleet continue to report finding available trucks for outbound shipments challenging. Treaters are also reporting delays, be it via truck or rail, with inbound freight, which in turn are creating production and additional supply chain issues. ?

OSB & Veneer Panels Overview –:?Buyers’ uncertainty about the OSB and plywood markets’ ability to sustain their current price levels and trading pace had them erroring on the side of caution. Limiting their purchase to immediate needs, while avoiding heavy volume speculative purchasing. Many buyers are choosing to purchase units out of local warehouses rather than subjecting themselves to the ongoing transportation availability issues and the potential for prices to soften as the calendar winds down towards the end of the year. Office wholesalers also noticed a similar pattern of slowing \ limited sales this week as well. ?

OSB -: The inquiry and sales pace of OSB varied widely from production region to production region, As the week progressed the overall OSB market appeared to lose some of its resilience. Mills started the week quoting OSB at or modestly above last Friday’s levels and prices traded at a similar pattern from there; for production available for shipment the week of 11/8+/-. Buyers continue to keep their purchases in close alignment with current sales. For most buyers, as the calendar moves closer to the end of the year, speculative purchasing is not a consideration. Office wholesalers noted that their sales too, seemed to slow during the week. Local 2-step distributors noted an uptick in their sales. Transportation problems continue to increase, and delayed shipments varied from producer to producer even in the same region. ??

Southern Pine Panels -: The inquiry and sales pace of Southern Pine Rated Sheathing remains measured. Producers started the week quoting at or modestly above last Friday’s levels and prices held at or trended slightly higher from there; for production available for shipment the week of 11/8+/-. Buyers’ focus remained on thicker panels. Uncertainty about the markets staying power had buyers in a cautious and conservative mood. Limiting their purchase to near-term needs. Office wholesalers noted that their sales were also starting to drag. Local 2-step distributors, on the other hand, are reporting that their sales continue to increase, as buyers turn to them for units out of warehouse. Mill Cert. sales remain lackluster. Producers started the week quoting Mill Cert. at last Friday’s price levels and prices held steady or inched higher from there; for production available for shipment the week of 11/1+/-.?The inquiry and sales pace of underlayment, sanded, siding, concrete form and other specialty panels have also slowed. Mills started the week quoting these products at, or a few dollars above last Friday’s levels and prices held at or edged modestly higher from there; for production available for shipment the week of 11/8+/-. Late shipments have become commonplace. ?

Western Fir Panels -: The inquiry and sales pace of Western Fir Rated Sheathing remains uneventful. Buyers are limiting their purchases to immediate needs. Year-end inventory goals and the current pricing structure has taken speculative purchases out of the equation for most buyers. The spread between Western Fir and Southern Pine Sheathing plywood, continues to attract Pine buyers into the Western Fir market. Producers started the week quoting at or a few dollars above last Friday’s levels and prices traded at or modestly higher; for production available for shipment the week of 11/8+/-. ?Sales of CC, CC Plugged & Touch Sanded, Struct I, and Mill Cert. remain slow. Mills sold just enough to hold prices at or modestly above last Friday’s levels; for production available for shipment the week of 11/8+/-. The inquiry and sales pace of value-added panels, underlayment, sanded, siding, concrete form and other specialty panels has noticeably slowed. Mills started the week quoting at or modestly above last Friday’s levels and prices hovered close to those levels from there; for production available the week of 11/1+/-. Transportation problems varied from supplier to supplier. ??

Food for Thought-: ?The U.S. Census Bureau \ U.S. Dept. of Housing and Urban Development September Housing Starts and Permits report was a disappointment for many traders. Housing starts at 1.555 million were a far cry from the 1.7 million that traders and producers have targeted for yearly building production levels. Yet starts remain at or close to typical housing start levels. Permits were a disappointment as well at 1.589 million. As traders were hoping to build on August’s 1.721 million permits issued. Completions, houses ready for people to move into, were at a SAAR of 1.240 million,?-4.6% below the revised August estimate of 1.3 million and -13.0% below the September 2020 rate of 1.426 million.??

Perhaps now, is as good a time as any, to stop for a reality check. It is time (in my humble opinion) to ask ourselves “can we realistically build 1.7 million homes a year?” If your answer is a resounding YES! ?Then the next question is how? While I am certain lumber and panel producers can keep up their end of the equation. Afterall, they are at or close to those production levels now. I am uncertain about the remaining parts of the home building complex. Failure to promote the trades has led to an acute shortage of skilled craftsmen. It is well documented that there are not enough carpenters, drywallers, roofers, painters, electricians, plumbers, and HVAC etc., to build that many homes. Which, in turn, is slowing the home building process. The shortage of trucks and truck drivers, as well as railroad crews and available rail equipment seems to frequently make the news as of late. Port congestion up and down both coasts of the US and Canada are the result of a lack of people and equipment to unload the ships, available transportation to take the unloaded cargo away from the docks and to final destinations. And there is North America’s heavy reliance on offshore manufacturing. Experts are saying that port congestion will eventually ease, but they are saying it will be mid Q2 2022 at best. ?

People keep saying that we used to and need to manufacture everything from window, doors, interior and exterior trim, kitchen and bathroom cabinets, sinks, faucets, electrical, HVAC and plumbing parts and pieces, etc. right here in North America. I agree. But that will come at a cost, which will most certainly be passed onto consumers. To begin with new plants will need to be built and highly automated and computerized equipment will need to be purchased and installed. That will take both time and money. That will also entail hiring and paying highly skilled operators for those sophisticated pieces of machinery Another detail, wages in Southeast Asia, Central and parts of South America and Africa are a fraction per day, than even the hourly minimum wage in North America. If you are old enough, think back, wasn’t that one of the original reasons for transferring manufacturing to those countries in the first place? ?Wasn’t it promoted as a way to lower costs and pass the savings onto customers???Just some food for thought.