Notes from the Forest 12-13-19 Edition

Ladies and Gentlemen:

The lumber and panel markets remain locked in their end of year holding pattern. Buyers continue to maintain razor thin inventories, as they work towards meeting, or exceeding year-end inventory dollar goals. Any purchase was made, usually from a local 2-step distributor in unit(s), only after every possible alternative, such as a longer length, or a higher grade was exhausted. Producers are quoting production anywhere from the week of 12/16, to as far out as the week of 1/6 and all weeks in between. With extended production schedules and maintenance and holiday shutdowns just about to start, producers quoted at, or on a narrow line on either side of last Friday’s reported levels. Office wholesalers with contract and open market ownership still on their sales boards made outbound calls to potential customers offering potentially better prices, especially if the buyer could take prompt delivery.

According to a report released by realtor.com, Novembre housing inventory dropped <- 9.5%> year-over-year. Lower interest rates are spurring increased demand and as a result the number of homes available for sale have dropped year over year. Novembre’s inventory declines amounted to a loss of 131,000 listings nationwide, compared to this time last year. According to realtor.com senior economist George Ratiu, “As millennials—the largest cohort of buyers in U.S. history—embrace homeownership and take advantage of this year’s unexpectedly low mortgage rates, demand is outstripping supply, causing inventory to vanish. The housing shortage is felt acutely at the entry-level of the market, where most millennials are looking to break into the market for their first home.”

Spruce & Stud Markets -: The inquiry and sales pace of Western and Eastern Canadian SPF Std., & Btr., and No. 2 & Btr., remains lackluster. Buyers continue to focus on making sure that their on-ground inventory dollar value is at, or below company advisory levels. Producers production schedules varied greatly from mill to mill. Some mills have production available for next week, while others are reporting they have successfully pushed their production (thanks to pre planned maintenance and holiday shutdowns) into the week of 1/6. Mills with the extended production schedules tended to hold their prices at previously established levels and dismissed counter offers out of hand. Producers with on ground inventory and production for the remainder of the year left to sell, were more flexible with their pricing, but tried to limit their discounts to the $ 2 - $ 5 MBM range. CME Lumber Futures (see below) also sent out mixed signals about the overall health of the lumber markets. Sales of low-grade stock remain in sync with production and prices are trading at, or a few dollars on either side of last week’s reported levels. Demand for 2x4 stud-grade trims remain steady and prices are trading at previously established levels. Sales of 2x6 stud-grade continue to modestly trail behind production and producers starting offering small discounts early on Monday afternoon to keep buyers engaged.

CME Lumber Futures – The CME Lumber Contract for January 2020 will expire at Noon CST, Wednesday 15th January 2020. For the past 5-days of trading (12/06 – 12/12) CME Futures were Up 3-days and down 2-days. For the past 5-days CME Futures have lost <-$ 7.50> and are trading above Midweek cash market, ($389.00 MBM) by $8.80 (CME $397.80).  

Hem\ White Fir -: The inquiry and sales pace of Coastal and Inland Std. & Btr. No.2 & Btr., White and Hem \ Fir remains steady to almost sneaky strong. Producers are quoting production for the weeks of 12/16 – 12/30. Trying to meet company year-end inventory goals, buyers limited their purchases to must have fill in needs and this only after exhausting any possible alternative substitute of a higher grade or a longer length. Buyers, however also noted a lack of prompt shipping product throughout the complex. The extended production schedules allowed mills to quote at, or modestly above last week’s reported levels. Again, this week, 2x12s remain the odd man out. Over production and producers need to reduce that inventory level for their year-end goals forced mills to lower 2x12 prices again at the start of the week and to ask buyers for their feedback and firm offers. Demand for low-grade stock and stud trims remain in close proximity with production. Resulting in prices being quoted at, or a few dollars on either side of last week’s established levels.

Green Doug Fir -: The inquiry and sales pace of Green Douglas Fir Std. & Btr., & No. 2 & Btr., remains slow but steady. Mills are quoting production for the week of 12/16 – 12/23. However, with Christmas and New Year’s on Wednesday this year, it is being reported that several producers are planning on taking the weeks of 12/23 – 12/30 off their production schedules, to accommodate pre planned maintenance and holiday shutdowns. Recent permanent mill closures have limited the production and availability of Green Doug Fir and coupled with extended production schedules, allowed mills to hold prices at, or on a thin line on either side of last Friday’s reported levels. Sales of low-grade stock and stud trims are just about in sync with production and mills are quoting at, or on a narrow line on either side of last week’s reported levels.

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 active. Buyers are working diligently trying to cover, at minimum, their 1st Qtr. needs. However, limited supply of both raw materials and finished product; the result of a labor dispute that is entering its 23rd week (strike started on 7/1/19), a mill closure earlier in the year and 2 large log harvesting companies curtailing operations along the B.C. coast, are making finding all that they need a more arduous task than in years past. As in the past 6 – 8 weeks, overall prices continue to trade at previously established levels. This, as producers struggle with raising prices, amidst buyers warning that higher prices will send them back to searching for alternative wood species and man made products. With production scheduled for February, or later, fence pickets remain one of the most difficult items to source. Also, on the hard to find list are wide dimension lumber and small squares and timbers. On these items, prices continue to inch higher and production is currently scheduled (if logs are available) for mid-January. 5/4 x 6 Radius Edge Decking continues to trade at previously established levels, but supplies are tightening.  

Shake & Shingles -:  The inquiry and sales pace in the Western Red Cedar (WRC) Shake and Shingles and Eastern White Shingles (EWS) markets continues to be lackluster. Limited supply of raw materials and finished product, coupled with inclement weather that has already shutdown many jobsites, made it difficult to get the market energized. A handful of new quotes were being circulated, but most of those quotes were for jobsite quantities that are not scheduled to start before mid to late 1st Qtr. Giving mills little hope of turning those quotes into viable orders, at this time. Traders remain concerned that limited logging through the winter months, will force producers into taking extended holiday shutdowns, perhaps well into January and which in turn, will further limit and delay manufacturing of product needed for the 1st and 2nd Qtrs. Nevertheless, buyers remain hesitant to place orders for their 2020 needs. Perhaps, waiting to see how the Commerce Department responds to The U.S. Court of International Trade ruling on the unlawfulness of U.S. tariffs on Shake & Shingle, which isn’t due out until mid-January.

 Southern Pine Lumber -: The inquiry and sales pace of Southern Pine No.1 & No.2-dimension lumber continues to lose momentum. Mills are quoting production scheduled for the weeks of 12/16 – 12/23. However, mill daily offering sheets continue to have a wide variety of items that are available for prompt shipment. Another round of inclement weather, with more on the way, and year-end inventory dollar goals to be met, further dampened buyers’ interest in the markets. Mills started the week facing the same problem of over production on narrow widths. Just as they had in previous weeks, producers addressed the issue by offering single digit discounts from the start of the week. Mills quoted the wider widths at, or a few dollars below last Friday’s reported levels. The inquiry and sales pace of high-grade stock – D.S.S., S.S. and MSR, remains on the quiet side. Slower sales in the truss and modular home industry, has cut their need to replenish and as a result, high-grade sales continue to slow, as prices decline in step with construction grade product. The sale of No.3 & No. 4 low-grade stock continues to seasonally slow. Producers are quoting production for the weeks of 12/16 – 12/23 and prices continue to trade at, or on a thin line on either side of last Friday’s reported levels. Stud trim sales remain in close proximity with production and mills are quoting production for the week of 12/16, and prices continue to hold at, or close to previously established levels. The inquiry and sales pace of small squares and timbers remains steady to strong. In the Westside Zone, sales of 4x4 and 4x6 are outpacing production. Resulting in prices that are again this week, modestly to moderately higher Selected lengths of 6x6 remain over produced and mills addressed those issues by offering lower prices on those specific lengths. In the Eastside Zone, the sales of 4x4s, 4x6s, 6x6s remain in close proximity with production. Prices are trading at, or modestly above last Friday reported levels. Demand for 5/4 x 6 Radius Edge Decking remains slow but steady, typical for this time of year. Westside Zone producers are reporting that they experienced an increase in demand (mostly new contracts) for Standard Decking, which allowed them to move prices back to and then modestly above previously established levels. Premium sales are in sync with production and prices traded close to last week’s reported levels. Eastside Zone producers are continuing to report that their sales of both Standard and Premium Decking are in close proximity with production and prices continue to trade at previously established levels. Which they continue to point out are trading below, depending in the specific length and grade, anywhere from $10 MBM to as much as $90 MBM when compared to the Westside Zone. 

Pressure Treated -: The inquiry and sales pace of pressure treated lumber, plywood and accessories remain at traditional seasonal levels. Concerned about meeting company year-end inventory dollars goals, coupled with declining brite feedstock prices, which are causing pressure treated prices to retreat, have kept most buyers on the sidelines and hopefully out of harm’s way. Moderating temperatures and sunshine in areas recently hit with heavy rain, or blanketed with snow, did allow for some additional jobsite activity. Resulting in pro dealers, in those areas, needing to replenish. When a buyer did enter the marketplace, it was for highly specific items, which needed to ship immediately. Export treaters are reporting that their sales remain steady to strong and that now includes sales into the Bahamas.

OSB & Veneer Panels Overview –:  The sales of OSB and plywood continue to lack any sense of energy and urgency. Mills are quoting production scheduled for the weeks of 12/16 – 12/23, which in many cases will get them into their pre-planned maintenance and holiday shutdowns. A few producers conceded to buyers wishes and accepted orders at current price levels, but agreed to hold shipment until 1/2/20 or later. Buyers remain laser focused on meeting their company mandated inventory dollar goals. Which, in turn, is limiting their purchases to must have fill ins, often purchased in units from a local 2-step distributor. Office wholesalers are reporting that they too are struggling with the sale of their contract ownership.   

OSB -: The inquiry and sales pace of OSB remains challenging. Producers are quoting production scheduled anywhere from the weeks of 12/16 – 12/23, to as far out as the week of 1/6, thanks to pre-planned maintenance and holiday shutdowns and January contracts being added into the schedule. Buyers continue to focus on meeting their year-end inventory goals and often turned to local 2-step distribution for units to fill pressing needs. Mills started the week quoting from last Friday’s reported levels, but made sure that buyers understood that they would never let $ 2 - $ 4 MSF get in the way of sale. Unfortunately, office wholesalers with unsold contract ownership and mills demanding firm destinations, simply dipped their pricing slightly below mill quotes and their token discounts and still reportedly struggled with sales. 

Southern Pine Panels -: The inquiry and sales pace in Southern Pine Rated Sheathing remains on the quiet side. Mills are quoting production scheduled for the weeks of 12/16 – 12/23, which will get most producers into their pre-planned maintenance and holiday shutdowns. Buyers are concentrating on meeting their year-end inventory dollar goals. As a result, buyers are limiting their purchases to must have fill ins, and sourcing them from local 2-step distributors in unit(s). Producers started the week quoting from last Friday’s reported levels, but with scheduled production left to be sold, several producers started listening to token discounts ($2 - $ 4 MSF), while turning away deep counter offers. Eastside producers were also dealing with another wave of lower priced imported panels from Brazil and Chile. The sales of underlayment, siding, concrete form, and other specialty panels remain slow but steady and prices continue to trade at, or on a thin line on either side of previously established levels. Producers, are quoting production scheduled for the weeks of 12/16 – 12/23. 

Western Fir Panels -: The inquiry and sales pace of Western Fir Rated Sheathing remains subdued. Producers are quoting production scheduled for the weeks of 12/16 – 12/23, which in many cases will move production schedules into, or just about into, pre-planned maintenance and holiday shutdowns. West Coast truckload buyers continue to work towards achieving their year-end inventory dollar goals. As a result, they continue to limit their purchases to must have fill ins and often turned to local 2-step distributors for unit(s) out of warehouse. Midwest and Northeast carload volume buyers prowled about the market, again this week, checking on price and availability but were not quite ready to pull out their PO books and write the order. Convinced that lowering prices, even by a $1.00 MSF, would not provide them with any additional sales, producers tried to hold prices at previously established levels. However, towards the end of the week they did consider $2 - $ 4 counter offers. The sales of value-added panels – underlayment, siding, concrete form, and other specialty panels remain slow but steady and prices continue to trade on a narrow line on either side of previously established levels, for production scheduled for the weeks of 12/16 – 12/23.

Food for Thought: The mergers, acquisitions and consolidations for 2019 have just about all been completed. The newly merged, acquired and consolidated companies are now going to have to deliver on the saving and synergies that they have promised their stakeholders (aka shareholders). If there is anything, we’ve learned over the past several years, it is that stakeholders are fickle and when the profits aren’t what they have been promised, or at the speed they anticipated, they will sell their shares and move onto something (they hope) better.

There are certainly going to be some growing pains, as the new, or consolidated companies bring former competitors into the same room to work together as a cohesive team. The argument of overlapping yards, sharing their contractor customers’ base is going to test everyone’s patience. Especially, if one of the facilities is scheduled to be closed and combined with the other. The issues will also affect suppliers, as one is favored over another and longtime relationships with Company A, are lost to Company B’s supplier, or vice versa.

There are certainly going to be some pieces and parts of the new, or consolidated company that will just not fit into the new scheme of things. These are usually facilities in less densely populated \ rural areas of North America, where the local lumber yard and hardware store have been one of the backbones of the community. Some will be retrofitted to the meet the new scheme, others accepted for what they are, while others will be sold off.  Again, back to meeting stakeholders’ vision of their investment.

Although doubtful, perhaps, the merger, acquisition and consolidation cycle is coming to an end. However, if the run is concluding, it will be shorted lived. There are still a fair number of small to medium size independent operators who are nearing retirement age. They’ve done such a great job of operating their businesses and providing exceptional educational opportunities to their children; that their children have no interest in continuing in their parent’s business. What they do want is their mom and dad to sell their businesses and enjoy the rest of their lives and come and visit them and the grandkids as often as possible. It’s just some food for thought.