Notes from the Forest 12-16-22 Edition

?Ladies and Gentlemen:?

The end of the year holiday doldrums have quickly enveloped the lumber and panel markets. This week’s coast to coast outbreak of inclement weather, with snow, ice, and furious winds in the northern half of the U.S. and Canada, and rain, thunderstorms and tornadoes in the southern half slowed or halted jobsite activity and with-it construction materials consumption. Flat to lower prices did little if anything to stimulate buyers’ interest in the markets. With most of their meager year-end needs already covered and a lack of commitment from their builder customers, pro dealer buyers, and in turn buyers for truss manufacturers and pressure treaters continue to keep their inventories lite as concerns about downside risk, inflation, higher interest rates and other socioeconomic headwinds have them willing to wait and see, rather than invest. Buyers who use contracts for some of their lumber and panel purchases continue to negotiate those agreements with their suppliers. ?

The U.S. Bureau of Labor Statistics (BLS) reported on Tuesday (12-13-22) that the Consumer Price Index for All Urban Consumer (CPI-U) increased 0.1% in November, on a seasonally adjusted basis, after increasing 0.4% in both September and October. Over the past 12 months, the all-item index has increased 7.1% before seasonal adjustment. The 7.1% increase is the smallest 12-month increase since the 12-month period ending in December 2021. In the last 12 months (Nov. 21 to Nov. 22) the all items less food and energy index rose 6.0%, while the energy index increased 13.1% and food index rose 10.6%. The BLS notes that all of these increases were smaller than the 12-month period ending in October 2022. ?

Spruce Markets -: ?The hopes that recently announced and rumored curtailments in the Eastern and Western SPF No.2 & Btr., markets could lift the market out of the doldrums was short lived. A quiet CME Lumber Futures market only helped to reinforce buyers’ desire to keep their inventory lite, while at the same time taking a wait and see attitude due to a lack of commitment from their builder customers. The approaching holidays have the SPF markets quickly descending, albeit a bit earlier than usual, into holiday mode. Mills started the week in search of a trading level and quoting construction grade SPF at or modestly on either side of last Friday’s levels and prices continue to trade in a similar pattern from there, with production available for shipment anywhere from prompt to the week of 1/2+/-. Low-grade sales remain slow but steady. 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 1/2+/-. SPF stud trim sales remain closely aligned with the construction grade markets. Mills started the week offering stud trims at or in varying degrees below last Friday’s levels and prices proceeded to trade in a narrow range from there, with prompt shipment available on many stud trims items. ?

CME Lumber Futures –: The CME Lumber Future Contract for January is scheduled to expire on Friday 1-13-23, at 12:00 Noon CST. For the past 5 days (12/9 – 12/15) CME Futures were unchanged 1 day, and down 4 days. For the past 5 days CME Futures have lost $17.50 and are trading above the Midweek Cash Market of $370 by $25.00, CME Futures at $395.00. One year ago, (12/15/21) CME Futures closed at $1109.50.?

Hem\ White Fir -: ?Continued steady production and on-ground inventory building at the mills continues to overshadow buyers’ limited interest in the K.D. Hem \ White Fir Std. & Btr., and No. 2 & Btr. While buyers seem willing to concede that prices are at or close to investment levels, their concerns about further downside risk, coupled with inflation, higher interest rates, and a lack of commitment from their builder customers has them hesitant to purchase anything beyond their most pressing needs. Mills started the week quoting construction grade Hem \ White Fir below last Friday’s levels and prices proceeded to trend lower from there, with prompt shipment available on many items. Low-grade sales remain lackluster. Mills started the week quoting low-grade below last Friday’s levels and prices proceeded to trade in a narrow range from there, with prompt shipment available. A noticeable slowing of multifamily construction contributed to another week of lackluster stud trim sales. Mills started the week attempting to hold prices at last Friday’s levels but soon capitulated to buyer counteroffers in order to keep production sold. Most stud trims are available for prompt shipment. ?

Green Doug Fir -: ?Late last week’s modest upturn in activity in the Green Doug Fir (GDF) Std. & Btr., and No.2 & Btr., market had limited follow-through during the week. Last week’s sales helped a few mills clean up excess inventory and those mills tried, with limited success, to hold their prices firm. While other mills reported meager sales and still having inventory on the ground, which they needed to ship prior to year-end. Even with prices closing in on, or already at 2019 levels, more buyers were willing to wait, rather than invest. With many buyers saying that their sales to tract, multifamily, and mixed commercial builders are not nearly as robust as in previous month. Mills started the week quoting construction grade GDF, apart from 2x12, below last Friday’s levels and prices continued to trade in a similar pattern from there, for shipment available the week of 12/26 or sooner. Low-grade sales have also succumbed to the market’s malaise. Mills started the week quoting low-grade at or below last Friday’s levels and prices proceeded to hover close to those levels from there, for shipment the week of 12/26 or sooner. GDF studs sales remain challenging. Mills, still facing stiff competition from K.D. studs, which are trading below GDF, started the week quoting below last Friday’s levels, listening to, and accepting select counteroffers. ?

Cedar Lumber -: Trading in the Western Red Cedar (WRC) lumber market experienced its second full week of modestly improving activity. This as buyers have begun placing orders to cover their anticipated Q1 and early Q2 2023 needs. It is far from a runaway market and for every buyer in the marketplace there are one – two – or more remaining on the sidelines concerned about downside risk, and how the economy will impact demand for WRC products in 2023. As in previous weeks, mills were willing to wheel and deal on slower selling items, such as boards, dimensional decking, and narrow width dimensional lumber. Likewise, mills held prices firm or where the opportunity presented itself inched prices higher on 5/4 decking, fencing, siding, timbers, and wide width dimensional lumber. Throughout the week trader optimism for 2023 seemed to improve, with many thinking January has the potential of being a busy transactional month. ?

Shake & Shingles -: ?Activity in the Western Red Cedar (WRC) Shake and Shingles market remains unusually quiet. The approaching holidays will certainly do little if anything to rejuvenate buyers’ interest in the marketplace. Last week Washington State producers slowed their production, and they reduced it even further during the week. As they prepare for pre-scheduled holiday, and maintenance down time with some mills now indicating that the shutdowns could possibly be extended into mid to late January. Canadian producers are actively seeking new orders for their finished production. Mills started the week quoting at or below last Friday’s levels, but the discounts are shrinking as higher log and operating costs continue to eat away at profit margins. ?

Southern Pine -: ?The Southern Pine No.1 and No.2-dimensional lumber markets continue to lack a sense of energy and urgency. Buyers with most of their meager needs for the remainder of the year already covered infrequently checked with mills and secondaries on price and availability but rarely offered a price or countered a seller’s offer, for fear it might be accepted. A lack of commitment from builders and the large box stores kept buyers for both truss manufactures and pressure treaters on the sidelines waiting for more clarity on anticipated customer replenishment needs. Mills started the week quoting construction grade SYP below last Friday’s levels and prices proceeded to trade at or trended lower from there, with mills quoting shipment for the week of 12/26+/-. High-grade sales continue to outpace limited production. Mills started the week quoting high-grade for shipment the week of 1/9+/-, and prices above last Friday’s levels. Low-grade sales are slow but steady. Mills started the week quoting low-grade at or modestly below last Friday’s levels and prices traded in a similar pattern from there, for shipment available the week of 12/26+/-. SYP stud trim sales remain on the quiet side. Mills started the week quoting below last Friday’s levels, and never let a few dollars get in the way of a sale, for shipment the week of 12/26+/-. Demand for both small squares and timbers as well as 5/4 x 6 Standard and Premium Radius Edge Decking continue to seasonally slow. Mills started the week quoting 4x4 – 4x6 – 6x6 at or below last Friday’s levels and led by 6x6’s prices continued to trend lower from there, for prompt shipment available on most items. Mills started the week quoting R.E.D. at or modestly below last Friday’s levels and prices hovered in a narrow range from there, with immediate shipment available on most R.E.D. products. ?

Pressure Treated-: ?The inquiry and sales pace of pressure treated lumber, panels and specialty items continues to reflect the time of the year and weather. In areas where the weather remains conducive to outdoor work, treaters are reporting steady sales to pro dealers, or directs to multifamily builder organizations. Elsewhere, the weather has stalled or completely shut down jobsites and unless there is an unusual break in the winter weather pattern those dealers are looking forward to what they hope will be an early spring and renewed business activity. The large box retailers are focusing on sales of holiday décor and live Christmas trees and wreathes. Declining prices in brite feedstock are also limited, even for those dealers who are busy, from purchasing beyond their immediate needs. ?

OSB & Veneer Panels Overview –: The OSB and plywood markets are quickly and quietly drifting into holiday mode. Many panel producers are planning to complete their yearly production schedules at the end of this week, or mid next week, with maintenance and holiday down time to follow. That lack of production would typically be an incentive for buyers to at least get their early to mid-January replenishment needs covered prior to those shutdowns, but this year that has not been the case. With prompt shipments available from both mills and secondaries, buyers feel little need or urgency to purchase beyond what they have builder commitments for. Producers are hoping for renewed interest in the panel markets once 2023 starts. ?

OSB -: A lack of commitment for OSB products from their tract, multifamily, and mixed commercial builders for Q1 needs continues to keep pro dealers on the sidelines. A similar lack of commitment from the large box stores only compounded the situation further. With the OSB markets showing few if any signs of firming, and holiday season here, not to mention for many year-end inventories tax time, buyers continue to limit their purchases to absolute necessities. Mills started the week quoting below last Friday’s levels, and prices drifted lower from there, for shipment available the week of 12/26+/-. Late in the week it was rumored that a few producers had accepted mid to large volume orders, which they promised would not arrive prior to the week of 1/2, and those orders were reportedly sold with the caveat of ‘between us’ pricing. Secondaries with contract ownership struggled to sell that ownership, even when quoting below mill replacement levels. ?

Southern Pine Panels -: The Southern Pine Rated Sheathing markets are showing signs of slipping into holiday mode and that slippage gained velocity during the week. Several mills have reached their final scheduled week of production and were eager to get that production sold and shipped prior to the end of the year. Mills started the week quoting at last Friday’s reduced levels, and listened carefully to buyer counteroffers, especially to those that came with significant volume. Sales of Mill Cert remain a grind. Mills started the week quoting Mill Cert., at or below last Friday’s levels and prices drifted lower from there, with prompt shipment available on all thicknesses. The Southern Pine specialty panel markets are suddenly in disarray, as additional production has suddenly become available. Mills started the week quoting concrete form, sanded, siding, and underlayment at or below last Friday’s levels and prices proceeded to drift lower from there, for shipment the week of 1/2+/-. ?

Western Fir Panels -: ?Buyer interest in the Western Fir Rated Sheathing market remains limited, and with prompt shipment still available on many items they felt little urgency to purchase anything beyond their most pressing needs. What was surprising was the lack of buyer interest in products that producers were willing to hold shipment on until the week of 1/2. Mills started the week quoting at or below last Friday’s levels and allowed the buyer to present them with a firm counteroffer. The trading pattern in CD Struct 1, CC, CC PT&S, and Mill Cert., remains unchanged. Mills quoted CD Struct 1 and CC at or modestly below last Friday’s levels, while holding CC PT&S flat but firm. While continuing to search for a trading level that would renew buyers’ interest in Mill Cert., where thick panels remain abundant. Value-added panel sales remain locked in their existing trading pattern. Mills started the week quoting concrete form, siding, and sanded, at last Friday’s levels, for shipment available the week of 12/26+/-. Sales of underlayment continue to trail behind production and mills started the week offering modest discounts in the hope of sparking renewed buyer interest, with prompt shipment available on all underlayment products. ?

Food for Thought -:?It is the most wonderful time of the year. Okay, I guess the holidays should count as well. I was actually referring to and thinking more about the number of prognostications coming out from the gurus, soothsayers, and crystal ball gazers for the housing market and general economy for 2023.?

The beauty of these predictions, as we all know, is that no one can really predict the future and it will be interesting to see just how accurate any, or all of these prophecies actually turn out to be. This year I have not heard a lot of bragging on just how right these experts forecasted 2022. Unless of course they thought the year ended in June. As I have said before, from what I can tell, you pick the prognosis that best fits your mood and outlook and hitch your wagon to that star. ?

As for the 2023 predictions there has been a lot of gloom and doom and talk about a recession with some saying it will be short lived and yet others saying it could be deep and prolonged. Oddly enough, some of these same clairvoyants predicted long and prolonged results in April of 2020, when the COVID-19 pandemic was just getting underway and we know how that turned out.?

The National Association of Realtors? (NAR) is predicting a 6.8% decline in existing homes sales in 2023, going from 5.13 million in 2022 to 4.78 million in 2023. Redfin, a Seattle-based, technology-driven nationwide real estate brokerage firm, and Zillow, a Seattle-based national online real estate brokerage firm, both concur with the NAR, as they are predicting that existing and new home sales will continue to decline and will continue do so as long as interest rates remain elevated. Both entities see little relief until such a time as interest rates return to the 5% or below range. They also believe that as sales continue to slow more houses will be available for sale, which will also bring prices down and abruptly end most bidding wars. All three sources are predicting that rents, the obvious alternative to buying, will remain high but they are expecting like with housing that as more people stay where they are, rental properties will become more available and rental prices will begin to moderate. ?

Speaking of not being able to see into the future, Lord willing, we will all be here to review the results of 2023’s predictions this time next year.

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Just some food for thought . . .?