Notes from the Forest 12-2-22 Edition

Ladies and Gentlemen:?

Buyers’ interest in the lumber and panel markets was limited \ restricted to the purchase of immediate needs during the week. Buyers did make calls to mills and secondaries presenting lists with varying degrees of volume, but they all came with caveats, including pricing below current cash market levels, and no delivery prior to the week of 1/9. It was challenging for the mills and secondaries to say no, but with production on the ground, or contract ownership, and more scheduled over the next several weeks that needed to be sold and shipped prior to year end it was just too soon to consider those offers, at least prior to scheduled year-end holiday and maintenance shutdowns. Concern about the potential of a U.S. nationwide Class 1 freight railroad strike was on buyers’ minds. However, for carload buyers it was neither a deterrent nor a reason to purchase. For truckload buyers the question was really how the strike, should it occur, impact truck availability and rates.

Just in . . . House & Senate Have Passed Legislation to Prevent Rail Strike . . . ?

On Thursday (12-1-22), The U.S. Census Bureau reported that total construction spending during October 2022 was estimated at a seasonally adjusted annual rate (SAAR) of $1,794.9 billion, 0.3% below the revised September estimate of $1,800.1 billion. The October figure is 9.2% above the October 2021 estimate of $1,644.3 billion. During the first ten months of this year, construction spending amounted to $1,507.8 billion, 10.8% above the $1,360.8 billion for the same period in 2021. ?Private construction spending was at a SAAR of $1,420.4 billion, 0.5% below the revised September estimate of $1,427.6 billion. Residential construction was at a SAAR of $887.2 billion in October, 0.3% below the revised September estimate of $890.0 billion. Nonresidential construction was at a SAAR of $533.2 billion in October, 0.8% below the revised September estimate of $537.6 billion. In October, the estimated SAAR of public construction spending was $374.6 billion, 0.6% above the revised September estimate of $372.5 billion. Educational construction was at a SAAR of $79.4 billion, in October, 0.5% above the revised September estimate of $79.0 billion. Highway construction was at a SAAR of $113.4 billion, 0.8% below the revised September estimate of $114.3 billion.?

Spruce Markets -: ?Vulnerable prices, year-end inventory goals, increasing economic headwinds and growing uncertainty about the vitality of home building and the R&R sector in Q1, and Q2 in 2023, had buyers of Eastern and Western No.2 & Btr, SPF hugging the sidelines. Even concerns about a potential nationwide railroad strike did little to inspire buyers to purchase beyond their most pressing needs. With many buyers turning to local 2-step distributors for units out of warehouse to ensure prompt shipment and limited marketplace exposure. Mills started the week quoting construction grade SPF at or below last week’s price levels, and prices traded in a similar pattern from there, for production available for shipment the week of 12/12+/-. Overall, low-grade sales and prices are holding up better than the construction grades. Mills started the week quoting low-grade at or on either side of last week’s levels and prices held at or traded in a narrow range on either side of those levels from there. Stud trim sales remain quiet. Mills started the week offering stud trims below last week’s levels and prices traded at or trend lower from there, with many trims available for prompt shipment. ?

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 (11/25 – 12/1) CME Futures were up 3 days and down 2 days. For the past 5 days CME Futures have lost $21.00 but are trading above the Midweek Cash Market of $375 by $36.00, CME Futures at $411.00. One year ago, (12/1/21) CME Futures closed at $869.50.?

Hem\ White Fir -: ?Domestic buyers of K.D. Hem \ White Fir Std. & Btr., and No. 2 & Btr., returned from their long Thanksgiving holiday and immediately began to reassess their inventory position, as well as checking on previously placed orders. There were some small volume purchases transacted, mostly to fill pressing inventory outages, but little else. Traders discussed the impact of a potential nationwide railroad strike, but that had limited influence on their purchasing decisions. Mills started the week quoting construction grade at or below last week’s levels and prices proceeded to trade at or below from there; for production available for shipment the week of 12/12+/-. Low-grade sales varied from species to species. Mills started the week quoting low-grade at or below last week’s levels and prices traded in a similar pattern from there. Demand for stud trims remains unusually quiet. Mills started the week quoting stud trims below last week’s levels and prices traded at or declined further from there. ?

Green Doug Fir -: ?Deteriorating prices, weather slowing job site activity, coupled with year-end inventory goals and the perception of an abundant supply of Green Doug Fir (GDF) Std. & Btr., and No. 2 & Btr., dimensional lumber had buyers limiting their purchases to immediate needs that had to ship promptly. And that only after considering possible, already in stock, substitutes (higher grade – longer length). Mills started the week, except for 2x12, lowering prices and making outbound calls in the hopes of rejuvenating buyers’ interest in the market. Sadly, that approach had limited success and with prompt shipment available, most items’ prices drifted lower from there. Sales of low-grade remain in close alignment with production. Mills started the week quoting low-grade at last week’s levels and prices hovered close to those levels from there. Stud trim sales also remain subpar. Mills started the week quoting stud trims below last week’s levels and prices trended lower from there, with prompt shipment available on several trims. ?

Cedar Lumber -: ?Buyers’ interest in the Western Red Cedar (WRC) lumber market remains limited to immediate fill in purchases, and discussions about price and availability for Spring 2023. The actual placement of 2023 orders were miniscule, as most buyers passed on the opportunity, concerned about the potential for downside risk and the impact that economic headwinds could have on DIY’ers and builders, in Q1 and Q2 of 2023. Mills started the week holding their prices flat and firm on fencing, siding, timbers, and wide dimensional lumber. While, once again, offering lower prices and listening to counteroffers on boards, decking, and narrow width dimensional lumber. Mills continued to follow up on NAWLA in person meetings. ?

Shake & Shingles -: ?With prices continuing their descent from historical highs, sales of Western Red Cedar (WRC) Shake and Shingles remain lackluster. Traders noted that typically in late November and early December the pace of inquiry and sales begin to accelerate as buyers prepare for spring. This year, so far, that has not been the case. Mills started the week making outbound calls to buyers of all volume levels, asking about potential spring needs, and offering lower prices from last week’s reduced levels and expressed their willingness to listen to counteroffer, no matter how large or small the order might be. Regrettably, that approach did little to inspire buyers into action. ?

Southern Pine -: ?Buyers returning from their Thanksgiving holiday were hoping for more clarity on the direction of the Southern Pine No.1 and No.2-dimensional lumber markets. Regrettably, the SYP markets continued to send ambiguous messages during the week. That in turn kept buyers close to the sidelines; only venturing into the marketplace to fill immediate needs. Mills started the week quoting SYP construction grade at or below last week’s levels and prices proceeded to trade in a similar pattern from there, for shipment, depending on the tally, anywhere from prompt to the week of 12/12+/-High-grade sales continue to buck the SYP market trends. With production schedules into late December, mills started the week quoting high-grade above last week’s levels and prices trended higher from there. Low-grade sales and production remain in close alignment and that allowed mills to start the week quoting at last week’s levels and prices hovered in that range from there. Stud trims have found a trading level. Mills started the week quoting stud trims at last week’s level and prices traded close to that level from there, with shipment available the week of 12/12+/-. There was little change in the small square and timber markets again this week. Mills started the week in search of a trading level for 6x6, while quoting 4x6 at or modestly above last week’s levels and quoting 4x4 at or modestly below. Demand for 5/4 x 6 Standard and Premium Radius Edge Decking continues to grind slower. Mills started the week quoting R.E.D. at or modestly on either side of last week’s levels and prices traded in a narrow range from there. Traders discussed the potential for a nationwide railroad strike but were more interested in its potential impact on flatbed truck availability and rates. ?

Pressure Treated-: ?The inquiry and sales pace of pressure treated lumber, panels and specialty items continues to be dictated by weather conditions and end of the year inventory restraints. Pro dealers continue to keep their inventories lite and that in turn is placing additional stress on their relationship with their treated supplier(s), who are likewise trying to reduce their inventory to winter consumption levels, while still having sufficient on ground inventory to meet sudden customer demand and ship promptly. Large box store retailers have been busy, and yes, some of it is coming from the over the shoulder R&R sector, but most of this week’s activity was centered on the continuation of Black Friday’s specials. ?

OSB & Veneer Panels Overview –: Just as the plywood markets close in on a trading level, the OSB markets have suddenly become vulnerable. Oddly enough, both the firming trend in the plywood markets and declining prices in OSB have inspired buyers to reengage, albeit limited, with the markets. While far from a runaway market, panel buyers felt more secure with their purchasing decisions during the week. Although year-end goals, and continuing economic headwinds helped to keep those additional purchases in check. Traders discussed the potential for a U.S. nationwide railroad strike and what impact it would have on railcar movement, as well as flatbed truck availability. ?

OSB -: After 9+ consecutive weeks of flat and firm pricing, OSB manufactures had to decide whether to continue stacking panels and hope for increased sales or lower prices, offer more open market panels for sale, and rejuvenate buyers’ interest. Mills lowered prices and with that sales of OSB moved into mid-December and beyond. Mills started the week quoting OSB modestly below last week’s levels and sellers did their best to limit counteroffers unless they were accompanied by large volumes. As in other markets, traders discussed the implications of a U.S. nationwide rail strike scheduled to start December 9th, and that did serve as a motivation for some buyers to purchase a few additional insurance loads. Secondaries with contract ownership adjusted their prices slightly below mill replacement levels, in the hopes of attracting buyers to their ownership.?

Southern Pine Panels -: Southern Pine Rated Sheathing producers were able to build on the Thanksgiving holiday week’s uptick in market activity. Mills started the week with minimal unsold inventory on the ground, and for a change of pace it was buyers calling the mills checking on price and availability. Mills started the week quoting at last week’s unchanged levels and they tried to elevate prices during the week as demand continued to build; for production available for shipment the week of 12/12+/-. Traders discussed the potential impact of a U.S. nationwide rail strike, but from the prospectus of how it might impact flatbed truck availability, more than railcar loadings. Mill Cert., sales have also found a trading level. Producers started the week quoting Mill Cert., at or on either side of last week’s levels and prices traded in a similar pattern from there. Trading in the specialty panel markets was uneventful. Mills started the week quoting concrete form, sanded, siding and underlayment at or modestly on either side of last week’s levels, prices hovered close to those levels during the week, for shipment the week of 12/12+/-. ?

Western Fir Panels -: ?The Western Fir Rated Sheathing market started the week, once again, on the quiet side. West Coast and Rocky Mountain truckload volume buyers continue to dominate the domestic market. While Canadian CCX buyers actively pursued sourcing of that much needed product at prices well below Canadian producers’ quotes. Northeast and Midwest railcar volume buyers checked on price and availability but were hesitant to purchase until additional information on the potential of a U.S. nationwide rail strike scheduled to start on December 9th comes into better focus. Mills started the week quoting sheathing at or modestly below last week’s levels and prices held at or drifted lower from there; for production available for shipment the week of 12/12+/-. The inquiry and sales pace of CD Struct I, CC. CC PTS and Mill Cert., remain unchanged from previous weeks. Mills started the week quoting CCX above last week’s levels, while holding CD Struct I, and CC PTS flat. Mill Cert., on the other hand, was requiring additional discounting to keep inventory from building further at the mill level. Trading in the value-added panel market remains unchanged from previous weeks. Mills started the week quoting concrete form, sanded and siding at previously established levels, while offering discounts, albeit smaller than in previous weeks, on underlayment. ?

Food for Thought -:?The COVID-19 pandemic undoubtedly changed the lumber, panel and building materials industry. Whether the change is forever or will be of a shorter duration is of course open to debate. ?

In April and May of 2020, the gloom and doom of the pandemic had producers, builders, lumber yards and building materials dealers, along with large box store retailers all anticipating and preparing for a reduction in sales and needs for replenishment predicted, at the time, to be up to 80%. That of course, we know was shorted lived and the bust quickly turned into a boom. This as people living in large metropolitan areas expressed great interest in leaving for the less crowded suburban and x-urban areas. Those who did not or could not move, quickly added additional space into their dwellings to accommodate work and school from home. ?

One major change for the lumber, panel and building materials industry was buyers for tract, multifamily and mixed commercial builders’ sudden reliance on contracts to cover their replenishment needs. It was not that long ago when the hue and cry from those buyers to their suppliers was ‘do not let me run out.’ As we moved into the second half of 2022 the slower pace of building and home sales, triggered by higher interest rates, inflation and other socioeconomic headwinds has reduced buyers’ need for constant and steady replenishment. ?

We are in the midst of contract renewal season. It will be interesting to see if the chatter permeating the industry comes to fruition. Will buyers significantly reduce their contract obligations? Will some buyers simply not renew any of their contracts and instead rely solely on open market availability? If that were to happen, what would be the impact on the marketplaces? Would prices become less volatile or more volatile? ?

All of this, of course, remains to be seen, but it will be interesting to see if and how the dynamics of purchasing change as we move forward into 2023. One thing is for sure, next year will be anything but boring. And this coming from a person who thinks boring is highly underrated.?