Notes from the Forest 12-6-19 Edition
Ladies and Gentlemen:
Traders who were anticipating a quick start to the month of Decembre were, for the most part, disappointed. There were several rounds of winterlike weather across North America, which started last weekend and continued through a good portion of the week. The weather, be it soggy or snowy, put a damper on jobsite activity and the need for buyers to replenish. Then there are those pesky year-end inventory goals, that just have to be met. Which in turn, limited buyers to purchasing must have fill ins, in units from local 2-step distribution. Rather than risk buying truckload volume this late in the year. Producers are quoting production scheduled for the weeks of 12/9 – 12/16, but some prompter shipments were around, if the buyer could accept the mill, or office wholesalers ‘canned’ tally. Overall, prices trade at, or on a narrow line on either side of last week’s holiday shortened reported levels.
The U.S. Census Bureau has reported that total construction spending, which includes both private and public construction, during Octobre 2019 was at a SAAR of $1,291.1 billion, <-0.8%> below the revised Septembre estimate of $1,301.8 billion. The Octobre figure is 1.1% above the Octobre 2018 estimate of $1,277.4 billion. During the first ten months of this year, construction spending amounted to $1,086.5 billion, <-1.7%> below the $1,105.2 billion for the same period in 2018.
Spruce & Stud Markets -: The inquiry and sales pace of Western and Eastern Canadian SPF Std., & Btr., and No. 2 & Btr., started the month of Decembre on the slow side. Beyond meeting year-end inventory dollar goals, buyers also had concerns about the several rounds of winterlike weather that have pushed across both the U.S. and Canada from last weekend through midweek. This in turn has slowed, or halted jobsite activity and the need for replenishment. Then there was the up and down movement in CME Lumber Futures (see below), which called the markets overall health into question. Producers are quoting production scheduled for the weeks of 12/9 – 12/16. Those extended production schedules allowed mills to move prices modestly higher on the narrow widths (2x4 – 2x6), while holding prices at last week’s reported levels on the wider widths (2x8 – 2x10 – 2x12). Sales of low-grade stock remain in close proximity with production and prices were reported as flat but firm, to a few dollars lower. Sales of 2x4 stud-grade trims were steady and prices traded at previously established levels. Sales of 2x6 stud-grade lagged behind production and producers offered small discounts to keep buyers engaged.
CME Lumber Futures – The CME Lumber Contract for January 2020 will expire at Noon CST, Wednesday 15th January 2020. For the past 5-days of trading (11/29 – 12/05) CME Futures were Up 3-days and down 2-days. For the past 5-days CME Futures have lost <-$ 10.80> and are trading above Midweek cash market, ($392.00 MBM) by $13.30 (CME $405.30).
Hem\ White Fir -: The inquiry and sales pace of Inland Std. & Btr. No.2 & Btr., White and Hem \ Fir, remains slow but steady. Producers are quoting production scheduled for the weeks of 12/9 – 12/16, and beyond on a few key items. This allowed producers to sell at, or modestly above last week’s reported levels. Again, this week, the outlier is 2x12, at both Coastal and Inland mills. Producers started the week quoting 2x12 $ 5 - $10 MBM below last week’s reported levels and again asked buyers for their feedback and firm counter offers. Sales of both low-grade stock and stud trims remain steady and producers started the week quoting at, or modestly above last week’s reported levels.
Green Doug Fir -: The inquiry and sales pace of Green Douglas Fir Std. & Btr., & No. 2 & Btr., started Decembre on the slow side. With heavy rain and snow in California a contributing factor. Mills are quoting production scheduled for the weeks of 12/9 – 12/16, and beyond on some key items. The extended production schedules allowed mills to hold prices at, or on a very thin line on either side of last week’s reported levels. Buyers are reluctant to purchase volume at this time of the year, concerned that what they purchase just might cause them to miss their inventory dollar goal. However, with the reduced number of mills producing Green Doug Fir, their options are certainly limited. Sales of low-grade stock and stud trims are just about in lockstep with production and as a result 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 steady, to almost sneaky strong. Buyers continue to report they are having difficulty sourcing all of the products they need for at least the 1st, and part of the 2nd quarter of 2020. A labor dispute that is entering its 22nd 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, continue to severely limit supply. Prices on most items continue to hold at previously established levels. Fence pickets remain an exception, as extremely tight supply with production being quoted, if it is being quoted at all, PTS for the later days of February. The other exceptions are wider width dimensional lumber, as well as small squares and timbers, which are also in tight supply, thanks in part to the ongoing labor dispute. Resulting in prices moving modestly higher, again this week and production being quoted on these items in the early weeks of January. 5/4 x 6 Radius Edge Decking continues to trade at previously established levels, but supplies are reportedly tightening. Traders are voicing their concerns that limited supply and higher prices might, once again, open the door for alternative products.
Shake & Shingles -: The inquiry and sales pace in the Western Red Cedar (WRC) Shake and Shingles and Eastern White Shingles (EWS) markets lost additional energy over the course of the week. Overall, prices continue to trade at previously established levels. Producers are continuing to report that they are having difficulty sourcing logs and when they do locate them, they are pricey and the quality is not reflective of the price. Mills are either operating at reduced production levels, or remain closed until they have enough raw materials to manufacturer for at least 3 – 4 days. Either way, with winter setting in, the amount of time left to harvest logs and process them is growing short; as is the time for field applications. Buyers continue to voice their concerns about the potential for a shortfall of finished product for the 1st & 2nd Qtrs., of 2020, but remain hesitant to place orders for additional inventory that would arrive after the New Year.
Southern Pine Lumber -: The inquiry and sales pace of Southern Pine No.1 & No.2-dimension lumber started Decembre on the quiet side. Buyers are laser focused on their end of the year inventory dollar values and are only purchasing fill ins, when all alternatives (longer length or higher grade) have been exhausted. Producers are quoting production for the week of 12/9, but there are a plethora of prompt shipping items appearing on mill daily offer sheets. Mills started the week, again, offering single-digit discounts on slower selling narrow widths – 2x4 – 2x6 – 2x8. That immediately raised buyers’ concerns about additional downside risk in the complex. Production of 2x10 and 2x12, was more in alignment with sales and prices traded at, or a few dollars below last week’s established levels. The inquiry and sales pace of high-grade stock – D.S.S., S.S. and MSR, lost further energy over the course of the week. Truss and modular home sales typically slow at the end of the year and with that comes a sharp decline in the need for replenishment. High grade prices are trading in the same pattern found in the construction grades. Low-grade sales remain slow but steady. Producers are quoting production for the weeks of 12/9 – 12/16, and prices continue to trade close to last week’s reported levels. The inquiry and sales pace of small squares and timbers remains active as pressure treaters start preparing for winter buys. In the Westside Zone, the sale of 4x4s and 4x6s continue to outpace production. Resulting in prices that are modestly to moderately higher. 6x6s remain the outlier and again, this week, prices were lowered in the hopes of getting buyers’ attention. In the Eastside Zone, the sales of 4x4s, 4x6s, 6x6s are in close proximity with production. Prices are trading at, or modestly above last Friday reported levels, as Eastside producers walk a fine line between higher prices and sending their customer to the Westside zone where prices are noticeably less expensive. Demand for 5/4 x 6 Radius Edge Decking slowed modestly over the course of the week. Westside zone producers are reporting an imbalance in their on-ground inventory in Standard Decking. Resulting in prices being quoted at, or modestly below last Friday’s reported levels, as they try to keep their customers from switching to the lower priced Standard Decking available in the Eastside zone. Trading in Premium Decking is steady in both zones and prices are trading on a narrow line on either side of last week’s reported levels.
Pressure Treated -: The inquiry and sales pace of pressure treated lumber, plywood and accessories slowed another notch, or two, over the course of the week. Storms that have moved from one side of the country to the other have left jobsites either soggy, or snow covered. Treaters are reporting that their sales for Novembre were at least on par, if not modestly ahead of last year. With the year-end in sight and inventory dollar goals set, pro dealer buyers are filling in, but only after every possible alternative (longer length, or higher grade) has been exhausted. With a majority of the 2020 pressure treated contracts already in place, buyers are working with their pressure treated partners to create their ‘winter buy’ program. This program will include special pricing and extended terms and a chance to buy in one more time at those special levels sometime in early spring. Treaters who service the offshore markets continue to report steady inquiry and sales, which now includes some modest activity in the Bahamas.
OSB & Veneer Panels Overview –: The sales of OSB and plywood started the first week of Decembre on the quiet side. Several rounds of winterlike weather, moving from west to east starting over the weekend and continuing well into the new week slowed jobsite activity and buyers’ needs to replenish. Mills are quoting production for the weeks of 12/9 – 12/16, and prices were flat at midweek across the panel complex and prices held at, or close to previously established levels through the remainder of the week. Buyers continue to limit their replenishment to must have fill in needs and often turned to local 2-step distribution for coverage in units. Office wholesalers reported that the sale of their contract ownership, was a bit more difficult, even if what they owned was for prompt shipment.
OSB -: The inquiry and sales pace of OSB started the first week of Decembre, in both the U.S. and Canada, lacking any sense of energy or urgency. Mills are quoting production scheduled for the weeks of 12/9 – 12/16 and leaned on those production schedules to hold prices at, or close to last week’s established levels. Buyers started the week checking with mills and secondaries on the whereabouts of previously placed order; noting that some orders were close to a week behind schedule in shipping. Several rounds of winterlike weather, moving from west to east over the weekend and into this week, put a damper on jobsite activity and buyers’ interest in purchasing anything beyond critical fill in needs. The 2020 contract process is winding down, with only a handful of customers remaining uncommitted.
Southern Pine Panels -: The inquiry and sales pace in Southern Pine Rated Sheathing remains low key. Mills are quoting production scheduled for the weeks of 12/9 – 12/16. However, late in the week a handful of prompt shipping trucks did suddenly appear. On those trucks, producers did offer token discounts, to get the unsold production off their books. Otherwise prices held at, or a narrow line on either side of last week’s reported levels. Buyers remain extremely cautious and are limiting their purchases to must have fill in needs. Often turning to local 2-step distribution to purchase units, which will help them keep their end of year inventory dollar values in check. The sales of value-added panels – underlayment, siding, concrete form, and other specialty panels remain steady and prices continue to trade on a narrow line on either side of previously established levels. Producers, are quoting production scheduled for the week of 12/8 – 12/16.
Western Fir Panels -: The inquiry and sales pace of Western Fir Rated Sheathing started the month of Decembre on the quiet side. Mills continue to quote production schedule for the weeks of 12/9 – 12/16, which is unchanged from last week. West Coast truckload buyers limited their purchases to must have fill ins and often turned to local 2-step distribution for units out of warehouse. Carload buyers were a bit more active this week. Knowing that anything they purchase from the week of 12/16, forward, should not reach their facilities in the Northeast until after the New Year. Mills held prices close to last week’s reported levels, believing that any order that they were receiving was due to need and that further discounting would not bring them any additional sales. The sales of underlayment, siding, concrete form, and other specialty panels remain 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 week of 12/9 – 12/16.
Food for Thought: It’s the most wonderful time of the year! OK, yes, I guess the Holiday’s count too. I was thinking more about the prognostications that are starting to pour in from all of the gurus who are involved in new home and multifamily construction, remodeling, as well as the buying and selling of real estate. The beauty of these predictions is that no one can really predict the future and it will be interesting to see just how accurate any, or all of these will turn out to be. From what I can tell, you pick the one that best fits your mood and outlook and hitch your wagon to that star.
According to a Redfin, (a Seattle based, nationwide real estate brokerage firm) forecast, the housing market is projected to heat up in the new year. Low mortgage rates, which Redfin expects to hover around 3.5% will likely invigorate the buyers’ market, leading to an increase in competition as the nation’s housing inventory continues to dwindle due to several factors. According to the forecast, overall, this means homebuyers could have less home buying options. Redfin expects about 1 in 4 offers to face a bidding war, compared to 1 in 10 in 2019.
Zillow, an online real estate company has recently polled 100 real estate experts and economists and they believe that the U.S. could enter a recession in under 5-years, with nearly half of all survey respondents saying that they believed the next recession will commence in the 1st Qtr., of 2020. The main culprit for the housing recession: monetary policy. Zillow’s senior economist Aaron Terrazsas has said "housing affordability is a critical issue in nearly every market across the country, and while much remains unknown about the precise path of the U.S. economy in the years ahead, another housing market crisis is unlikely to be a central protagonist in the next nationwide downturn."
Lord willing . . . Let’s plan on comparing notes at the end of 2020.