Notes from the Forest 3-17-23 Edition

Ladies and Gentlemen:?

Even with prices on lumber and panels at perceived investment levels, especially when compared to April 2020 through May 2022, buyers remain cautious and conservative in their replenishment. This week’s cold snap in the South, an atmospheric river flowing over California, snow in the Plains, upper Midwest, and Great Lakes region, plus a Nor’easter dumping feet of snow in several areas of the Northeast and New England did little to encourage buyers to change their hand to mouth purchasing practices. Mills and secondaries continue to believe that a good dose of springtime weather will quickly rejuvenate demand, but until old man winter is done, they concede it could still be a tough couple of weeks. Recent inclement weather is impacting transportation and shipment delays are being reported in several areas of North America. ?

The U.S. Census Bureau reported on Thursday (3-16-23) that privately‐owned housing starts in February were at a seasonally adjusted annual rate (SAAR) of 1,450,000. This is 9.8% above the revised January estimate of 1,321,000 but is 18.4% below the February 2022 rate of 1,777,000. Single-family housing starts in February were at a rate of 830,000, this is 1.1% above the revised January figure of 821,000. The February rate for units in buildings with five units or more was 608,000. Building Permits are the forward-looking portion of the report and in February privately-owned housing units authorized by building permits were at a SAAR of 1,524,000. This is 13.8% above the revised January rate of 1,339,000 but is 17.9% below the February 2022 rate of 1,857,000. Single-family authorizations in February were at a rate of 777,000; this is 7.6% above the revised January figure of 722,000. Authorizations of units in buildings with five units or more were at a rate of 700,000 in February. On Wednesday (3-15-23), 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 increased 2-points in March, to a reading of 44. The third consecutive month of gains. However, any reading below 50 indicates that more builders view conditions as poor rather than good. ?

Spruce Markets -: ?The Eastern and Western No.2 & Btr. SPF markets continued to search for a trading level during the week. Complicating the situation is an abundance of European Spruce selling at delivered prices that allows it to reach into previously unreachable U.S. markets. Mills started the week quoting modestly below last Friday’s levels, while openly discussing with buyers selling below breakeven levels, but still listening to buyers’ counteroffers. Industrial sales were not as animated this week. Mills responded to the slowdown in low-grade sales by quoting at or below last Friday’s levels and again listening to counteroffers. Stud trim sales stabilized during the week. Mills started the week quoting at last Friday’s levels and tried to dig in their heels on counteroffers. Nevertheless, mills seemed amicable to token discounts if it resulted in a PO. ESPF and WSPF mills are quoting shipment for the week of 4/3+/-. ?

CME Lumber Futures –: The CME Lumber Future Contract for March expired at 12:00 Noon CDT on Wednesday, March 15, 2023. For the past 4 days (3/10 – 3/15), CME Futures were up 1 day and down 3 days and have lost $14.50 and are trading below the Midweek Cash Market of $355 by $7.50, CME Futures at $347.50 The CME lumber Future Contract for May is now the forward month and will expire at 12:00 Noon CDT on Monday, May 15, 2023. For the past 2 days (3/15 – 3/16) CME Lumber Futures were up 1 day and down 1 day and have gained $21.90 and are trading above the Midweek Cash Market of $ 355 by $83.60, CME Futures at $438.60. One year ago (3-16-22) the May CME Futures contract closed at $1160.40. ?

Hem\ White Fir -: ?Winter weather continues to impede jobsite activity in areas serviced by the K.D. Hem \ White Fir Std. & Btr., and No. 2 & Btr., markets. With mill inventory available for prompt shipment, buyers limited their purchases to immediate needs and allowed the mills and secondaries to battle over their highly mixed truckload order. Mills started the week quoting below last Friday’s levels and prices trekked lower from there. Industrial sales remain a bright spot. With supply and demand in close proximity mills started the week quoting low-grade at last Friday’s levels and buyers in need purchased at those values. Stud trim sales remain subdued, but traders noted that supply appeared to tighten during the week. Mills started the week quoting studs at or on either side of last Friday’s levels and prices traded in a similar pattern from there. K.D. Hem \ White Fir mills are quoting shipment for the week of 4/3+/-. ?

Green Doug Fir -: The atmospheric river continues to flow over California and job site activity in the state is limited. Nevertheless, the current price levels, particularly on narrow width Green Doug Fir (GDF) Std. & Btr., and No.2 & Btr, have buyers thinking beyond near-term, and if a mill would consider an extended shipment date, a PO was issued. Buyers’ interest in 2x8 and wider remains limited, and mills started the week quoting these items below last Friday’s levels and prices deteriorated further from there. Industrial sales are steady to ‘sneaky strong.’ Mills started the week with low-grade sales and production in close alignment and quoting the entire complex at or a few dollars above last Friday’s levels. Limited log supplies, due to inclement weather, slowed production of GDF stud trims and that allowed mills to sell studs at or modestly above last Friday’s levels. GDF mills are quoting shipment for the week of 4/3+/-. ?

Cedar Lumber -: ?Western Red Cedar (WRC) lumber producers reported an uptick in inquiries during the week, and many of those inquiries were turned into bonafide orders. Regrettably, most of those sales were to fill specific inventory outages. This as buyers continue to hesitate to purchase speculatively until both the weather and demand improve. Buyers continue to focus their attention on dimensional lumber, fencing, siding and timbers and prices on those items continue to trade at or a few dollars above established levels. Even reduced pricing on various width and grades of boards, and decking did little to stir additional buyer interest. ?

Shake & Shingles -: ?Western Red Cedar (WRC) Shake and Shingle sales showed small signs of improvement during the week. Buyers continue to purchase jobsite quantities while avoiding any speculative purchases. However, with several of the jobs’ buyers have been holding off purchasing scheduled to start, weather permitting, within the next 2– 3 weeks, it made delaying the purchases any further a potential for delivery to jobsite issues. Manufacturers started the week quoting both Shake and Shingle at last Friday’s levels but never let a token discount get in the way of a sale.?

Southern Pine -: Steady demand from pressure treaters, pro dealers, and exporters allowed Southern Pine No.1 and No.2- dimensional lumber producers to hold prices flat to modestly higher and they held at or strengthened further during the week. Noticeably missing were multifamily industry buyers, who last year were a mainstay of the marketplace. High-grade sales remain animated and mills with limited production and weather-related log harvesting issues, were able to raise prices and push production schedules further into April. Industrial sales remain steady. Mills started the week quoting low-grade at or above last Friday’s levels and prices hovered close to those levels from there. SYP stud trims are still seeing limited ancillary activity from WSPF and ESPF buyers. Mills started the week quoting studs at last Friday’s levels and they traded in a narrow range from there. Small square and timber producers are having difficulty in keeping up with demand. Mills started the week quoting 4x4 – 4x6 – 6x6 above last Friday’s levels, and buyers in need of replenishment are offering to purchase above quoted levels for faster shipment. The inquiry and sales pace of 5/4 x 6 Standard and Premium Radius Edge Decking remains muted. Mills started the week quoting at or below last Friday’s levels as they looked for a price level to rekindle buyers’ interest in the product. SYP lumber mills are quoting shipment for the week of 3/27+/-. ?

Pressure Treated-: Weather, once again, was the dominant factor in the sales of pressure treated lumber, panel, and accessories during the week. Snow, freezing rain and sleet in the Midwest and Northeast, and torrential rain in California along with showers and well below normal temperatures throughout the week in the South tempered sales at pro dealers and large box store retailers. However, with the calendar already in mid-March, daylight savings time now in place, pressure treated buyers for the pro, as well as the box stores continued to purchase additional inventory in anticipation of strong pent-up demand once the weather cooperates. Pressure treated prices remain in lockstep with the brite feedstock markets + treatment and freight costs. ?

OSB & Veneer Panels Overview –: The weather was not the only headwind panel buyers were facing during the week. The thought of higher interest rates, which will continue to slow home purchases, along with builders’ ability to purchase land to develop etc., coupled with other socioeconomic issues continue to be a distraction, as well as a concern for buyers. Buyers continue to limit their purchases to immediate needs, some relying on 2-step distribution to limit their exposure to an uncertain panel market. Mills have successfully moved their production schedules into early \ mid-April, but suddenly appearing prompt shipments reveal a different side to the marketplace. ?

OSB -: OSB sales continue to be limited by the weather and as a result vary greatly from one production region to another. Mills that service the South and Mid-Atlantic, where the weather has been more conducive to jobsite activity, continue to report a modest uptick in thin panel sales. Elsewhere, producers continue to battle with Mother Nature and continue to lean on their extended production schedules to support current mill pricing levels. Flooring thickness sales remain challenging. Buyers continue to keep their inventories in close alignment with their booked and anticipated sales. Buyers who purchase via the open market continue to report some difficulty in sourcing quick mill shipments, but again found office wholesalers and local 2-step distributors available to help. Mills started the week quoting OSB at or on either side of last Friday’s levels and prices trade in a narrow range from there. OSB mills are quoting shipment for the week of 4/3+/-. ?

Southern Pine Panels -: Unpredictable weather coupled with recent economic news slowed Southern Pine Rated Sheathing usage during the week. However, with mill production schedules moving into mid-April buyers had little choice but to engage with the markets. Producers started the week quoting at last Friday’s levels and turned away buyers’ requests for counteroffers unless they came with significant volume. Traders in the Eastside zone discussed the lack of imported panels from Brazil and how that was impacting their markets Demand for Mill Grade and their prices remain difficult to pin down. Up on selected items, flat to down on others and that had buyers limiting replenishment to immediate needs. Specialty panel sales remain steady. Pricing on sanded, siding, and underlayment continues to trade at or slightly above last Friday’s levels. While tight supply and improving demand for concrete form allowed mills to modestly raise prices. SYP plywood mills are quoting shipment for the week of 4/3+/-. ?

Western Fir Panels -: Western Fir Rated Sheathing mills reported another atmospheric river moving over weather weary California continued to negatively impact sales. The winter weather was also a deterrent to carload volume buyers in the Midwest and Northeast. Mills with production schedules pushing into late March started the week quoting sheathing at or a few dollars below last Friday’s levels and prices traded in a narrow range from there. Demand and production of CD Struct 1, CC, CC PT&S, and Mill Grade remain in close alignment. As a result, prices continue to trade in their well-established pattern of flat to narrowly below last Friday’s levels. Value-added panel sales have also been impacted by the weather. Mills started the week quoting concrete form, sanded, siding, and underlayment at last Friday’s levels and prices hovered close to those levels from there. Western Fir mills are quoting shipment for the week of 4/3+/-. ?

Food for Thought-: As of late, when I am writing Notes, I envision myself standing in front of a weather map. You know like the ones you see on the Weather Channel, your local T.V. station, or your favorite weather app. Because clearly (forgive the pun) the weather is holding up activity not only at the building and remodeling jobsite level, but also the mill and secondary sales level as well. ?

This week’s modest uptick in the Southern Pine lumber markets and OSB are a clear reflection of areas where the weather is conducive to building. In those areas, the pro dealers and large box store retailers continue to replenish at a steady pace. Elsewhere, as many of you know, it is exceedingly quiet for this time of the year. ?

Mills and secondaries are counting on and talking with buyers about pent- up demand. And I am certain there will be some of that. However, when you take into consideration the current cost of borrowing money, when compared to interest rates in April 2020 thru April / May 2022, you can quickly understand why many companies are risk adverse to having large volumes of inventory on the ground. Certainly, those companies which have recently expanded and bought competitors and as a result are carrying an enlarged debt load.?

From the builder side of the equation, the very same cost of borrowing money to finance land purchases, construction loans, and having to wait an extended period of time to sell those homes when finished have caused them to slow the entire process down. Many large tract builders, who are publicly held, have and are resorting to paying down mortgage rates, offer upgrade incentives and sometimes that and more to get finished homes sold and off their books. A noticeable slowdown in the build-to-rent market has also been noted. The strong multifamily and mixed commercial and residential use builders are also experiencing a slower pace after an extremely successful multi-year run. ?

Current lumber and panel prices, compared to April 2020 through April / May 2022, are obviously at investment levels. They have returned to or already below 2018 and 2019 levels. Now the question is who wants to and who can invest in inventory right now? So far it appears to be a limited number of pro dealer yards and multifamily builders who buy direct.

?Just some food for thought.