Notes from the Forest 3-18-22 Edition

Ladies and Gentlemen:?

Buyers’ reluctance to purchase beyond their immediate fill in needs increased as the week progressed. Buyers reported getting emails and phone calls from mills and secondaries that they had not heard from in months. Many sellers expressed a willingness to listen to ‘reasonable’ counteroffers, but their shipment times, due to ongoing transportation problems had them quoting for the week of 4/18+/-. A deal killer for most buyers. As domestic economic and geopolitical tensions continue to intensify throughout the week, lumber and panels sales slowed further. A price correction that started in the Southern Pine lumber and plywood markets mid last week deepened and buyers saw it as a precursor to a possible price retracement in other sectors of the lumber and panel markets.?

The U.S. Census Bureau reported on Thursday (3-17-22) that privately‐owned housing starts in February were at a seasonally adjusted annual rate (SAAR) of 1,769,000. This is 6.8% above the revised January estimate of 1,657,000 and is 22.3% above the February 2021 rate of 1,447,000. Single-family housing starts in February were at a rate of 1,215,000, this is 5.7% above the revised January figure of 1,150,000. The February rate for units in buildings with five units or more was 501,000. 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 1,859,000. This is -1.9% below the revised January rate of 1,895,000, but is 7.7% above the February 2021 rate of 1,726,000. Single-family authorizations in February were at a rate of 1,207,000; this is -0.5% below the revised January figure of 1,213,000. Authorizations of units in buildings with five units or more were at a rate of 597,000. On Wednesday (3-16-22), 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 edged 2-points lower in March to a reading of 79. Despite four consecutive monthly declines, the HMI has posted very solid reading for the past 6-months. Any reading above 50 indicates that more builders view conditions as good rather than poor and that demand remains strong. ?

Spruce & Stud Markets -: Trading in the Eastern and Western Canadian SPF Std. & Btr., and No.2 & Btr. Markets has slowed to a pedestrian pace. Buyers facing more unknowns than knowns when it comes to current geopolitical tensions and the economy, and its impact on builder and consumer sentiment have decided to limit their purchases to fill ins from local sources, rather than purchasing more mill direct materials which currently cannot seem to ship in a timely manner. Mills started the week quoting construction grade at last Friday’s levels and prices traded at or on either side of those levels from there; for production available for shipment the week of 3/28+/-. Demand for low-grade remains centered on the narrow widths, while interest in the wider widths was measured. Mills started the week quoting low-grade at or on either side of last Friday’s levels and prices traded in a narrow range from there; for production available for shipment the week of 3/28+/-. Stud trim sales remain slow to steady and varied depending on the trim and mill origin. Mills started the week quoting stud trims at or on either side of last Friday’s levels and prices hovered close to those levels from there; for production available for shipment the week of 3/28+/-. ?

CME Lumber Futures –: The CME Lumber Future Contract for March expired at 12:00 Noon CDT on Tuesday, March 15th, 2022. For those 3- days (3/11/22 –3/15/22), CME Futures were up 2- days and Unchanged 1-day. For those 3- days CME gained $ 71.50 and ended the contract trading above the Friday Cash Market of $1400 by $20.00, The May contract is now the forward month and will expire on Friday, May 13th, 2022, at 12:000 Noon CDT. For the past 3-days (3/15 – 3/17) CME Lumber Futures were up 2-days and down 1-day. For the 3-days CME Futures gained $103.60 and are trading below the Midweek Cash Market of $ 1400 by $193.00, CME Futures at $1207.00. One Year Ago, today (3-17-21), CME Futures = $854.20.?

Hem\ White Fir -: ?The slower pace in the Hem\ White Fir markets that developed mid last week, carried over into this week. Geopolitical tensions and domestic economic issues have buyers looking to local 2-step distribution or office wholesalers with prompter shipments, while trying to avoid longer mill production schedules. This as buyers try to keep purchases aligned with inventory on the ground, on order and sales. Mills started the week quoting at or modestly above last Friday’s levels and prices traded at or on either side of those levels from there; for production available for shipment the week of 4/4+/-. Low-grade sales remain spotty. Mills started the week quoting low-grade at or on either side of last Friday’s levels and prices traded in a similar pattern from there; for production available for shipment the week of 3/28+/-. Stud trim sales were mixed, with buyers gravitating towards 8’ & 10’ trims that could ship quickly, while passing on both 9’ trims and items with extended lead times. Mills started the week quoting stud trims at or on either side of last Friday’s levels and prices traded at or on either side of those levels from there; for shipment available the week of 3/28+/-. ?

Green Doug Fir -: Trading in the Green Doug Fir (GDF) Std. & Btr., and No.2 & Btr., market struggled to gain traction during the week. Economic and geopolitical tensions had buyers concerned about their impact on builder sentiment and the increasing potential for downside risk if the market were to remain slow. As a result, it was another week where buyers tracked down late shipments, limited purchases to must have fill ins (mostly wides), while avoiding any speculative purchasing. Mills started the week quoting construction grade at or above of last Friday’s levels and prices traded in a narrow range from there; for production available for shipment the week of 3/28+/-. Demand for low-grade continues to dissipate. Mills started the week quoting low grade at, or on either side of last Friday’s levels and priced traded in a similar pattern from there; for production available for shipment the week of 3/28+/-. Discounts appearing in the KD stud trim market, drew some GDF buyers back to their preferred species. Mills started the week quoting GDF stud trims at last Friday’s levels and prices hovered close to those levels for shipment the week of 3/21+/-.?

Cedar Lumber -: Demand for Western Red Cedar (WRC) lumber products continues to escalate as spring draws near. Most buyers seemed anxious to get their Q2 needs met and they scoured the mills looking for additional coverage. There were, however, a growing number of buyers who were concerned about how current geopolitical tensions, inflation and rising fuel costs might alter both builders and consumer sentiment and purchased more selectively. Late shipments and the rising cost of freight, both truck and rail, were discussed frequently by traders. Mills started the week quoting, as a price guide only, at or above last Friday’s levels and prices traded at or trekked higher from there. As in previous weeks, most orders were accepted by a mill as PTS or PTS+, without a shipping date. Timbers and decking remain difficult to source, but other products were not that much easier to find. ?

Shake & Shingles -: ?The upward pricing trend in the Western Red Cedar (WRC) Shake and Shingle markets continues unabated. Demand continues to outpace paltry supply. Canadian mills reported another week of limited to no production which just added to the market malaise. Limited log availability and an ongoing labor shortage continue to limit production in Canada. Buyers in need of coverage for specific projects offered mills extra dollars above PTS+, if that would help them secure the materials they desperately needed. Moreover, trucking rates are soaring, and some truckers have made it clear they do not want to travel into the U.S. ?

Southern Pine -: ?A sudden change in box stores projections for DIY activity, as well as pro dealers concerns about the potential for declining builder sentiment, due to geopolitical tensions, and domestic economic uncertainty, has ushered in a very conservative mind set into the Southern Pine No.1 and No. 2 markets. The price correction that started last week expanded during the week. Treaters were noticeably missing from the markets. Mills started the week quoting below last Friday’s levels and prices moved lower from there; for production available the week of 3/28+/-. Again, this week 2x12, which remains in tight supply, were the exception, with their prices moving higher and shipment quoted for 4/4+/-. High-grade sales have slowed, a reflection of activity in the construction grade markets. However, availability has not improved, and prices remain in an upward tilt, and mills are quoting production for mid-April. Low-grade sales have also lost momentum. Mills started the week quoting low-grade at or on either side of last Friday’s levels and prices traded in a narrow range from there; for production available for shipment the week of 3/28+/-. Interest in stud trims has waned. Mills started the week quoting at or below last Friday’s levels and prices traded at or inched lower from there; for production available for shipment the week of 3/28+/-. Demand for 4x4 – 4x6 – 6x6 remains steady. Mills started the week quoting the small square and timber above last Friday’s levels and prices edged higher from there; for shipment, the week of 4/4+/-. Unrelenting demand for 5/4 x 6 Standard and Premium Radius Edge Decking, and limited production, led to another week of increasing price, with production schedules moving into mid-April. Although it seems impossible, traders reported that there were even less trucks and empty railcars available this week than last. Freight rates and additional fuel surcharges continue to escalate with no relief in sight.?

Pressure Treated -: ?The need for immediate replenishment of pressure treated lumber, panels and accessories slowed during the week. This as prices showed further signs of softening and several rounds of snow in the North and rain in the South and Mid-Atlantic, slowed both DIY and jobsite activity. Field inventories are being reported as well below early springtime levels. With treated lumber and plywood prices hovering close to or at historic record levels, buyers are trying to rein in their purchases; not wanting to get caught, as they did last year, with excessive amounts of high-priced treated inventory. Logistics issues continue to put a crimp in treaters production schedules, as well as delaying shipments of outbound finished product. ?

OSB & Veneer Panels Overview –: The energy and urgency in the OSB and plywood markets has quickly dissipated. Last week’s slowdown and price correction in the Southern Pine Rated Sheathing markets has spread to the other products in the panel sector. Buyers continue to wonder how Russia’s invasion of Ukraine, higher fuel prices, overall inflation, etc., might alter both builder and consumer sentiment. As a result, buyers have taken an overly cautious and conservative approach to their replenishment. Buyers spent a good portion of the week chasing down late shipments. Any purchases this week were strictly to fill in inventory voids. Office wholesalers are working diligently to eliminate as much of their contract and open market ownership and are doing so by offering that ownership below mill replacement levels. Mill production schedules remain in the later weeks of March through early to mid-April, unchanged from last week. ?

OSB -: The slowdown in OSB sales and upward pricing momentum which started mid last week easily carried over into this week. Buyers have made conscious decision to stop chasing the OSB markets, and the urgency in the marketplace has quickly faded. Buyers are instead laser focused on getting what they have on order shipped, as their concern about downside risk escalates. Mills started the week quoting OSB at or on either side of last Friday’s levels and prices continued to trade in a similar pattern from there; for production available for shipment the week of 4/7+/-. ?

Southern Pine Panels -: A host of issues including Russia’s invasion of Ukraine, higher fuel prices, overall inflation, and how all these factors could impact both builder and consumer sentiment, pushed Southern Pine Rated Sheathing buyers further into the sidelines. A price correction that started late last week in the sheathing market, at both the mill and secondary levels, deepened during the week, which put buyers in a very defensive and cautious mood. Buyers with late shipments pushed mills for shipping information. Mills in search of trading levels started the week quoting below last Friday’s levels, and prices proceeded to trend lower from there, with thicker panels under greater duress; for production available for shipment the week 3/28+/-. Eastside zone producers are continuing to deal with a sudden influx of imported panels, which are being offered below Eastside zone mill pricing levels. Mill Cert., sales have also slowed. Mills started the week quoting Mill Cert., at or below last Friday’s levels and prices traded at or inched lower from there; for production available for shipment the week of 3/28+/-. The inquiry and sales pace of underlayment, siding, concrete form, and other specialty panels varied from one item to another. Mills started the week quoting the entire complex at or on either side of last Friday’s levels and prices held at or trended lower from there; for production scheduled for the week of 3/28+/-.?

Western Fir Panels -: Buyer uncertainty which shrouded the Western Fir Rated Sheathing market late last week, easily carried over into this week. Carload volume buyers were once again absent from the marketplace. With office wholesalers in the process of liquidating their contract ownership below mill replacement levels, many carload buyers took advantage of those buying opportunities. West Coast and Rocky Mountain truckload buyers started the week checking on late shipments and limited their purchases to must have fill ins as they tried to keep purchases aligned with sales. Mills started the week quoting sheathing at last Friday’s levels and prices traded at or trended lower from there; for production available for shipment the week of 4/4+/-. Demand for CD Struct I, CC, CC PTS and Mill Cert panels slowed further during the week. Mills started the week quoting all the items in this sector at or on either side of last Friday’s levels and prices traded in a narrow range from there; for production available for shipment the week of 3/28+/-. The inquiry and sales pace of value-added panels, underlayment, sanded, siding, concrete form, and other specialty panels remain on the quiet side. Mills started the week quoting at or above last Friday’s levels and prices traded at or on either side of those levels from there; for production available for shipment the week of 3/28+/-.?

Food for Thought-: ?Was it Elvis or Ricky Nelson (now I am showing my age) who sang ‘Fools Rush In, Where Wisemen Fear to Tread?’?

Over the past several weeks I have been asked by colleagues for my opinion of the current lumber and panel markets, and my assessment of the markets in Q2, or if I dare to go out that far, Q3. Unless this is your first rodeo, you already know that prices never go up nor down forever. As I write this article the lumber and panel markets are once again in a state of flux. Buyers who had been building inventory anticipating a strong start to the spring building season, once, again find themselves in a potential overbought position, and are being asked to draw their inventory levels down, as a price correction begins. One that many buyers believe could be a drawn-out process. This while at the same time continuing to deal with late shipments and improving weather conditions which is further stimulating jobsite activity and the need for replenishment. ??

To be honest, we are about at the same place we were at this time last year. But there are some significant differences, many of them from outside our sphere of influence and well beyond the markets we work in. Domestically there is inflation, which is at the highest level we have seen since the 1980’s. Inflation has led to an increase in prices on everything from gasoline and diesel to truck and rail freight rates, to a host of food products, and other daily necessities. Inflation cuts the value of the dollar (U.S. and Canadian) and with people spending more for food and other necessities there are fewer people now able to qualify to purchase that new or existing home or to have extra funds for home improvement projects at their current residence. ?

Geopolitical tensions are on the rise. Russia’s ruthless invasion of Ukraine has led to major sanctions on both Russia and Belarus. These sanctions and Russia’s decision in turn to stop selling certain products to the West have created additional turmoil in the supply chain. Container ships bound to or from Russia and Belarus are being unloaded the nearest port available. Creating more port congestions in those countries. The predominate question is will Mr. Putin stop with Ukraine, or has he set his sights on rebuilding the old Soviet Union. How soon will NATO and the U.S. be asked to engage Mr. Putin in order to stop the top Russia’s terror campaign? ?

My crystal ball is cloudy. If it is true, that builders are going to focus on completions this year and build with materials previously purchased than demand for additional replenishment will be lessened. For DIY sector, we are back to how many times do you need to rebuild your deck or fence? Again, less need for replenishment. Just some food for thought.?