Notes from the Forest 4-22-22Edition

Ladies and Gentlemen:?

The tone of the lumber and panel markets continued to improve throughout the week. Gone were the high double and triple-digit price concessions and the acceptance of additional deep counteroffers. Replaced instead with items being quoted modestly below, firm at last week’s levels, or already moving higher. CME Lumber Futures moving higher for five consecutive trading days also provided the market with additional energy. With markets firming and finding trading levels on assorted items buyers felt more confident and returned to the marketplace for some much-needed replenishment. No one loaded the warehouse, with many buyers still concerned, due to previous experiences, that this could potentially be a ‘dead cat’ bounce, and not a true market turn around. Most of this week’s activity in the lumber markets centered around narrow widths (2x4 – 2x6) and studs. ??

The National Association of Realtors? (NAR) reported on Wednesday (4-20-22) that total existing home sales, which are completed transactions for single-family homes, townhomes, condominiums, and co-ops dropped -2.7% in March from February to a seasonally adjusted rate at 5.77 million homes. Year-over-year, however, sales are down -4.5% (6.04 million in March 2021). At the end of March unsold inventory was at a 2.0-month supply, at the current sales pace, up from 1.7 months February 2022, and down year-over-year from the March 2021 rate of 2.1 months. The U.S. Census Bureau reported on Tuesday (4-19-22) that privately‐owned housing starts in March were at a seasonally adjusted annual rate (SAAR) of 1,793,000. This is 0.3% above the revised February estimate of 1,788,000 and is 3.9% above the March 2021 rate of 1,725,000. Single-family housing starts in March were at a rate of 1,200,000, this is -1.7% below the revised February figure of 1,221,000. The March rate for units in buildings with five units or more was 574,000. Building Permits are the forward-looking portion of the report and in March privately-owned housing units authorized by building permits were at a SAAR of 1,873,000. This is 0.4% above the revised February rate of 1,865,000 and is 6.7% above the March 2021 rate of 1,755,000. Single-family authorizations in March were at a rate of 1,147,000; this is -4.80% below the revised February figure of 1,205,000. Authorizations of units in buildings with five units or more in March were at a rate of 672,000. On Monday (4-18-22), 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 moved 2-points lower in April, to a reading of 77. The fourth consecutive month that builder sentiment has declined. However, any reading above 50 indicates that more builders view conditions as good rather than poor and that demand remains strong. ?

Spruce Markets -: Prices continue to correct, but in both directions and in varying degrees in the Eastern and Western SPF Std. & Btr., and No.2 & Btr., dimensional lumber markets. Improving weather conditions throughout North America has allowed jobsite activity to accelerate. Field inventories remain lite, and buyers are sensing and seeing that the markets are quickly approaching, or on some items have already found a trading level. An uptick in CME Lumber Futures, helped to reinforce buyers’ confidence in the markets’ overall health. As a result, both markets experienced an uptick in inquiry and by week’s end many of those inquiries had been converted into orders. Mills started the week quoting construction grade at or in varying degrees below last week’s levels and prices traded at or on either side of those levels from there; for production available for shipment the week of 5/2+/-. Low-grade sales remain lackluster. Mills started the week quoting low-grade below last week’s levels and prices continued to edge lower from there as mills continued to search for a trading level. Stud trim sales were more active, and a bottom was forming. Mills started the week quoting stud trims at last week’s levels, and prices traded at or moved higher from there; for production available for shipment the week of 5/2+/-. ??

CME Lumber Futures –: The CME Lumber Future Contract for May will expire on Friday, May 13th, 2022, at 12:000 Noon CDT. For the past 5- trading days (4/14 – 4/21) CME Lumber Futures were up five consecutive days. For the past 5-days CME Futures have gained $141.30 and are trading above the Midweek Cash Market of $1000 by $25.00, CME Futures at $1025.00. One Year Ago, today (4-21-21), CME Futures closed at $1292.50.?

Hem\ White Fir -: ?Inquiry and sale prices in the Hem \ White Fir Std. & Btr., and No.2 & Btr., dimensional lumber markets varied from mill to mill and from species to species, again this week. Some mills continued to modestly lower their prices, hoping to accelerate the process of finding a market trading level. Others were far less motivated and seemed willing to try to continue to wait out the buyers. As a result, mills started the week quoting construction grade at or on either side of last week’s levels, and prices continued to trade in a similar pattern from there; with some items available for immediate shipment and others being quoted for shipment the week of 5/2+/-. Low-grade sales remain tepid. Mills started the week quoting low-grade in a similar pattern to construction grade items, and prices traded at or eased lower from there, with many items available for prompt shipment. Stud trim sales improved during the week. As a result, mills started the week quoting stud trims at, or on either side of last week’s levels, as a trading floor formed. That prompted buyers to step back into the markets and to begin covering some portion of their remaining Q2 needs. ?

Green Doug Fir -: The downward price movement in the Green Doug Fir (GDF) Std. & Btr., and No.2 & Btr., continued to ease during the week. Mills listened to counteroffers, but were far more selective on which items, and how much they were willing to concede to get an order. With discounts evaporating buyers cautiously stepped back into the market and began covering the remainder of their Q2 needs. Mills started the week quoting construction grade below last Friday’s levels and prices traded on either side of those levels from there, with some items available for prompt shipment and the remainder for the week of 5/2+/-. Demand for low-grade continues to trail production. As a result, mills started the week quoting low-grade at or below last week’s levels and prices traded at or inched lower from there; with many items on the ground and available for immediate shipment. Having to continuously compete with KD stud trims, GDF mills, with growing on-ground inventory had little choice but to start the week quoting modestly below last week’s levels and prices traded at or moved in either direction from there, with prompt shipment available on many items. Transportation issues including higher freight costs, limited truck and empty railcar availability remain a constant headwind for traders. ??

Cedar Lumber -: ?Trading in the Western Red Cedar (WRC) lumber market remains below seasonal expectations. Mills are taking the slower pace in stride; some even saying that they welcome it. This as mills expect sales to improve expeditiously once the weather stops gyrating and finally decides to stay in spring. Buyers continue to limit their purchases to must have fill ins as they continue to wait and see if the correction in other lumber species will be able to penetrate beyond decking, in the WRC lumber markets. Mills started the week quoting at or on either side of last week’s levels and prices traded in a similar pattern from there, with mills hesitant to provide a firm shipping date, due to log availability and logistics issues. ?

Shake & Shingles -: ?Canadian Western Red Cedar (WRC) Shake & Shingle manufacturers continue to struggle with a lack of raw materials and when finally sourced, their higher price. As a result, it was another week where many Canadian producers were closed, and others worked limited hours. Anything that was manufactured is being applied to previously placed orders. Domestic producers, to a lesser degree, are struggling with the same production issues. Buyer frustration levels are increasing, and many continue to search for alternative species or manufactured products to meet their builder customers’ demands. Mills started the week with a dearth of new available product and quoting above last week’s levels.??

Southern Pine -: ?With the downward price trajectory slowing, mills’ acceptance of counteroffers shrinking, and items finding a trading level and then pushing higher, buyers’ interest in the Southern Pine No.1 and No.2-dimensional lumber continued to gain momentum during the week. Buyers remain cautious, but lite field inventories and increasing jobsite activity for both brite and pressure treated products, had buyers back in the markets trying to bring their inventories closer to seasonal norms. Mills started the week quoting construction grade at or on either side of last week’s levels and prices continued to trade in a similar pattern from there; for production available for shipment the week of 5/2+/-. High-grade sales remain steady to strong. Another week of limited availability and production being quoted for the week of 5/9+/-, had high-grade buyers purchasing without hesitation, as they struggled to keep up with their production facility’s needs. Low-grade continues to search for a trading level. Mills started the week quoting low-grade at or below last week’s levels and prices hovered close to those levels from there, with some items available for prompt shipment. Stud trim sales improved modestly, and it appeared a floor might be forming. As a result, mills started the week quoting stud trims at or slightly above last week’s levels and prices held at or inched higher from there; for production available for shipment the week of 5/2+/-. Sluggish demand and unsold inventory had small square and timbers, along with 5/4 x 6 Standard and Premium Radius Edge Decking producers in search of a trading level. Mills started the week quoting these items below last week’s levels and encouraging buyers to make counteroffers to help move off the excess inventory. Transportation issues continue to improve in pockets in the South, but with produce ready for shipment from Florida, Texas and Mexico, flatbed trucks are going to be in greater demand. ?

Pressure Treated -: ?Improving weather conditions, lite field inventories, and a slowing in the brite feedstock markets downward price movement, along with a handful of items being reported as firm to higher priced, had pressure treated lumber, panel, and accessories buyers more engaged with their markets, this week. Demand from large tract and multifamily housing projects continues to drive pro dealer sales in the Southeast, but activity was also beginning to stir in the Northeast and Midwest. Large box stores are reporting improved interest from DIY’ers but most of their sales this week, as in previous weeks, have been around lawn and garden items – mulch, bushes, flowers, fertilizer, grass seed etc. ?

OSB & Veneer Panels Overview –: There was a noticeably better tone in the OSB, and plywood markets this week. The high-double and triple-digit price concessions of the past 2-weeks in the OSB and Western Fir Rated Sheathing markets have evaporated. Southern Pine started the week trading at last week’s levels and a trading floor has been established. With other lumber markets experiencing a similar firming, buyers found additional reasons and confidence to step back into the panel markets and to begin covering some portion of their Q2 needs. It was far from a bull market, but even with each buyer purchasing a little, the volume quickly added up to a lot, and mills have been able to make inroads on their excess inventory. While pockets of transportation improvement are being reported, they are neither significant enough, nor all-encompassing enough to eliminate the current backlog of flatbed shipments throughout North America. Another reason buyers continue to insist on firm shipment dates. ?

OSB -: ?The high double and triple-digit price concessions of the past 2-weeks in the OSB markets suddenly evaporated at the start of this week. Buyers who had been perched on the sidelines waiting for a sign that a market bottom was forming, now had that sign. And as a result, activity picked up during the week as more and more buyers returned to the marketplace checking on price and availability and purchasing conservative volumes. It remains far from a run-away market, but with so many buyers stepping back into purchase something, it did not take long for mills to make headway in cleaning up excess inventory. Mills started the week quoting below last week’s levels and prices proceeded to trade at those levels or trend higher from there; for production available for shipment the week of 5/9+/-.?Transportation issues continue to pose shipment problems. ??

Southern Pine Panels -: ?Southern Pine Rated Sheathing mills reported encouraging follow through during the week, to last week’s uptick in market activity. Buyer inquiries continue to be focused on truckload volume needed to bring inventory levels closer to seasonal norms. The good news for the mills is that by the end of the week a large number of those inquiries, and then some, had been turned into bonafide orders. With significantly less, to no, unsold inventory on the ground, mills started the week quoting at last week’s levels, establishing a trading floor, and prices traded at or edged higher from there; for production available for shipment the week of 5/9+/-. Demand and sales of Mill Cert., panels are in close alignment. Mills started the week quoting Mill Cert., at last week’s levels and prices traded at or above those levels from there; for production available for shipment the week of 5/2+/-. The inquiry and sales pace of underlayment, siding, concrete form, and other specialty panels have also perked up. Mills started the week quoting the entire complex at last week’s levels and prices held at or moved modestly higher from there, with select items still available for prompt shipment. Trucking issues remain a headwind for traders on either side of the sale, and it is still taking additional days to secure a truck. ?

Western Fir Panels -: There was a noticeable improvement in the inquiry and sales level in the Western Fir Rated Sheathing market starting at midweek. Firming prices in other markets, or at least smaller discounts being offered \ accepted in those other markets, coupled with accelerating jobsite activity had buyers, with lite field inventories, reaching out to mills and office wholesalers to check on current price and availability. A good portion of this week’s activity was centered around the truckload market. Mills started the week quoting below last week’s levels and prices traded at or modestly on either side of those levels, as mills began to limit or turned away counteroffers. For production being quoted for shipment the week of 5/9+/-. The pricing and sales pattern in the CD Struct I, CC, CC PTS and Mill Cert panel markets, remains basically unchanged from previous weeks. Mills started the week, once again, quoting CD Struct I and CC modestly below last Friday’s levels, while holding CC PTS and Mill Cert prices steady; for production available for shipment the week of 5/2+/-. The inquiry and sales pace of value-added panels, underlayment, sanded, siding, concrete form, and other specialty panels remains reserved. Mills started the week quoting siding, sanded and concrete form at previously established levels, while offering lower prices on underlayment panels to help eliminated excess inventory. ?

Food for Thought-: ?Can you imagine every car being made in North America requiring assembly in the new owner’s garage or driveway? Can you imagine, depending on where you live, working on that car either outside in the elements or inside in unheated or stifling hot garage? How much time would that add onto the completion of the car assembly project? Not to mention the delays due to receiving a broken or incorrect part that now must be replaced from a manufacturer somewhere on the other side of the world. Well thankfully, as all we know, Henry Ford changed how we manufacture cars over a century ago. The first assembly line for cars is circa 1913.

Lately, I have been doing a fair amount of reading on how offsite construction is being used in Europe and parts of Asia to expedite the construction process. And it has led me to ask this question, ‘What if instead of stick building almost every individual residence, here in North America, as we currently do; we started using offsite construction methods that are popular in Europe and on occasion are being used in North America for multifamily construction, such as hotels, health care facilities and college dormitories? What if we could build without dealing with constantly changing weather, which we know can and will delay construction efforts. Or having to wait on deliveries and deal with mis-shipments? Why don’t we start considering modular home building? I know you immediately are thinking about a single or double wide trailer but that is not what modular home construction really is, at least not the homes that are currently being built and placed on foundations in places like California, Florida, Oregon, and Washington State and elsewhere. They allow for flexibility in design, which means they can be customized as needed. It will also cut the time to build a new home from several months to 6 – 8 weeks and that includes permitting and inspection. That should help improve affordability and increase the number of homes which we desperately need to meet current demand. ?

From what I have read – Modular Building = Safer . . . Faster . . . Better Controlled Costs . . . Less Waste . . . On time Performance. Why shouldn’t this be something we consider, especially in a time where we need more affordable housing? As always . . . Just some food for thought.

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