Notes from the Forest 4-23-21 Edition

Ladies and Gentlemen:

Extended production schedules for lumber and panel products coupled with unrelenting demand from jobsites and value-added manufacturing facilities kept prices in an upward trajectory again this week. Even a sudden, but temporary shift, in CME Lumber Futures on Tuesday and some late winter like weather did nothing to slow buyer’s insatiable appetite for replenishment. Mills started the week quoting double-digits above last Friday’s levels and prices climbed higher into record territory from there. Production and transportation issues persist and seemed to decline further as the week progressed. Delayed shipments and increasing demand had buyers frustrated, angry and searching for replenishment.

The National Association of Realtors? (NAR) is reporting that total existing home sales, which are completed transactions for single-family homes, townhomes, condominiums and co-ops declined in March for the second month in a row, down -3.7% below February, to a seasonally adjusted rate at 6.01 million homes. Year-over-year sales are up 12.3% (5.35 million March 2020). At the end of March, unsold inventory was at a 2.1-month supply, at the current sales pace, up slightly from February’s rate of 2.0 months, but down year-over-year from March 2020 rate of 3.3 months.

Spruce & Stud Markets -: The inquiry and sales pace of Western and Eastern Canadian SPF Std., & Btr., and No. 2 & Btr., remains energized. Mills started the week quoting mid to high double-digits above last Friday’s elevated and historic levels and prices climbed higher from there; for production scheduled for the weeks of 5/10 – 5/17, and on many key items beyond. Buyers frantically searched through the mill and secondary market looking for faster shipping product to meet ever increasing jobsite activity. Regrettably, they found little, if anything available. Should something be located it was always being offered well above mill quoted levels; and that still required the shipper to find a truck or railcar, both of which remain difficult to source. Sales of low-grade remain steady to strong and industrial sector buyers were active in the markets from the opening minutes of Monday morning. Mills started the week quoting low-grade double-digits above last Friday’s levels and prices pushed higher from there; for production scheduled for the weeks of 5/10 – 5/17+.  Stud trim sales easily built on last week’s surge in activity. Mills started the week quoting stud trims double-digits above last week’s levels and prices moved higher from there; for production scheduled for the weeks of 5/10 – 5/17+.

CME Lumber Futures –: The CME Lumber Future Contract for May will expire on Friday May 14th, 2021 at Noon CDT. For the past 5 days, (4/16– 4/22), CME Futures were up 4-days and down 1-day. CME Lumber futures have gained $63.80 for the week and are trading above the Midweek Cash Market $ 1285 by $ 39.50, CME $1324.50.

Hem\ White Fir -: The inquiry and sales pace in the Coastal and Inland Std. & Btr. No.2 & Btr., White and Hem-Fir, remains unrelenting. Producers started the week quoting double-digits above last Friday’s levels and prices pushed higher from there; for production scheduled for the weeks 5/17 – 5/24+. Buyers in need of replenishment to keep up with expanding jobsite activity snapped up anything mills were willing to offer and the price was typically a secondary consideration. As in the previous several weeks, demand for low-grade remains stout. Mills started the week quoting low-grade above last Friday’s levels and prices moved higher from there; for production scheduled for the week of 5/10+. Demand for stud trims also gained additional momentum over the course of the week. Mills started the week, again, quoting double-digits above last Friday’s levels, and prices climbed higher from there; for production scheduled for the week 5/10+. Anything offered by a mill or secondary that could ship within 2-weeks immediately garnered a significant premium to mill reported levels.

Green Doug Fir -: The inquiry and sales pace of Green Douglas Fir Std. & Btr., & No. 2 & Btr., remains unabated. With the price of Green Doug Fir being offered below KD alternatives, many buyers have started to make the switch to Green Doug Fir. Mills started the week quoting double-digits above last Friday’s levels and prices moved higher from there; for production scheduled for the weeks of 5/17 – 5/24+. Demand for low-grade continues to expand. Mills started the week quoting low-grade at or above last Friday’s levels and prices moved higher; for production scheduled for the week of 5//10+. Demand for Green Doug Fir stud trims also accelerated over the course of the week. Several KD stud trim buyers are in the process of making the switch. As a result, mills started the week quoting double-digits above last Friday’s levels and prices progressively moved higher through the remainder of the week; for production scheduled for the weeks of 5/10 – 5/17+.

Cedar Lumber -:  The inquiry and sales pace of Western Red Cedar (WRC) boards, fencing, dimension, radius edge decking, siding, pattern stock and timbers remains stellar. Buyers in need of replenishment scoured the markets looking for a laundry list of WRC items needed to cover previously sold and upcoming jobs. And again, this week, most came up emptied handed. If something were to be sourced, it wouldn’t be available for an estimated 2 – 3 months, if that soon. The few order taken this week were sold as Price Time of Shipment. However, mills started the week, as a price guide only, quoting above last Friday’s levels and prices climbed higher from there. There was an exception – the recent high double and triple-digit increases in decking have been replaced with more modest upticks. The availability of decking, however, has not improved. Buyers looking to the import market for alternative products were frustrated by the number of ships at anchor along the both the East and West coasts of Canada and the U.S., some waiting as long as 3 – 4 weeks before docking space will be available for them to unload. Unabated demand continues for boards and dimension lumber, small squares and timbers, siding, fencing items and decking.  

Shake & Shingles -: The inquiry and sales pace of Western Red Cedar (WRC) Shake, and Shingles and Eastern White Shingles (EWS) remains energized. Regrettably, the availability of product tightened even further over the course of the week. Mills started the week quoting at or above last Friday’s reported levels and prices moved higher from there. Mills again reported that raw materials are difficult to source and their prices continue to escalate with every new load they source. Producers, particularly in B.C., are reporting yet another wave of COVID-19 cases moving through their facilities. For many that meant another 1 – 2 weeks with limited to no production due to a lack of raw materials and available healthy workers. Buyers’ frustration and anxiety levels continue to grow. A lack of available trucks to ship finish product is adding insult to injury on already delayed shipments.

Southern Pine Lumber -:  The inquiry and sales pace of Southern Pine No.1 & No.2-dimensional lumber remains frenzied. Pressure treaters, local and national 2-step distributors, and pro dealers all actively sought replenishment for their quickly dwindling on ground inventories. Mills started the week quoting double-digits above last Friday’s levels and prices climbed higher from there; for production scheduled for the weeks of 5/10 – 5/17+. High grade buyers were also active participants in the markets this week. With increasing sales, modular home and truss manufacturers buyers were diligently working on sourcing replenishment to supplement their suddenly shrinking facility inventories. Low-grade sales remain strong. Mills started the week quoting low-grade at or above last week’s levels and prices traded higher from there.; for production scheduled for the week of 5/10+. Stud trim sales continue to hold steady. Producers started the week quoting studs at last week’s levels and prices hovered close to that range through the remainder of the week. Demand for small squares and timbers continued to expand, as treated sales move into a higher gear. Mills started the week quoting 4x4 – 4x6 – 6x6 at or above last Friday’s levels and prices edged higher from there; for production scheduled for the week of 5/10+. Demand for 5/4 x 6 Radius Edge Decking both Standard and Premium gained additional momentum, as treaters sought coverage to meet additional large box and pro dealer replenishment orders. Mills started the week quoting R.E.D. above last Friday’s levels and prices moved incrementally higher from there; for production scheduled for the weeks of 5/10 – 5/17+. Transportation issues deteriorated further as the week progressed and delayed shipments are commonplace; with little relief, in the near-term, insight.

Pressure Treated -:  The inquiry and sales pace of pressure treated lumber, panels and specialty items remains rock solid. Large box retailers and pro dealers actively replenished inventory over the course of the week, as jobsite and DIY activity continued to grow. Many buyers want to limit their purchases to immediate needs. However, many treaters have developed production schedules of 1 – 3 weeks, on several key items, and an acute shortage of available flatbed trucks made limiting purchases risky. The same lack of available flatbed trucks is also slowing inbound brite feedstock to the treated plants.

OSB & Veneer Panels Overview –:  The demand for OSB and plywood panels continues to dwarf mill production capabilities. Many producers started and ended the week off market. Those producers who were on market started the week quoting above last Friday’s levels and prices moved higher from there; for production scheduled for mid-May through mid-June and in some instances well beyond. Again, this week, there was a dearth of open market panels. With increasing demand from jobsites and value-added manufacturing buyers, some who chose the sidelines last week, searched frantically through the mill and secondary markets looking for coverage. Asking how soon but rarely if ever asking how much. As in previous weeks, producers continue to report that ongoing production and transportation issues are further delaying scheduled shipments. Buyers are also finding themselves dealing with close to, if not maxed out credit limits, and still needing additional product.

OSB -: The inquiry and sales pace of OSB continues to be filled with a sense of energy and urgency. Several mills started and ended the week off market, having no open market panels for sale. Those producers that were on market started the week quoting above last Friday’s levels and prices climbed higher from there; for production scheduled from mid-May to early to mid-June. Mills continue to report that they are experiencing ongoing production and transportation issues, which in turn is further delaying shipments. Currently adding 1 – 4 weeks onto most scheduled delivery times. Buyers with growing jobsite activity spent the week combing through the mill and secondary markets. Some talking with producers well out of their traditional shipping lanes, just in the hopes of finding the odd truck that was in need of a home. If sourced they were always being quoted significantly above mill reported levels. However, as in the previous several weeks, most buyers ended the week without the additional OSB coverage they needed.

Southern Pine Panels -: The inquiry and sales pace in the Southern Pine Rated Sheathing remains frantic. Mills, again, started the week quoting double-digits above last Friday’s levels and prices pushed higher from there; for production scheduled for the weeks of 5/10 – 5/17+. With jobsite activity and value-added manufacturing demand growing stronger by the day, buyers scoured the mill and secondary level looking for urgently needed replenishment. Should anything be sourced, it always came with a price that was double and triple digits above reported mill level. Demand for Mill Cert. continue to expand, with mills starting the week quoting above last Friday’s levels; for production scheduled for the weeks of 510 – 5/17+. The sales of value-added panels, underlayment, sanded, siding, concrete form and other specialty panels remains extremely active. Mills started the week quoting at or above last week’s levels and prices moved higher from there; for production scheduled for the weeks of 5/10 – 5/17+.  

Western Fir Panels -: The inquiry and sales pace of Western Fir Rated Sheathing remains robust. Mills stated the week, again, quoting double-digits above last Friday’s elevated levels, and prices climbed higher through the remainder of the week’ for production scheduled from mid-June through mid to late July.  Buyers pressed mills for information on delayed shipments and asked if recently placed orders had any chance of shipping close to on schedule. Mills continue to say they are doing everything they can to get caught up, but production and transportation issues persist. Should anything that could ship close to promptly surface, it sold at a significant premium to mill reported levels and the seller still had to go through the struggles of finding a truck to deliver it. Demand for Mill Cert., panels continue to escalate and with it their prices; with production scheduled for the weeks of 5/17 – 5/24+. Canadian buyers need for CC panels continues unabated, domestic mills started the week quoting above last Friday’s levels for shipment scheduled from early to mid-June. The sales of underlayment, sanded, siding, concrete form and other specialty panels remain strong. Producers started the week quoting at or above last Friday’s levels; for production scheduled for the week of 5/17+.

Food for Thought-:   It is time for the lumber, panel and building material industry to address the rhinoceros in the room – the elephant has day off. The supply chain in and of itself cannot correct the current imbalance between supply and demand. Clearly at these prices, every producer is manufacturing as fast as the availability of raw materials and labor will allow. Why in the world would they not? Today’s pinch points are the same as they were at this time last year. A surge in new COVID-19 cases, or one of the variants, which continues to negatively impact production, logging and transportation. And also, like last year, buyers are concerned about the potential for downside risk and many still do not want to buy until the market correction they are anticipating occurs. Even though mills have extended production schedules, are shipping late and secondaries have little they can offer in relief, many buyers continue to cling to purchasing Just in Time or Just Past Time. So, exactly how is that working?

As many of us may have forgotten late 2018 and almost all of 2019 were not particularly kind years for lumber and panel mills, nor the housing industry. Several mills ceased production and closed during that period of time due to a shrinking timber basket and the resulting high prices for logs and the low prices finished product were getting. The tariffs placed on Canadian imports made the pill even more difficult to swallow. Expecting that closed mills and facilities operating with outdated equipment and technology are suddenly going to be able to crank up production is more wishful thinking than reality.

Today’s imbalance is strictly due to increased demand for housing and the current lack thereof. The pandemic has taught people that besides family, home is one of the most important things in their lives. Similarly, younger people are forming families and they want to live in less congested areas, with good schools for their children and other family-based amenities. The only way we can correct the imbalance is to have less people wanting to have their own home and living the American \ Canadian dream of homeownership. With interest rates, although somewhat elevated, still at manageable levels we are going to see more and more people opting to leave their apartments and buy a home and hopefully build equity. At 3%+ for 30-year mortgage, $16K - $ 25K adds a few hundred dollars onto the monthly payment. So, I don’t see demand for housing slowing, at least not in the near-term. Get mortgage rates up to 4.5% - 5.5% and we will see a quick change in the demand for homes.

And one more thought . . . Over the past several weeks I have been told that a piece of dimension lumber is a piece of dimension lumber. Technically, I guess that is true . . . thickness, width and lengthwise. But that’s like telling a loyal Chevy truck owner that a Ford, or Ram, or some imports, even made in North America, are the same or better. Also let us not forget about yard ability and what the framer is used to working with. The worse mistake I ever made was subbing Western Fir Rated Sheathing into a Southern Pine market. First, they weren’t certain, then they fell in love with it, and when price elevated, I switched back to Pine, and the builders and sales staff wanted to hang me.