Notes from the Forest 5-21-21 Edition
Ladies and Gentlemen:
While the basic fundamentals of the lumber and panel markets remain sound, buyers’ perceptions of the market have dramatically changed over the course of the past week. Yes, jobsites remain active, there is not a lot of prompt shipping wood or panels available, and even if there were, sourcing trucks or empty railcar is as difficult today as it has ever been. What has changed started with the decline in prices in the CME Lumber Futures market and their resulting losses. As well as reports that year-over-year sales at the large box stores are lagging well beyond pandemic driven DIY demand of last year. All of which has served to alter buyer’s assessments of the market near term strength. At midweek a handful of lumber mills started to modestly adjusted prices and listen to small counter offers. Trying to see if that would reinvigorate buyer interest. For the most part it did not, and buyers turned to distribution for units out of warehouse to tide them over wanting to see the markets next direction.
The U.S. Census Bureau has reported that privately‐owned housing starts in April were at a seasonally adjusted annual rate (SAAR) of 1,569,000. This is -9.5% below the revised March estimate of 1,733,000 but is 67.3% above the April 2020 rate. Single-family housing starts in April were at a rate of 1,087,000; and this is -13.4% below the revised March figure. The April rate for units in buildings with five units or more was 470,000. Building Permits are the forward-looking portion of the report and in April privately-owned housing units authorized by building permits were at a SAAR of 1760,000. This is -0.3% above the revised March rate of 1,755,000 and is 60.9% above the April 2020 rate. Single-family authorizations in April were at a rate of 1,149,000; this is -3.8% below the March figure of 1,194,000. Authorizations of units in buildings with five units or more were at a rate of 559,000. Earlier, The National Association of Home Builders (NAHB) /Wells Fargo Housing Market Index (HMI) is reporting that builder confidence in the market for newly built single-family home was unchanged from April, and is holding steady at a reading of 83 in May. Builder confidence topped at a level of 90 last November. However, any number over 50 indicates that more builders view conditions as good rather than poor.
Spruce & Stud Markets -: The inquiry and sales pace of Western and Eastern Canadian SPF Std., & Btr., and No. 2 & Btr., started the week noticeably quieter. Consecutive days of losses in the CME Lumber Futures market had buyer concerns about downside risk at the forefront of their purchasing decisions. The upswing on Wednesday with strong follow through on Thursday helped somewhat to ease those concerns. Mills started the week quoting at or modestly above last Friday’s levels and prices traded on either side of those levels; for production scheduled for the week of 6/14+. However, mills and secondaries both noted that buyer pushback to current prices levels was intensifying as the week progressed. Secondaries became active sellers. Mills took the slowdown in stride and for the most part leaned on their extended production schedules. Demand for low-grade remains steady, but perhaps a step or two slower than last week. Mills started the week quoting low-grade at or few dollars above last Friday’s levels and prices traded at or moved modestly higher from there; for production scheduled for the week of 6/7+. Stud trim sales have also slowed. Mills started the week quoting stud trims at or modestly above last week’s levels and price hovered close to or on a narrow line on either side of last week’s levels; for production scheduled for the week of 6/14+.
CME Lumber Futures –: The CME Lumber Future Contract for May expired on Friday May 14th, 2021 at Noon CDT. The May contract ended its shortened trading session down -$64.00, at $1566 and were trading below the Cash Market by -$64.00, Cash Market at $1630. The July contract is now the forward month and it will expire on Thursday July 15th, 2021 at Noon CDT. For the past 5 days, (5/14– 5/20), CME Futures were up 2-days and down 3-days. CME Lumber futures have lost -$ 63.00 for the week and are trading below the Midweek Cash Market $ 1630 by $ 240.00, CME at $1390.00. One Year Ago, today (5-20-20), CME Futures closed the day at $367.50.
Hem\ White Fir -: The inquiry and sales pace in the Coastal and Inland Std. & Btr. No.2 & Btr., White and Hem-Fir, subsided over the course of the week. Anything that could ship 2 – 3-weeks or sooner continued to sell quickly and at a premium to mill quoted costs. Continuing losses in the CME Lumber Futures market have quickly put buyers back into a conservative purchasing mindset. However, the markets’ fundamentals, active jobsites, tight supply and transportation issues remain intact. Resulting in buyers remaining engaged, in varying degrees, with the markets. Mills started the week quoting modestly \ moderately above last Friday’s levels and prices hovered close to or edged higher from there; for production scheduled for the week 6/14+. Demand for low-grade stock remains strong. Mills started the week quoting low-grade above last Friday’s levels and prices moved modestly higher from there; for production scheduled for the week of 6/7+. Demand for stud trims also slowed, as buyers want to limit their purchases and exposure to the potential of downside risk. Mills starting the week quoting stud trims above last Friday’s levels, and prices traded at or moved modestly higher from there; for production scheduled for the week of 6/14+.
Green Doug Fir -: The inquiry and sales pace of Green Douglas Fir Std. & Btr., & No. 2 & Btr., remains strong, but perhaps not quite as strong as in the previous weeks. Limited supply remains no match for current jobsite demand. Mills started the week quoting double-digits above last Friday’s levels and prices pushed moderately \ modestly higher from there; for production scheduled for the week of 6/14+. Demand for 2x4, 2x6 and 2x10 was particularly strong. Continuing losses in the CME Lumber Futures market had buyers in a more conservative frame of mind. Demand for low-grade stock remains steady. Mills started the week quoting low-grade at or above last Friday’s levels; for production scheduled for the week of 6/14. Mills did note increasing pushback from buyers on low-grade pricing. Demand for stud trim continues to overwhelm tight supply. Led by 9’ and 10’ stud trims, mill started the week quoting above last Friday’s levels and prices pushed higher from there; for production scheduled for the week 6/14+.
Cedar Lumber -: The inquiry and sales pace of Western Red Cedar (WRC) boards, fencing, dimension, radius edge decking, siding, pattern stock and timbers remain unabated. Mills started the week, as a price guide only, quoting above last Friday’s levels. A lack of available flatbed trucks further delayed already late shipments. Frustrated buyers spent another week checking on previously placed orders and trying to get producers to accept additional Price Time of Shipment orders for potential August, Septembre, or beyond delivery. Mills continue to report they are doing everything within their power to produce and fulfill as many orders as possible, but they can only manufacture what the logs will allow them to make. Buyers noted that the availability of imported products continues to be delayed by congestion at ports of entry and a lack of trucks and chassis to transport those loaded containers to their final destinations. Traders noted that fencing is once again in extremely tight supply but not far behind were boards and narrow width dimension lumber, small squares and timbers, decking, and siding.
Shake & Shingles -: The inquiry and sales pace of Western Red Cedar (WRC) Shake, and Shingles and Eastern White Shingles (EWS) remained on the quiet side. Buyers frustrated by late shipments and with no new production being offered stepped away from the market. However, they were instantly replaced by another buyer in search of replenishment. Producers are struggling to find available raw materials. The ongoing freshet on the Fraser River and higher towing charges just made the logs they are able to source that much more expensive. Producers started the week quoting at or above last Friday’s levels. Many buyers have begun offering to place orders Price Time of Shipment and mills seemed agreeable to that arrangement.
Southern Pine Lumber -: The inquiry and sales pace of Southern Pine No.1 & No.2-dimensional lumber lost some of its magic over the course of the week. Slower sales at box stores have limited their need for replenishment of brite and treated stock. Typically, that would be a setback for the Pine markets, especially its impact on treater purchases. However, tight supplies in other species have opened up sales of Southern Pine into those other markets. Mills started the week quoting modestly \ moderately above last Friday’s levels and prices traded at or slightly above those levels for the remainder of the week; for production scheduled for the weeks of 6/7+. High grade buyers started the week actively seeking replenishment to meet growing facility needs. Low-grade sales remain active. Mills started the week quoting low-grade above last Friday’s levels and prices hovered close to, or edged higher from there; for production scheduled for the week of 6/7+. Stud trim sales remain steady. Mills started the week quoting studs above last Friday’s levels and prices traded at or moved modestly higher from there; for production scheduled for the week of 6/7. Slowing demand from pressure treaters has modestly impacted the sales of small squares and timbers, as well as 5/4 x 6 Standard and Premium Radius Edge Decking. Especially in the home centre lengths of 8’ – 10’. Mills started the week quoting R.E.D as well as 4x4 – 4x6 – 6x6 at or above last Friday’s levels; for production scheduled for the week of 6/7. Rail shipments are improving in the South and elsewhere. Trucking, on the other hand, remains problematic. The lack of trucks has many mills asking buyers with several trucks on order if they would consider converting them to carload. Great if you have rail siding access, but not so great if you don’t.
Pressure Treated -: The inquiry and sales pace of pressure treated lumber, panels and specialty items continues to favor pro dealers. Pro dealers are reporting that jobsites are running flat out and as a result are seeking replenishment frequently. On the other hand, large box store retailers are reporting that this year’s sales are trailing behind last year’s pandemic’s driven surge in DIY activity. There is also a fair amount of sticker shock as well, with prices two- or three-times higher year-over-year. An acute shortage of trucks has created pinch-points for both inbound brite feedstock arriving at treaters facilities for processing, and outbound finished product being delivered to customers in need.
OSB & Veneer Panels Overview –: The inquiry and sales pace of OSB and plywood panels remains in an upward trajectory. The pace however, was perhaps a step or two slower this week, as concern about downside risk seeped from the lumber markets into the panel markets. The lack of open market panels and delayed shipments persists in all panel products. Many producers started the week off market. Returning only briefly, with a small number of panels that could ship relatively quickly and were being offered at a premium price to their ‘best’ customers. Mill production schedules range anywhere from early to mid-July to as far out as early Septembre. Rail service appears to be improving. The rail head congestion being reported last week apparently has eased at many, but not all, locations. Trucking, on the other hand, remains a major problem in the U.S. and Canada, with many shipments currently being delayed 2 – 4 weeks as a result.
OSB -: The inquiry and sales pace of OSB remains active, but not quite as active as in previous weeks. Nevertheless, demand continues to outpace supply. Buyers in need of replenishment to cover active jobsites and still dealing with delayed shipments scoured the mill and secondary markets looking for quick shipping coverage. The faster it could ship the more money these buyers were willing to pay. For other buyers a lack of available panels and higher prices has led to purchasing fatigue. These buyers are more interested in knowing when what they already have on order might ship. When asking about additional panels buyers aggressively pushed back on higher prices. Many noting that their customers have informed them that they have reached their price limits. This was particularly evident at the retail (DIY) sales level. Local 2-step distribution continues to struggle with late OSB shipments and many have limited inventory to share with their many customers.
Southern Pine Panels -: The inquiry and sales pace of Southern Pine Rated Sheathing experienced its 28th consecutive week of growth. As in the past months, producers started and ended the week off market with no open market panels available for sale. The few mills that were on market started the week quoting above last Friday’s levels and prices pressed higher from there; for production scheduled for the week of 6/14+. A lack of trucks throughout the South persists. As a result, many mills are giving preference to those orders that are ready to ship and that can be converted from truckloads to a carload. Buyers without rail siding capabilities expressed their displeasure. Buyers in desperate need of panels to supply material starved jobsites combed through the mill and secondary markets looking for coverage. If a buyer was fortunate enough to find something, it always came with a premium price. Mill Cert. sales continue to amaze. Mills started the week quoting Mill Cert. above last Friday’s levels and prices pushed higher from there; for production scheduled for the weeks of 6/7 – 6/14+. The sales of value-added panels, especially underlayment and concrete form, along with sanded, siding and other specialty panels remains robust. Mills started the week quoting above last Friday’s levels and prices moved higher from there; for production scheduled the week of 6/14+.
Western Fir Panels -: The inquiry and sales pace of Western Fir Rated Sheathing remains strong, but perhaps, not quite as strong as in the previous weeks. Buyers’ needs continue to overpower limited supply. Mills spent a large portion of the week off market with no open market panels available. Those mills on market started the week quoting above last Friday’s historic levels, and prices traded at or modestly higher; for production depending on the producers, anywhere from mid-July through early Septembre. Producers continue to report that veneer pricing is on the rise. Industrial buyers, looking for additional materials for agriculture bins etc., were active in the marketplace this week. Anything available for close to fast shipping always sold at a premium price. Mill Cert. sales remain strong. Producers started the week, once again, quoting Mill Cert. above last Friday’s levels and prices moved higher from there; for production scheduled for the week of 6/14+. Canadian buyers remain active participants in the CC panel market. Mills started the week quoting CC above last Friday’s levels and prices pushed higher from there; for production scheduled for the week 6/21+. The sales of underlayment, sanded, siding, concrete form and other specialty panels remain animated. Producers started the week quoting at or above last Friday’s levels; for production scheduled for the week 6/14+.
Food for Thought-: Recently there have been several articles in various industry publications reporting the opening of new green field sites and companies purchasing their competitors. The articles are asking for suggestions on the best way to handle new competitors moving into your area? But what if the new competition is actually one of your company’s own stores?
Let me set the table for you with some quick facts: As of 2019, Johnson City, TN., had a population of 66,515. Making it the 9th largest city in the State of Tennessee. Thanks to an interesting Tennessee law, larger cities were allowed, until recently, to annex land in surrounding areas and without much, if any input, from the residences and businesses in the annexed areas. That in fact is how Johnson City has been able to grow and might I add sprawl in the past 8 - 9 years. Johnson City is now situated in 3 different counties – the largest portion is in Washington, with a smaller footprint in Carter and Sullivan counties.
When we first moved to Johnson City, Tennessee in August of 2011 there were 2 Starbuck cafes in the entire town. One, on the main drag across from ‘da mall’ and the other on the campus of Eastern Tennessee State University. Both cafes did a booming business. But then Starbucks opened another location in one of the grocery stores, which wasn’t very far from the University. Then another not far from the ‘da mall’ location. Let is suffice to say that of this week Johnson City now has 10 Starbucks and more are being planned. The same phenomenon is taking place in the number of other stores, from auto parts, to drug stores to dollar stores. They are spreading like measles. Once there was just one Wal Mart, Lowes and Home Depot. Now there are 2 of each and rumor has it there could possibly more in the near-future.
One thing that all of these stores have in common – corporate \ franchise owners are fussing with the store managers because they have failed to maintain or grow their sales year over year. In other words, sales volumes are shrinking. Duh! Before people had a choice, if they wanted Starbuck coffee, go to 1 of the 2 stores, or go without. Now they have a choice of 10, so why would they drive past another Starbuck’s unless you were traveling in that direction for another reason. Same holds true for auto parts and our ever-growing population of dollar stores. Same population just more stores – so each store gets less of the pie due to expansion. Makes sense to me. But apparently not to them. Just some food for thought.
To my Canadian readers . . . Wishing you a Happy Victoria Day . . . Enjoy your 3-day holiday weekend.