Notes from the Forest 7-15-22 Edition

Ladies and Gentlemen:?

Trading this week in the lumber and panel markets was steady, but certainly not spectacular. Traders who were anticipating a sudden jump in marketplace activity and prices, like at the end of previous market downs over the past 2+ years were disappointed. Buyers remain risk adverse and this week’s Consumer Price Index report for June, showing an increase of 1.3% for the month served to further curb buyers’ appetites for speculative purchases. While downside risk is currently less of a factor for most buyers, concerns about sales activity for the remainder of the year are clearly on their minds. Producers ended the week with prices firm to higher and with production schedules that have pushed into the early weeks of August. Transportation issues remain a constant headache in many regions of North America, and the potential for a nationwide rail strike looms larger. ?

The CME Group Inc. has announced it plans to replace the current lumber futures contract with a smaller version that will be deliverable to Chicago rather than Western Canada. This following two volatile years of trading that lifted prices to record high levels. The new truckload-size contract will be a quarter of the volume of the current lumber futures contract and is designed to attract more buyers and sellers into the market. The New physically delivered futures and accompanying options contracts are set to launch on August 8th, 2022, pending regulatory approval from the Commodity Futures Trading Exchange. ?

Spruce Markets -: Eastern and Western SPF Std. & Btr., and No.2 & Btr., producers started the week trying to extend their markets’ upward momentum. Buyers remain cautious and conservative and while no one was prepared to load the warehouse, many buyers did return to both marketplaces in search of additional fill in inventory. Eastern buyers are also dealing with the traditional end of July mill summer shutdowns, which are scheduled to start the week of 7/25. Buyers noted, however, that Eastern mills typically continue to run their planers and shipping offices remain open. Mills started the week quoting above last Friday’s levels and prices traded higher from there; for production available for shipment the week of 8/8+/-. Low-grade sales continue to hold steady. Mills started the week quoting low-grade at or above last Friday’s levels and prices traded at or inched higher from there; for production available for shipment the week of 8/1+/-. Stud trim sales remain steady. Mills started the week quoting stud trims at or above last Friday’s levels and prices held at or trended higher from there; for production available for shipment the week of 8/8+/-.?

CME Lumber Futures –: The CME Lumber Future Contract for July will expire on Friday, July 15th, 2022, at 12;00 Noon CDT. For the past 5-days (7/8 – 7/14), CME Lumber Futures were up 2-days and down -days. For the past 5-days CME Futures have lost -$28.00 and are trading below the Midweek Cash Market of $660 by $20.00, CME Futures at $640.00. One Year Ago, today (7-14-21), CME Futures closed at $521.40.?

Hem\ White Fir -: ?The Hem \ White Fir Std. & Btr., No.2 & Btr., markets started the week building on last week’s improved market activity. Buyers want to remain cautious and conservative; still not convinced that the markets can sustain their upward momentum. However, the same buyers noted that lite field inventories and steady demand from the tract and multifamily construction sector is making it difficult for them to remain on the sidelines. Mills started the week quoting construction grade at or above last Friday’s levels and prices continued to trade in a similar pattern from there; for production available for shipment the week of 8/8+/-. Low-grade sales continued to stabilize during the week. Mills started the week quoting low-grade at or on either side of last Friday’s levels and prices held at or moved in either direction from there, for shipment available for the week of 8/1+/-. Stud trim sales remain steady to ‘sneaky’ strong. Mills started the week quoting stud trims modestly \ moderately above last Friday’s levels and led by 9’ trims, the market proceeded to trend higher from there; for production available for shipment the week of 8/8+/-. ?

Green Doug Fir -: ?Green Doug Fir (GDF) Std. & Btr., and No.2 & Btr., sales continue to build on last week’s uptick in market activity. Pro dealer buyers, especially those who service the multifamily construction sector, continue to purchase near-term needs, while avoiding taking any speculative positions. This provided mills with just enough sales volume to keep prices moving modestly higher again this week. Mills started the week quoting above last Friday’s levels and prices traded at or trended higher from there; for production available for shipment the week of 8/8+/-. Except for 2x4’s, low-grade sales remain lackluster. 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 shipment available, depending on the tally, anywhere from prompt to the week of 8/1+/-. Stud trim sales remain active. Mills started the week quoting GDF stud trims above last Friday’s levels and prices moved higher from there; for production available for shipment the week of 8/8+/-. Transportation issues varied from one mill to another. ?

Cedar Lumber -: ?Western Red Cedar (WRC) lumber producers reported another week of lackluster sales. Unwilling to speculate, buyers continue to limit their purchases to immediate needs and whatever they purchased needed to ship promptly. Washington state-based producers noted that logs are becoming more available and that their prices are beginning to ease. Canadian producers continue to battle a lack of available raw materials and higher prices. Buyer’s interest remains centered on fencing, wide dimensional lumber, siding, and timbers. Prices on these items continue to trade at previously established levels. The sales of S1S2E boards, decking, and narrow width dimensional lumber remain an ongoing problem for WRC producers. Lower prices have not sparked the interest from buyers that the mills had anticipated. Producers continue to report a dearth of available empty railcars for loading. As a result, many producers are trying to find, book and substitute available flatbed trucks to get finished materials delivered. ?

Shake & Shingles -: ?Producers offering production for sale of Western Red Cedar (WRC) Shake and Shingles continue to report limited buyer interest. Record high prices remain an obstacle to sales, and at current price levels buyers are only covering their immediate needs, unwilling to speculate. The freshet on the Fraser River is finally beginning to subside, but Canadian producer are still finding securing logs a challenge. Washington state producers are reporting securing logs has become easier, but they are still working their way through months of order files and late shipments. The sale of Shingles continues to outpace those of Shakes, and it is being reported that mills with medium to heavy Shakes on the ground are listening to modest counteroffers to keep that production from becoming an inventory burden. ?

Southern Pine -: ?Southern Pine producers were able to build on last weeks’ uptick in activity. Buyers remain focused on the narrow widths, but by midweek the wider widths were coming into play. Mills started the week with less inventory on the ground, which served as a catalyst to keep buyers engaged with the marketplace. Mills started the week quoting at or above last Friday’s levels and prices traded at or moved higher from there; for production available for shipment the week of 8/1+/-. A surge in multifamily construction, especially in Texas, has helped Westside zone mills to increase their sales and prices. High grade sales continue above mill production levels. Mills started the week quoting high-grade at or above last Friday’s levels, prices edged higher from there; for production available for shipment the week of 8/8+/-. Low-grade sales, particularly the wider widths, remain challenging. Mills started the week quoting low-grade 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 8/1+/-. With Southern Pine stud trims selling below other species, alternative species buyers’ interest in SYP studs has increased proportionately. Mills started the week quoting stud trims above last Friday’s levels and prices traded at or edged higher from there; for production available for shipment the week of 8/8+/-. Sales of small squares and timbers quieted during the week. Mills started the week quoting at or above last Friday’s levels and led by 6x6’s prices traded at or pushed higher from there; for production available for shipment the week of 8/1+/-. Limited supplies and increasing demand for 5/4 x 6 Standard and Premium Radius Edge Decking allowed mills to start the week quoting above last Friday’s levels and prices trended higher from there, for production available for shipment the week of 8/8+/-. Transportation problems persist. ?

Pressure Treated -: ?Weather was more of a deterrent in the sales of pressure treated lumber than any other factor during the week. Pro dealers continue to report steady sales to their tract and multifamily builder customers, and as a result the need to replenish is constant. Large box store retailers reported that follow through from the long holiday weekend waned as the week progressed as the same weather factors, hot, humid and afternoon thunderstorms limited DIY’ers ability to work on projects. Treated buyers continue to manage their facilities’ inventories to the lite side, still not confident that the brite feedstock markets, which are moving modestly higher, have much additional upward momentum left within them. A lack of available trucks in parts of North America have treated buyers adjusting their purchases to account for transportation delays. ?

OSB & Veneer Panels Overview –: ?OSB has found a trading level and mills have been able to get buyers to reengage with the market. As a result, OSB producers have been able to clean up their excess inventory and production schedules have moved into early August. The hefty premium on plywood panels when compared to OSB have many buyers seeking their customers’ permission to switch them from plywood to OSB and the savings. For many builders, the price difference is just too great to pass up on, unless of course it means needing a specification review and building inspectors’ approval, which can delay a project that was previously approved. Southern Pine and Western Fir Rated Sheathing mills both reported an uptick in inquiries and sales during the week. Discounts on plywood have evaporated and prices ended the week flat to modestly higher, with mill order files reaching into early August. Transportation problems continue throughout North America. ?

OSB -: ?Producers were able to make last week’s price increases on OSB hold. Buyers remain cautious but lite field inventories and weeks away from the marketplace left them with few alternatives but to purchase at minimum near term needs and an extra insurance truck or two. Mills started the week gently lifting prices higher, hoping not to scare buyers out of the markets, and price trended higher from there, for production available for shipment the week of 8/8+/-. Transportation issues, especially empty railcars, remain a challenge in many production zones and is creating issues, particularly in the Western delivered markets. ?

Southern Pine Panels -: Southern Pine Rated Sheathing producers reported having their best inquiry and sales week in nearly a month. Mills started the week quoting at or modestly above last Friday’s levels and prices traded at or trended higher from there; with mills quoting production available for shipment the week of 8/8+/-. Buyers continue to struggle with the price disparity between OSB and SYP sheathing, but several of their customers are unable to switch specs this late in the building process. Mill Cert., sales are still in price discovery mode, but a firming trend started to develop late in the week. Mills started the week quoting Mill Cert. below last Friday’s reduced levels and prices traded at or on either side of those levels from there, with prompt shipment still available on many items. The inquiry and sales pace of underlayment, siding, concrete form, and other specialty panels were able to ride on the coattails of the sheathing markets. Mills started the week, quoting value-added panels at or on either side of last Friday’s levels and prices traded in a similar pattern from there, with many items ready for immediate shipment once logistics could be arranged. ?

Western Fir Panels -: ?Recent price increases in the Western Fir Rated Sheathing market failed to spark the reaction from buyers that the mills were anticipating. Truckload buyers continue to purchase highly mixed truckloads, while carload buyers who were active in the marketplace at the start of the month have once again returned to the sidelines, waiting for their recent purchase(s) to ship. Mills started the week quoting at or modestly above last Friday’s levels and prices traded at or edged higher from there; for production available for shipment the week of 8/8+/-. The CD Struct I, CC, CC PTS and Mill Cert panel complex started the week with slow but steady sales. Producers started the week quoting the entire sector at or on either side of last Friday’s levels and prices traded in a similar pattern from there, with immediate shipment available on many items. The inquiry and sales pace of value-added panels was unchanged from the previous weeks. Mills started the week in search of a trading level for underlayment, while holding prices at steady on concrete form, sanded and siding panels, for shipment available anywhere from prompt to the week of 8/1+/-. ?

Food for Thought-: ?There is a transportation issue that up until now has failed to grab the national business media’s attention. The issue, however, presents a real and present danger to the transportation of products via rail throughout the United States. If you think rail service is unpredictable today, just wait and see what happens if the labor unions that work for the seven major U.S. carriers decide at midnight on July 18th – this coming Monday – to exercise their right to strike. This following the conclusion of the 30-day cooling off period, after both sides were unable to reach an agreement through the National Mediation Board. FYI - on Tuesday (7-14-22) 99.5% of the Brotherhood of Locomotive Engineers and Trainmen voted overwhelmingly to authorize a strike if progress on a new labor contract isn’t made by the end of this week.?

The labor unions have been without a contract since July 1st, 2019. Both sides have met and attempted to find a solution to their wage and benefit issues that would be satisfactory to both parties over the past three years, but a new contract with all the unions has remained elusive. ?

There is, however, the Railway Labor Act, which sets out the rules for these kinds of disputes, and which would allow the President, should he decide to do so, appoint a three-member emergency board to investigate and make recommendations to both sides to settle their difference. During the Presidential Emergency Board’s investigation, the unions are not allowed to strike. ?

More information can be found on the world wide web ?

As they say on Cable TV networks . . . Watch this space.?