Notes from the Forest 7-2-21 Edition

Ladies and Gentlemen:?

There were small ripples of activity in the lumber and panel markets early in the week. As buyers who have been absent from the marketplace for nearly a month stepped back in to purchase must have fill-ins, and preferably from local 2-step distributors who could deliver that material quickly. By Wednesday afternoon market activity had quieted; as Canadian buyers celebrated Canada Day on Thursday 1st July, and U.S. buyers prepared to celebrate Independence Day, which is on Sunday, but will be observed on Monday the 5th of July. With prices on lumber continuing to deteriorate and panels starting to unravel buyers’ concerns about additional downside risk continued to intensify and many decided to remain on the sidelines and hope that their current inventories will be able to stretch until the markets find their elusive trading levels. Transportation issues remain an ongoing problem. ?

The National Association of Realtors? (NAR) has reported their Pending Homes Sales Index (PHSI), which is based on signed real estate contracts, not actual closings, for existing single-family homes, condos, and co-ops, increased 8.0%, in May 2021, to a reading of 114.7. Reaching its highest May reading since May 2005. An index of 100 is equal to the level of contract activity in 2001. Year-over-year contract signings increased 13.1%. On Tuesday, the S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, which covers all nine U.S. Census divisions, reported that home prices experienced a 13.2% annual gain in April 2021, up from 12% in the previous month. The 10-City Composite annual increase came in at 12.8%, up from 11.7% in the previous month. The 20-City Composite posted a 13.3% year-over-year gain, up from 12.0% in the previous month.?

Spruce & Stud Markets -: The inquiry and sales pace of Western and Eastern Canadian SPF Std., & Btr., and No. 2 & Btr., had small spurts of activity but over all remained quiet. This even as prices depreciated towards levels last seen in Decembre 2020. Mills started the week, once again, in search of the elusive trading level that would lure buyers back into the marketplace. Mills started the week quoting double-digits below last Friday’s, already greatly reduced levels, and prices proceeded to fall further from there; for production available the week of 7/12 or sooner. Despite ongoing jobsite activity and builders booking additional work for the weeks ahead, buyers, as they have for past 3+ weeks, did their best to keep a low profile and limit their exposure to a market that is still unraveling. Low-grade sales have just about ground to a halt. Mills started the week trying woo low-grade buyers back into the marketplace by quoting below last Friday’s reduced levels and prices slid further from there; for production the week of 7/12 or sooner. Stud trim sales have slowed to a crawl. Mills started the week quoting triple digits below last Friday’s reduced levels and prices declined further from there; for production available for the week of 7/12 or sooner. Transportation issues remain hit or miss, but we are still seeing more misses than hits. ?

CME Lumber Futures –: The CME Lumber Future Contract for July will expire on Thursday July 15th, 2021, at Noon CDT. For the past 5 days (6/25 – 7/1), CME Futures were up 2-days and down -3days. CME Lumber futures have lost -$107.30 for the week and are trading below the Midweek Cash Market $ 780 by $44.70, CME at $735.30.?One Year Ago, today (7-1-20), CME Futures closed the day at $438.60?

Hem\ White Fir -: The inquiry and sales pace of Coastal and Inland Std. & Btr. No.2 & Btr., White and Hem-Fir, remains lackluster and the upcoming Independence Day celebration and the end of Q2 did little to help it improve. Mills started the week, once again, searching for the elusive trading levels that would pull buyers off the sidelines. Mills started the week quoting double and on some items triple-digits below last Friday’s already reduced levels and prices traded lowered from there; for production available the week of 7/12 or sooner, on most items. Buyers liked the lower price levels and checked with mills frequently to get updates on their current pricing and availability. However, overall buyers remained firmly on the sidelines as concern about further market price erosion had them wanting to continue to limit their exposure. Demand for low-grade continued to slow and industrial buyers were MIA for most of the week. Mills started the week quoting low-grade double-digits below last Friday’s already reduced levels and prices deteriorated further from there; for production available the week of 7/12 or sooner. Sales of stud trims remain subpar, but recent price concessions have helped to somewhat lessen buyer’s downside risk concerns. Nevertheless, stud trims started the week being quoted below last Friday’s price correction and prices continued to move lower from there; for production available the week of 7/12 or sooner. ?

Green Doug Fir -: The inquiry and sales pace of Green Douglas Fir Std. & Btr., & No. 2 & Btr., has succumbed to the overall lumber markets malaise. Mills started the week determined to sell recent production and reestablish their extended production schedules. The recent price correction in the KD markets, have completely wiped-out Green Doug Fir’s price advantages. In order to compete with the KD markets, Green Doug Fir mills started the week quoting high double (2x8 and wider) and triple-digits (narrow widths) below last Friday’s levels and prices deteriorated further from there; for production available for the week of 7/12, or sooner. Demand for low-grade has also faltered. Mills started the week quoting low-grade double-digits below last Friday’s levels and prices moved lower from there; for production available the week of 7/12 or sooner. Stud trims sales have ground to halt. With KD stud pricing once again competitive with Green, buyers were more than willing to make the switch back to KD. Mills started the week quoting stud-trims double and triple digits below last Friday’s levels and prices sank lower from there; for production available for the week of 7/12 or sooner. ?

Cedar Lumber -: ?The inquiry and sales pace of Western Red Cedar (WRC) boards, fencing, dimension, radius edge decking, siding, pattern stock and timbers quieted further as the week progressed. To counter the market slowdown several producers, for the first time in months, opened up to ‘reasonable’ counteroffers on slower moving items. Buyers remain on the sidelines as downside risk concerns, extended mill production schedules and now mills offering to listen to counteroffers, had them wanting to limit their exposure to a market that was in flux. With the exception of 5/4 x 6 which is still being heavily discounted, producers started the week quoting the remaining products in the complex, as a price guide only, at or on a narrow line on either side of last Friday’s levels and prices hovered close to those levels from there.?While small squares and timber sales continued to slow, demand for and availability of fencing products, siding, narrow 1” boards and narrow width dimension lumber all remain tight. Transportation issues continue to add to product shipment delays. ?

Shake & Shingles -: The inquiry and sales pace of Western Red Cedar (WRC) Shake, and Shingles remains on the quiet side. With temperatures in B.C. exceeding 100+ degrees early in the week and Canada Day on Thursday (7/1), many producers opted to forego production this week. Remaining open for what they hoped would be an influx of raw materials and trucks available to ship out what they have been able to get ready. Some orders being prepared for shipment have been delayed since mid to late March. Buyers looking to purchase additional inventory on a PTS basis, or more, were turned down by producers. Who felt uncomfortable taking on additional orders, considering how far behind they are on production and continuing to have raw materials and labor issues. Mills started the week, as a price guide only, quoting at or modestly above last Friday’s levels. ?

Southern Pine Lumber -: ?The inquiry and sales pace of Southern Pine No.1 & No.2-dimensional lumber continues to deteriorate. Buyers for treaters, the home center sector and now truss manufacturers were all missing in action from the marketplace this week. Mills started the week once again searching for a trading level that would bring buyers back into the marketplace. High double (narrow widths) and triple-digit (wider widths) discounts did little to increase buyer’s confidence in any of the Southern Pine markets. Producers started the week quoting below last Friday’s levels and prices slid lower from there; for production available for the week of 7/12 or sooner. High grade buyers are also keeping a low profile, doing what they can to limit their exposure to a marketplace that is in flux. Sales of low-grade remain lackluster. Many mills started the week trying to alleviate their No.2 position by substituting that grade on No.3 and No.4 orders. As a result, industrial grade buyers are getting higher yields and having less waste and less need for replenishment. Mills started the week quoting low-grade double-digits below last Friday’s levels and prices declined further from there; for production available the week of 7/12 or sooner. Stud trim sales remain in a funk. Mills started the week quoting stud trims below last Friday’s levels and prices moved lower from there; for production available the week of 7/12. A lack of activity at the box store level has brought the inquiry and sales pace of small square and timber, as well as the 5/4 x 6 Standard and Premium Radius Edge Decking just about to a halt. Mills started the week quoting 4x4 – 4x6 – 6x6 and 5/4 x 6 R.E.D. double-digits below last Friday’s, already greatly reduced levels and prices sank lower from there; for production available for the week of 7/12 or sooner. Transportation problems remain an obstacle in getting sold and finished product to mill customers. ?

Pressure Treated -: ?The inquiry and sales pace of pressure treated lumber, panels and specialty items remains lackluster. Treated sales ended the first 6-months of 2021, not only trailing the first 6-months of the anomaly year of 2020, but also at or slightly behind 2019 levels as well. Typically, large box stores would be pressing their treated suppliers to make sure that they had additional stock on hand and available for the upcoming, and in this case, long Independence Day holiday weekend. This year those calls have been few and far between and large box store retailers are hoping to be able to move through the remaining and high-priced inventory they purchased for Memorial Day. Pro dealer treated sales slowed over the course of the week. As their contractor customers executed their plans for some R&R (rest and relaxation, not repair and remodel) on Thursday and Friday of this week and return to work on Wednesday 7/7. Declining brite feedstock prices and as a result lower pressure treated sales prices are causing treaters, who stocked up in anticipation of another strong DIY year, to sell through their high-prices inventory and at a loss on almost every item. The fact that they have limited needs for replenishment means they have nothing they can average their current inventory value lower with. ?

OSB & Veneer Panels Overview –: ?Panel sales remain disappointing. With widening price cracks appearing in the plywood markets at the beginning of the week and questions of how much longer can OSB remain out of the markets’ down turn; buyers remained glued to the sidelines. Slower sales have caused mill production schedules to shrink, with panels now being quoted anywhere from the week of 7/19, to as far out as the weeks of 8/2 – 8/9. ?Mills continue to have little to no panels available for prompt shipment. Secondaries have quickly gone from buyers to active sells and are working diligently to get ahead of the markets’ slide and are doing so by offering their contract and open market ownership at or below mill replacement levels for faster shipment than anything coming from a mill. Transportation issues remain an ongoing issue and they continue to delay shipments.?

OSB -: The inquiry and sales pace of OSB remain on the quiet side. For the first time in months, a few producers actually had open market panels available for sale. However, they were not for prompt shipment, but for the week of 7/19+ and they were being offered PTS. Which buyers had little to no interest in. As a result, mills started the week quoting prices flat in all production zones and prices traded on a thin line on either side of those levels through the end of the week. Concerns about further price depreciation in the lumber and CME Lumber Futures market and price cracks appearing in the plywood markets had OSB buyers wanting to limit their exposure to what they thought could soon be a correcting market. Secondaries with contract and open market ownership purchased several weeks ago, started the week offering that ownership at or modestly below mill replacement levels for somewhat quicker shipment. Transportation issues remain a constant concern and additional delays are being reported. ?

Southern Pine Panels -: The inquiry and sales pace of Southern Pine Rated Sheathing remains depressed. This even as another round of job quotes circulated through the markets; with some having projected start dates in 3 – 4 weeks. Hoping to stir up some buyer interest, mills in all 3-production zones started the week quoting below last Friday’s levels and prices moved lower from there. Reduced prices only made buyers more skittish, with many opting to purchase units must have fill-ins out of warehouse in order to limit their exposure to a now correcting market. The few buyers who were in the marketplace were looking for anything that could ship promptly. However, as in the previous several months, there was little to nothing available for prompt shipment, with most mills quoting production scheduled for the weeks of 7/19+. Sales of Mill Cert. remain in the doldrums Mills started the week quoting Mill Cert. at or slightly below last Friday’s levels and prices traded close to those levels through the remainder of the week; for production scheduled for the week of 7/12 or sooner. The sales of value-added panels, underlayment, sanded, siding, concrete form and other specialty panels have also quieted. Mills started the week quoting at or below last Friday’s levels and prices held at or inched lower from there; for production scheduled the week of 7/12 or sooner. ?

Western Fir Panels -: The inquiry and sales pace of Western Fir Rated Sheathings remains underwhelming. Mills, again this week, were unable to sell a full week of production. Resulting in production schedules shrinking backwards into the weeks 7/26 – 8/2. Producers started the week quoting at last Friday’s levels and mills with lengthy production schedules held their prices firm and sold little to nothing. By lunch time on Monday, mills with shorter production schedules lowered quotes $ 50 - $ 70 MSF below last Friday’s levels hoping to inspire some sales activity. When that failed, they started accepting ‘reasonable’ counteroffers but still sold only limited volume. Buyers kept a low profile and lower panel and lumber prices had them wanting to avoid as much risk exposure as possible. Secondaries shifted from being buyers to active sellers and immediately started to sell their ownership below mill replacement levels. The sales of Mill Cert and CC panels remain lackluster. Mills started the week quoting Mill Cert. and CC panels at or below last Friday’s levels and prices traded in a narrow line from there for production available for the week of 7/12. The sales of underlayment, sanded, siding, concrete form and other specialty panels noticeably slowed. Mills started the week quoting specialty panels at or on a thin line on either side of last Friday’s levels and prices traded close to those levels; for production scheduled the week of 7/19 or sooner. Record high temperatures and drought conditions in the Northwest had buyers wondering how long it would be before the Forest Service halted logging in the area.?

Food for Thought-: ?The lumber and panel markets have shouldered a large amount of the blame over the past 6+ months for the delays in home building, as well as in repair and remodeling projects. And while there is some truth in that, lumber and panels are certainly not the only reason for lengthy delays in completing projects and it is time to, if you will, to identify and share the blame with others.?

Transportation issues continue to abound. While there are areas where rail traffic has improved, that in turn only caused traffic congestion somewhere else down the tracks. Trucking has been a problem since 2014 – 2015 and nothing has changed 6 -7 years later. The available driver pool is aging, as is the equipment they are driving. New hires are being lured into the job with signing bonuses etc., but are lasting at the job somewhere between 4 – 6 months before calling it quits. Port congestion on the both coasts of the U.S and Canada have ships at anchor for 3 – 5 weeks waiting for a berth to unload at. Even if the product is assembled in the U.S. or Canada, many of the parts, if not most of the product are being made in Southeast Asia. From appliances and HVAC, to doors and windows, to interior and exterior trim products, to cabinets and cabinet hardware, plumbing and electrical pieces and parts, delays in shipping and unloading are causing major delays to building completions. ?

With the price of lumber continuing to decline and panels showing the first signs of weakening, and both products becoming more available, it will be interesting to see if the media picks up on the other causes for delays and starts to pin the blame on them.?Just some Food for Thought ?

To my U.S. based readers – Happy Independence Day! ! !??