Notes from the Forest 8-20-21 Edition

Ladies and Gentlemen:

The lumber and panel markets suffered through another week of inconsistency. Throughout the week there were small signs that some products were moving closer to a trading level. Overall, the price concessions the mills were willing to offer and the counteroffers they were willing to accept continued to grow smaller. Some items even ended the week flat to modestly higher. Uncertain of what is or isn’t a good price, buyers hesitated to purchase anything beyond bare minimum fill ins from local 2-step distribution. Fearing that purchasing now could lead to heartburn within hours. Producers tried to coax buyers back into the markets. However, with lower prices surfacing at the mill and secondary level and high-priced inventory yet to be dealt with, many buyers decided the sidelines were the safest place for them to be. ?

The U.S. Census Bureau has reported that privately‐owned housing starts in July were at a seasonally adjusted annual rate (SAAR) of 1,534,000. This is -7.0% below the revised June rate of 1,650,000 but is 2.5% above the July 2020 rate of 1,497,000. Single-family housing starts in July were at a rate of 1,111,000; and this is -4.5% below the revised June figure. The July rate for units in buildings with five units or more was 412,000. Building Permits are the forward-looking portion of the report and in July privately-owned housing units authorized by building permits were at a SAAR of 1,635,000. This is 2.6% above the revised June rate of 1,594,000 and is 6.0% above the July 2020 rate. Single-family authorizations in July were at a rate of 1,048,000; this is -1.7% below the revised June figure of 1,066,000. Authorizations of units in buildings with five units or more were at a rate of 532,000.?Earlier, The National Association of Home Builders (NAHB) /Wells Fargo Housing Market Index (HMI) is reporting that builder sentiment in the market for newly built single-family homes declined 5-points to a reading of 75 in August. Its lowest point since July of 2020 and after builder confidence topped at a level of 90 last November. However, despite the decline, the reading of 75 is still a signal of strong demand. ?

Spruce & Stud Markets -: The inquiry and sales pace of Western and Eastern Canadian SPF Std., & Btr., and No. 2 & Btr., faded further over the course of the week. Buyers with high priced inventory continue working on eliminating those materials. With many buyers indicating that they are not interested in purchasing additional replenishment until inventory reduction goals are accomplished; or prices fall to a level that would make price averaging advantageous. Mills started the week quoting construction grade below last Friday’s levels and prices edged lower from there; for production available for shipment the week of 8/30+/-. Low-grade sales remain dull. This even as many producers have been actively pursuing offshore sales for their low-grade production. Mills started the week quoting low grade below last Friday’s levels and prices trended lower from there; for production available for shipment the week of 8/30+/-. Stud trim sales remain dull. Mills started the week quoting below last Friday’s levels and prices moved lower from there; for production available the week of 8/30. Large volumes of imported European Spruce, along the East Coast, are also being reported.

CME Lumber Futures –: The CME Lumber Future Contract for Septembre will expired at Noon, on Wednesday Septembre 15th, 2021. For the past 5 days (8/13– 8/19), CME Futures were up 1-day and down 4-days. CME Lumber futures have lost -$46.20 for the week and are trading above the Midweek Cash Market $ 400 by $54.20 CME at $454.20 One Year Ago, today (8-19-20), CME Futures closed at $782.90.?

Hem\ White Fir -: The inquiry and sales pace of Coastal and Inland Std. & Btr. No.2 & Btr., White and Hem-Fir, remains lackluster. Limited demand and ample supply continue to prevent producers from establishing a firm trading level. Mills started the week quoting below last Friday’s levels and prices trended lower from there; for production available for shipment the week of 8/30+/-. Buyers continue to limit their purchases to must have fill ins. Buyers with a firm offer in hand found willing sellers when they ventured into the marketplace. Sales of low-grade remain slow. Mills started the week quoting low-grade at or below last Friday’s levels, and prices traded in a narrow range from there; for shipment available the week of 8/30+/-. Stud trim sales continue to trail seasonal norms. Mills started the week quoting stud trims below last Friday’s levels and prices traded at or below those levels from there; for shipment available for the week of 8/30+/-. ?

Green Doug Fir -: The inquiry and sales pace of Green Douglas Fir (GDF) Std. & Btr., & No. 2 & Btr., remains lethargic. Again, this week, buyers showed limited interest in GDF products. Even as many prices have fallen to or below pre-pandemic levels. Producers started the week with a goal of finding a trading level that would motivate buyers to return to the marketplace. What they quickly discovered was that many buyers weren’t sure what that price level might be. However, those buyers did know that falling prices were a good reason to fill in immediate inventory needs only and to continue considering KD products at their lower prices as a substitute for GDF products. Sales of low-grade also remain on the quiet side. Mills started the week quoting low-grade below last Friday’s levels, but the price concessions were smaller, as were the size of the counteroffers the mills were willing to accept. Even as production slowdowns were reported, stud trim availability continues to outpace limited demand. ?Mills started the week quoting below last Friday’s levels and prices trekked lower from there; for production available for shipment the week of 8/30+/-.?

Cedar Lumber -: ?The inquiry and sales pace of Western Red Cedar (WRC) boards, fencing, dimension, radius edge decking, siding, pattern stock and timbers remain on the quiet side. In turn, allowing mills the opportunity to catch up on late shipments. Wildfires continue to rage throughout B.C., limiting log activity and delaying shipment of previously harvested logs to the mills. As log prices push higher and availability tightens, mills once again voiced concern about having sufficient logs on hand for the typically busy fall sales activity. Decking sales remain weak and mills with inventory on the ground continued, in varying degrees, to lower prices in search of a sustainable trading level. On the remaining items in the complex, fencing, 1” boards, siding, dimensional lumber and small square and timbers availability remains tight and mills started the week, as a pricing guide only, quoting those items at or above last Friday’s levels. ?

Shake & Shingles -: The inquiry and sales pace of Western Red Cedar (WRC) Shake, and Shingles remain slow but steady. Buyers continue to revisit previously placed, but still not shipped orders and while on the same call tried to secure additional coverage for jobs that are scheduled for mid-Septembre and beyond. Mills continue to wrestle with limited raw materials, the result of wildfires in the Pacific Northwest and Western Canada, limiting logging efforts and keeping previously harvest trees from being transported to producers. Buyer pushback on higher prices increased, especially as pricing on other lumber and panel products continue to decline. Mills, however, with little to no additional new inventory for sale, held prices firm or moved them higher. ??

Southern Pine Lumber -: ?The inquiry and sales pace of Southern Pine No.1 & No.2-dimensional lumber remains restrained. The slower pace that had enveloped the pine markets last week, has carried over into this week. Over the past 2+ weeks buyers have been able to supplement their underbought inventory positions. However, with prices once again lacking upward mobility and now showing signs of vulnerability, many buyers decided that they had enough for now and returned to the safety of the sidelines. Mills started the week quoting construction grade at or below last Friday’s levels and prices traded in a similar pattern from there; for production available for shipment the week of 8/30+/-. High-grade buyers dealing with surging demand for production inventory for the truss and modular home manufacturing industry remain active participants in the markets. Sales of low-grade remain on the quiet side. Mills started the week quoting low grade at or on either side of last Friday’s levels and prices traded in a narrow range from there; for production available for the week of 8/30+/-. Stud trim sales remain slow but steady. Mills started the week quoting stud trims at last Friday’s levels and prices hovered close to those levels from there; for production available for shipment the week of 8/30+/-. Sales of small squares and timber continue to gain traction. Mills started the week quoting 4x4 – 4x6 – 6x6 at or above last Friday’s levels and prices edged higher from there; for production available the week of 9/6+/-. Sales of 5/4 x 6 Standard and Premium Radius Edge Decking remain on the quiet side. Mills noted that lowering prices has done nothing to foster additional RED sales. Several producers have already shifted their RED production to 2x6. Mills started the week quoting RED at or below last Friday’s levels and prices traded close to those levels from there; for production available for the week of 8/30.???

Pressure Treated -: ?The inquiry and sales pace of pressure treated lumber, panels and specialty items had their ups and downs throughout the week. Hot and humid weather across a large swath of the U.S., along with the remnants of tropical storm Fred, limited both jobsite and DIY activity. Pro dealers noted that sales to their multifamily builders were once again slowing, as ongoing projects are being wrapped up and preparations are underway to start new work in the coming weeks. Custom builders seemed to be more active than in recent weeks. Treated buyers continue to assess their needs almost daily. However, with prices on brite feedstock still not as firm as anticipated, many buyers continue to opt for mixed partial truckloads, while refraining from purchasing any additional non-committed inventory. Treated prices remain in lockstep with their brite feedstock components and most treaters have finished product ready for prompt shipment. Offshore sales activity continued to improve. ?

OSB & Veneer Panels Overview –:?The OSB and plywood markets all enjoyed a modest uptick in activity during the week. Mills started the week quoting at or on either side of last Friday’s levels and prices traded in a similar pattern from there; for production available for shipment the week of 8/30+/-. Having made some progress in working through their high-priced inventory, buyers who have been absent from the markets since early July are slowly starting to return. While far from a runaway market, buyers seemed more comfortable with the current mill price levels and open to purchasing highly mixed truckload or even a car, rather than just units out of warehouse. Secondaries noted that selling their contract ownership seemed less challenging this week and as a result, they were able to hold prices closer to mill replacement levels. ??

OSB -: The inquiry and sales pace of OSB was able to build on last week’s improving market tone. Mills started the week quoting at or on either side of last Friday’s levels and prices traded in a similar range from there; for production available the week of 8/30+/-. It is far from a runaway market. Buyers who have been absent from the market since early July, and who have worked through a portion of their high-priced inventory seemed to be more comfortable with the current mill pricing structure and believed that most of the downside risk had been wrung out of the OSB markets. Various pricing schemes allowed panels from one production region to sell into another region where typically they would not be able to stretch. ??

Southern Pine Panels -: The inquiry and sales pace of Southern Pine Rated Sheathing built on the previous 2+ weeks of improved market activity. It is, however, far from a roaring market. Buyers seemed more comfortable with the mills’ pricing structure and many covered near-term needs with a highly mixed truckload, rather than just units out of warehouse. Mills started the week quoting at or below last Friday’s levels and prices traded at or on either side of those levels from there; for production available for shipment the week of 9/6+/-. Mill Cert., sales also drew additional buyer interest. Mills started the week quoting Mill Cert., at or on either side of last Friday’s levels and prices hovered close to those levels from there; for production available the week of 8/30+/-. The inquiry and sales of underlayment, sanded, siding, concrete form and other specialty panels remain slow. Mills started the week quoting below last Friday’s levels and prices moved lower from there; for production available for the week of 8/30+/-.?

Western Fir Panels -: The inquiry and sales pace of Western Fir Rated Sheathings remains on the slow side. Producers reported that inquiries picked up as the week progressed but converting those quotes into orders remained challenging. Mills started the week quoting below last Friday’s levels and asked buyers for firm offers; for production available for shipment the week of 8/30+/-. Late in the week, some sales, even a few carloads, were being reported, but it was still taking additional modest price concessions to get that accomplished. Demand for Mill Cert., and CC Plugged Touch Sanded showed signs of recovering and mills started the week quoting below last Friday’s levels. However, the price concessions were smaller, as were the counteroffers mills were willing to accept. CD Struct I and CC panels sales remain challenging. Mills started the week quoting those items below last Friday’s levels and prices slipped lower from there; for production available the week of 8/30. The sales of value-added panels, underlayment, sanded, siding, concrete form and other specialty panels remain restrained. Mills started the week quoting at, or in varying degrees, below last Friday’s levels and prices traded in a similar pattern from there; for production available for the week of 8/30+/-.??

Food for Thought-: Q2 2021 earnings report season is in full swing. Investors are listening carefully to what the CEOs, CFOs and investor relationship managers for these companies are saying about their operating costs and profit margins during their live earning reports podcast and telephone call ins. Some, but not all, of the big names on the stock exchange like Apple, Exxon Mobile, the Union Pacific, Microsoft, Amazon, BP, BNSF, major financial institutions and others are reporting another quarter of extraordinary profits. However, should there be potential headwinds that could interrupt sales or reduce profits in the upcoming quarter(s); you can be sure that will make their stakeholders nervous.?

Lumber and panel producers, along with home builders and other construction companies, as well as lumber and building material retailers and nationwide 2-step distributors are also reporting their Q-2 earnings. Many of these companies are reporting that their Q2 earnings are close to, at, or above historic levels. However, the ongoing price correction, offshore supply chain disruptions and the potential housing affordability squeeze have investors concerned about the ability of these companies to continue to perform at their current elevated levels. Producers, in particular, appear to be anticipating profit headwinds in the upcoming quarter and are already placing the blame squarely on the shoulders of declining sales and the resulting lower prices for their finished products. As well as the higher prices they are paying for raw materials, labor, various forms of insurance and of course transportation. Pro dealers and large box stores have a similar story to tell. It is prudent to mention that many large retailers, as well as lumber and panel producers are privately held, and their profit and loss statements are not publicly available. ?

In the old days people bought stock and held onto to them and then passed it down to other family members. Whether the stock was profitable, or just a piece of paper, people would hold onto their shares. Today I’ve heard that the average stockholder holds their shares for less than 30 days. Many hold them for as long as it has taken you to read this newsletter. Stockholders – aka stakeholders – whether private investors or large investment firms, are fickle and when a stock doesn’t perform well and return profits as expected. They waste little time in jettisoning those shares and start looking for the next investment opportunity. ?

For lumber and panel producers who are working within a supply and demand driven market (publicly traded or privately held) if this is not a wake-up call for action on reducing excess production and on ground inventory, based on current and declining price levels, then I can’t think of anything else that will catch and hold their attention.?Unlike in the “Field of Dreams” – to paraphrase – ‘if you produce it doesn’t mean that they are going to come and buy it’.?