Notes from the Forest 8-21-20 Edition

Ladies and Gentlemen:

It was another chaotic, challenging, turbulent and frustrating week for traders in the lumber and panel markets. You can hear the fatigue in buyers’ voices. It is clear that they have grown weary of chasing 1 – 2-month late shipments and dealing with the fallout of out of stocks and unhappy customers. Then there are the prices that continue to increase high double or triple-digits every week. Sellers aren’t feeling much better. Especially after having a few buyers take out their frustrations either on the phone, by email, or as a few did, by going onto social media to call them out and remind them that they need customers. As one mill sales manager replied ‘right now we have more customers than we have wood.’ Mills are quoting production scheduled for late Septembre and early Octobre. The supply line has little to no prompt shipping materials. While some buyers are intimating that they won’t buy at these historical price levels, there are a plethora of buyers who are more than willing to. And the beat goes on.

The U.S. Census Bureau has reported that privately‐owned housing starts in July were at a seasonally adjusted annual rate of 1,496,000. This is 22.6% above the revised June estimate of 1,220,000 and is 23.4% above the July 2019 rate of 1,212,000. Single-family housing starts in July were at a rate of 940,000; this is 8.2% above the June revised rate. The July rate for units in buildings with five units or more was 547,000. Permits are the forward-looking part of the report and privately-owned housing units authorized by building permits in July were at a seasonally adjusted annual rate of 1,495,000. This is 18.8% above the revised June rate of 1,258,000 and is 9.4% above the July 2019 rate. Single-family authorizations in July were at a rate of 983,000; this is 17.0% above the revised June figure. Authorizations of units in buildings with five units or more were at a rate of 467,000 in July. Earlier National Association of Home Builders (NAHB) /Wells Fargo Housing Market Index (HMI) indicates that builder confidence in the market for newly-built single-family advanced 6-points to a reading of 78. The HMI is now at its highest reading in 35-years, matching a record that was set in Decembre 1988.

Spruce & Stud Markets -: The inquiry and sales pace of Western and Eastern Canadian SPF Std., & Btr., and No. 2 & Btr., remains under nonstop upward pressure. Demand is unabated and well in excess of mill production capabilities. To accommodate as many buyers as possible, several mills have started rationing their production output. Producers started the week quoting production for the weeks of 9/21 – 9/28+. Prices started the week significantly above last Friday’s reported levels and they continued to climb to new historic levels from there. Again, this week, buyers looking for prompt replenishment found little available at the secondary level and if sourced, paid a triple-digit premium to quoted mill levels. Demand for low-grade stock remains strong. Mills are quoting production scheduled for the weeks of 8/31 – 9/7+ and prices are being quoted double digits above last week’s levels. Stud trim sales, again this week, were nothing short of amazing. Surging demand continues to overwhelm mill production capacity. Mills started the week quoting production for the weeks of 8/31 – 9/7+ and prices were double-digits above last week’s reported levels on Monday morning and prices climbed higher to their new historic levels through the balance of the week.  

CME Lumber Futures – The CME Lumber Contract for Septembre will expire on Tuesday Septembre 15th at 12:00 Noon CDT.  For the past 5-days (8/14 – 8/20) CME Futures were up 5-days in a row and have been up 10 out of the last 10 days. CME Futures have gained $ 76.90 for the week and are trading below Midweek Cash $ 805 by $ 3.10, CME $ 801.90.

 Hem\ White Fir -: The inquiry and sales of Coastal and Inland Std. & Btr. No.2 & Btr., White and Hem-Fir remains torrid. Mills are quoting production for the weeks of 9/7 – 9/21+. Limited availability, extended production schedules and overwhelming field demand allowed mills to start the week quoting significant double-digits above last Friday’s reported levels. and prices climbed to new historic levels from there. Buyers in need of immediate replenishment sent out inquiries and made phone calls and then waited and hoped for a response from a producer or wholesaler. There is little to no excess wood available anywhere in the supply chain and should it be sourced it came with a significant, often triple-digit, premium to mill quoted levels. Late shipments due to production and transportation issues abound and are delaying previously scheduled shipments by as much as 2 – 4+ weeks. Sales of low-grade stock remain strong and mills are quoting production for the weeks of 8/31 – 9/7+, with prices again being quoted at, or modestly \ moderately above last week’s levels. Stud trim sales continue at their astronomical pace, with mills quoting production scheduled for the weeks of 8/31 – 9/7+. Stud trim prices started the week being quoted appreciably above last week’s reported levels and prices just moved higher. 

Green Doug Fir -: The inquiry and sales pace of Green Douglas Fir Std. & Btr., & No. 2 & Btr., remains robust. Producers are quoting production for late Septembre \ early to mid-Octobre. Late shipments due to ongoing production and transportation issues continue to delay shipments and are making tight field inventory issues even more stressful for buyers. Prices started the week being quoted double-digits above last Friday’s levels and they moved higher into historic territory through the remainder of the week. Buyers in need of immediate replenishment scoured the mill and secondary level for coverage but again found little to nothing available, Low-grade sales are steady to strong and mills are quoting production scheduled for the week of 8/31 – 9/7+. Mills started the week quoting low-grade at or slightly above last Friday’s levels. Sales of stud trims remain stellar and mills started the week quoting double-digits above last Friday’s reported levels for production scheduled for the week of 8/31 – 9/7+. 

Cedar Lumber -:  The inquiry and sales pace of Western Red Cedar (WRC) boards, fencing, dimension, radius edge decking, siding, timbers and pattern stock remains relentless. Again, this week, strong demand from box stores and pro dealers continued to easily overpower mill production capabilities. As a result, most items started the week double-digits higher and they moved higher from there. Many buyers happily accepted the mills offer of Price Time of Shipment, which gave them price protection and a place in line. Mills would like to add extra personnel and increase production. However, potential employees’ concerns about COVID-19 and the mandated floor separation of personnel for health reasons is making hiring nearly impossible. Mill production schedules remain extended on almost all items. This week producers moved fencing and decking production schedules into late Octobre \ early Novembre. Boards, dimensional lumber, siding, pattern stock, small squares and timber production scheduled have been pushed into late Septembre \ early to mid-Octobre. Buyers with pressing needs continue to search through the marketplace looking for coverage. However, it appears that many buyers have switched their discussions with the mills to their anticipated first and second quarter of 2021 inventory needs.

Shake & Shingles -: The inquiry and sales pace of Western Red Cedar (WRC) Shake and Shingles and Eastern White Shingles (EWS) was described by traders as ‘choppy’. Buyers presented a few new inquiries to producers and followed up on previously placed orders that are getting close to being   3 – 6 weeks late in shipment. Production levels remain curtailed due to a lack of raw materials and production personnel. Other mills remain idle since the end of last year. The level in the Fraser has returned to normal but the price of logs remains elevated and they continue to be difficult to source. One season trader said that ‘until there are more logs to process and people to process them, the availability is going to remain restricted.’ Prices continue to be quoted at, or modestly above previously established levels. Buyers are sourcing alternative species and manmade products to meet customers’ needs.

Southern Pine Lumber -: The inquiry and sales pace of Southern Pine No.1 and No. 2 dimensional lumber started the week filled with unbounded energy and urgency. Unrelenting demand from retailers, local and national 2-step distributors and especially pressure treaters continue to overpower mill production capacity. Mills started the week quoting production, depending on the specific items and tally, for the weeks of 9/21 – 10/12+. Prices on Monday morning were being quoted significantly above last Friday’s levels and they soared to new historic levels from there. Again, this week, there is little to no prompt shipping wood at the mills or secondary level. The inquiry and sales pace of high-grade stock – D.S.S., S.S. and MSR, continues to accelerate. Truss and modular home manufacturers are reporting both a surge in sales and their need for additional on ground inventory at their facilities to meet that demand. High grade producers are quoting production scheduled for the weeks of 9/14 – 9/21+ and with that high-grade prices are now selling at a considerable premium to No.1 construction grade. The inquiry and sale pace of No.3 & No.4 low-grade stock remain stout. Mills are quoting production for the weeks of 9/7 – 9/14+ and prices started the week double-digits above last Friday’s levels and moved higher from there. Stud trim sales are robust and producers are quoting production scheduled for the week of 8/31 – 9/7+, with prices starting the week being quoted above last Friday’s levels. Demand from pro dealers, large box store retailers and pressure treaters for small squares and timbers was unrelenting again this week. Prices on 4x4, 4x6, and 6x6 were up double-digits first thing on Monday morning, just as they have been for the past 17 weeks in a row. Mills are quoting production scheduled for the weeks of 9/7 – 9/14+. Demand for 5/4 x 6 Standard and Premium Radius Edge Decking from pressure treaters remains nothing short of spectacular. This even as some producers have switched their production to decking to try to take advantage of the demand and pricing structure. Producers started the week, as they have for the past 16 weeks, quoting double-digits above last week’s triple-digit increases and prices continued to climb higher from there. Southern Pine producers continue to report that due to ongoing production (both machinery and personnel) and transportation issues they are currently shipping 2 – 7+ weeks behind schedule. The late shipments and a lack of available back up materials at the office wholesale and local 2-step distribution levels continue to give buyers heartburn. Maalox!

Pressure Treated -: The inquiry and sales pace of pressure treated lumber, plywood and accessories remains strong. But perhaps, not quite as strong as they have been in the previous 8 – 10 weeks. A lack of treated products continues to idle jobsites and leaves DIY projects unfinished. Treaters are trying to make inroads into their late shipments and extended production schedules. However, again, this week, COVID-19 related issues at their facilities, along with late mill shipments, a lack of available flatbed trucks and increasingly tighter supply of treatment chemicals, all contributed to delays in their production schedules. Buyers for their part are frustrated and fatigued. Even with little to no on ground inventory, several buyers have reportedly started to limit their purchases, due to the skyrocketing costs of products, the ever-increasing potential of downside risk and late shipments, that if the current delays were to continue, would have product delivering when the season typically starts to wane in many parts of the country.

OSB & Veneer Panels Overview –:  The inquiry and sales pace of OSB and plywood panels remains frenzied. Mills are quoting production for late Septembre \ early Octobre. Prices started the week in both plywood and OSB above last Friday’s historic levels and they continued to climb higher from there. Production and transportation problems continue to delay shipments by as much as 2 – 5 weeks beyond original shipment dates. And unfortunately, there is no relief in sight. As prices climb higher, buyers’ concern about late shipments and potential downside risk have them carefully weighting each purchase. However, their current low inventory levels continue to force them to stay in the marketplace or dare do without. Credit limit issues have shut some small to mid-sized dealers out of the marketplace, unless they agreed to net cash prior to shipment \ delivery terms.  

OSB -: The inquiry and sales pace of OSB remains energized. Even with prices at historic levels, torrid field consumption and the resulting need for dealer inventory continues to overwhelm mill production capabilities. Producers started the week quoting production scheduled for the weeks of 9/21 – 10/5+ and prices started the week double-digits above last Friday’s levels and climbed higher through the balance of the week. Several producers started and ended the week off market, as they continue to try to merge their production schedules with their contract and extra contract obligations. Buyers in need of immediate inventory relief again found a dearth of available panels at the mill or secondary levels. Late shipment due to production and transportation issues remain a hot topic between buyers and sellers.

Southern Pine Panels -: The inquiry and sales pace of Southern Pine Rated Sheathing continues to mirror previous weeks activities. The week started with many producers off market, still trying to reconcile orders and contract obligations with upcoming production schedules. A handful of trucks for the open market were quickly snapped up by buyers with long-time relationships with the mills and sold at a premium. Producers are quoting production for the week of 9/21 – 9/28+ and prices started the week being quoted double-digits above last Friday’s levels and moved higher from there. Buyers checked frequently with mills and office wholesalers about late shipments, some 2 – 4 weeks behind schedule, but, on a whole, those conversations bore little fruit for inventory starved buyers. Buyers in need of immediate replenishment again found a dearth of panels available at the mill or secondary levels. The sale of value-added panels – underlayment, sanded, siding, concrete form and other specialty panels remains robust and prices started the week being quoted at or modestly \ moderately above last Friday’s levels for production scheduled for the weeks of 9/7 – 9/14+.

Western Fir Panels -: The inquiry and sales pace of Western Fir Rated Sheathing remains steady to strong. Mills are quoting production for the weeks of 9/21 – 10/5+. Mills started the week quoting modestly \ moderately above last Friday’s levels and prices edged higher from there. Buyers seemed to gravitate to mills with production scheduled and hopefully available for shipments the last 2-weeks of Septembre, and they frequently paid a premium for those ‘quicker shipping’ loads. However, late shipments do persist due to ongoing transportation and production issues. As for panels available to cover near-term \ immediate needs, again, this week, there was little to nothing available at the mill or secondary level. The sales of underlayment, sanded, siding, concrete form and other specialty items were strong again this week. Mills are quoting production for the weeks of 9/7 – 9/14+ and prices are being quoted at or modestly / moderately above last week’s levels.

Food for Thought-:  It was another, turbulent, tumultuous, almost out of control week in the lumber and panel markets. Late shipments due to production and transportation issues have all been well documented and sadly show little to no signs of easing in the near-term. If anything, the issues seemed to intensify this week with several new COVID-19 outbreaks being reported at mills and treating facilities, This in turn, has caused production to cease, as the mill under goes (another in many cases) a deep cleaning and in many cases an entire shift of production workers have been sent home to self-quarantine and await test results. Many truck drivers are also purposely avoiding facilities where an outbreak is or has recently occurred.

While there doesn’t seem like there is much right now that could derail the lumber and panel market juggernaut there has been some rumblings, which started late last week, and the sound has grown a bit louder over the course of this week. Suddenly, we are hearing from low-grade buyers that are locked into contracts to make particular products for a set period of time and at a set price, reporting that they can no longer afford to purchase lumber and panels at these prices. Many are saying that they are at actual cost or in some cases they are selling each item at a loss. The words Force Majeure has frequently cropped up in conversations as a way to describe their way out of their predicament. We are also hearing about builders and developers and even home owners across North America, saying that they are either going to delay an upcoming project, or choose not to complete an ongoing project due to the cost of materials and a lack of available materials. The term most frequently being used to describe their sentiment is ‘Sticker Shock’. And when comparing the prices of lumber, panels and building materials from mid-March to mid-April, to today’s levels you can clearly understand why. As most of us can testify, prices are anywhere from 2 to 3+ times higher from when the pandemic first took its foothold in North America. As for dealers, as previously discussed credit lines are either bumping up against or are now over established limits. Large dealers with greater credit lines are reporting having a better chance of getting a mill to quote and ship them. While dealers with smaller limits are either passed over or are told up front that the shipment would need to be ‘cash before delivery.’

Now for the caveat . . . these are just conversations and whether these buyers can actually stop buying or only selectively purchase will depend on whether their customer is willing to pay the difference from the original cost of the project, to where it is as of the moment, or to wait or to dare to do without. Watch this space.