Notes from the Forest 8-7-20 Edition

Ladies and Gentlemen:

It was yet another challenging week for traders in the lumber and panel markets. Prices on lumber and panels products continued their climb into the unknown, unfamiliar and record high territory. If a buyer was fortunate enough to get a call from a mill or office wholesaler with a truckload of product, they usually had less than 2 – 3 minutes to make up their minds and issue a PO number. On top of that, many buyers have had to deal with credit limit level issues; with some of the line being eaten up by product that is currently 2 – 8 weeks behind on scheduled shipment. Mill production schedules for August are just about completely filled and buyers found themselves purchasing for the first 2-weeks of Septembre, or 35 – 42 days away, and that was if the order were to ship on time. Buyers looking to cover near-term needs, once again found a dearth of product at the mill or secondary level. Truck availability remains extremely tight and as a result, freight prices are quickly moving higher, which is further adding to buyer’s anxiety levels.

The U.S. Census Bureau has announced that construction spending during June 2020 was estimated at a seasonally adjusted annual rate of $1,355.2 billion, -0.7% below the revised May estimate of $1,364.7 billion. The June figure is 0.1% above the June 2019 estimate of $1,354.1 billion. During the first six months of this year, construction spending amounted to $667.9 billion, 5.0% above the $636.0 billion for the same period in 2019. Spending on private construction was at a seasonally adjusted annual rate of $1,001.9 billion, -0.7% below the revised May estimate. Residential construction was at a seasonally adjusted annual rate of $534.2 billion in June, -1.5% below the revised May estimate. Nonresidential construction was at a seasonally adjusted annual rate of $467.7 billion in June, 0.2% above the revised May estimate. In June, the estimated seasonally adjusted annual rate of public construction spending was $353.3 billion, -0.7% below the May estimate. With educational and highway construction all reporting below May’s levels.

Spruce & Stud Markets -: The inquiry and sales pace of Western and Eastern Canadian SPF Std., & Btr., and No. 2 & Btr., remains robust. The Civic Day Holiday celebrated in Canada this past Monday, only seemed to intensify buyers’ need for dimensional lumber products. ESPF buyers who were anticipating improved availability with the Quebec mills returning from their 2-week summer hiatus were disappointed by the limited number of mill offerings. Mills are quoting production scheduled for the weeks of 8/31 – 9/14. Prices started the week double-digits above last Friday’s levels and continued to climb higher from there. Late shipments due to never ending production and transportation issues remain an ongoing problem for buyers with lite field inventories and is further being exacerbated by limited supplies at the secondary level. Anything available for close to prompt shipping sold at a major premium to mill reported levels. Demand for low-grade stock remains strong. Mills are quoting production scheduled for the weeks of 8/17 – 8/24+ and prices were being quoted above last week’s levels on Monday morning. Stud trim sales are nothing short of spectacular. Mills simply cannot keep up with the surging demand. Mills started the week quoting production for the weeks of 8/17 – 8/24+ and prices were double-digits above last week’s reported levels first thing on Monday morning and prices climbed higher 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 (7/31 – 8/6) CME Futures were up 5-days in a row. CME Futures have gained $ 61.20 for the week and are trading below Midweek Cash $ 645 by $3.40, CME $ 641.60.

 Hem\ White Fir -: The inquiry and sales of Coastal and Inland Std. & Btr. No.2 & Btr., White and Hem-Fir continues at its breakneck pace. Mills are quoting production scheduled for the weeks of 8/24 – 9/7+. Again, this week there was little to no quicker shipping dimensional lumber available at the mill or secondary level. Prices started the week, with a few exceptions, double-digits above last Friday’s reported levels and the entire complex climbed higher from there. Late shipments, in the 2 – 4 weeks range, due to production and transportation issues continue to raise buyer’s frustration levels. Sales of low-grade stock remain strong and mills are quoting production for the weeks of 8/17+, with prices continuing to be quoted at, or modestly above last week’s levels. Stud trim sales continue at their record-breaking pace, with mills quoting production scheduled for the weeks of 8/17 - 8/24+. Prices on stud trims started the week being quoted double-digits above last week’s reported levels and prices moved higher from there. 

Green Doug Fir -: The inquiry and sales pace of Green Douglas Fir Std. & Btr., & No. 2 & Btr., remains dynamic. Mills are quoting production, depending on the specific tally, for the weeks of 8/31 – 9/14+. However, shipments are continuing to run 2-3 weeks behind scheduled due to ongoing production and transportation issues. Prices started the week double-digits above last Friday’s already historic levels and they continued to push higher from there. Buyers looking for prompter shipping product continue to find little, if any product available. Low-grade sales are steady and mills are quoting production scheduled for the week of 8/17 – 8/24+. Mills started the week quoting low-grade at or slightly above last Friday’s levels. Sales of stud trims remain stellar and mills were quoting double-digits higher on Monday morning for production scheduled for the week of 8/17 – 8/24+. 

Cedar Lumber -:  The inquiry and sales pace of Western Red Cedar (WRC) boards, fencing, dimension, radius edge decking, siding, timbers and pattern stock remains chaotic. Demand for product continues to exceed mill production capabilities. Large box store retailers and pro dealers simply cannot get enough product in house and on order to keep up with their customers’ demands. Producers are reporting that logs supplies are suddenly tightening and noted that if that trends continues, it will quickly, negatively impact production. Mills have not been able to increase production as they would have liked to. Safety regulations around the COVID-19 virus makes adding production personnel unfeasible at this time. Mill production schedules for 5/4 x 6 Decking and fencing items are currently early to mid-Octobre. Mills are quoting production scheduled for early to mid-Septembre on boards, dimensional lumber, siding, pattern stock, small squares and timbers. Mills started the week quoting double-digits above last Friday’s levels. Many buyers have opted for the Price Time of Shipment as a way of getting in line for finished product and having some price protection in the event of the market’s changing course.

Shake & Shingles -: The inquiry and sales pace of Western Red Cedar (WRC) Shake and Shingles and Eastern White Shingles (EWS) slowed further over the course of the week. Even with the Freshet subsiding on the Fraser River, logs remain in tight supply and pricey. As a result, mills continue to run curtailed production levels, while others remain closed since the end of last year. Buyers clearly frustrated by the lack of mill production and product availability, along with already late shipments continued their search for alternative species and man-made products over the course of the week. Prices continue to trade at, or modestly above previously established levels. 

Southern Pine Lumber -: The inquiry and sales pace of Southern Pine No.1 and No. 2 dimensional lumber remains intense. Unrelenting demand from retailers, pressure treaters, as well as secondaries continues to overwhelm mill production capabilities. Mills were quoting double-digits above last Friday’s level first thing on Monday morning and prices moved higher from there. Mills are quoting scheduled production for the weeks 8/31 – 9/14 and there is little prompt shipping wood available in the markets. The inquiry and sales pace of high-grade stock – D.S.S., S.S. and MSR, remains stout. Truss and modular home manufacturers are reporting progressively stronger sales and their need for replenishment inventory continues to grow and in turn is pushing mill production to the limit. High grade prices continue to sell at a premium to No.1 construction grade. The inquiry and sale pace of No.3 & No.4 low-grade stock remain steady. Mills are quoting production for the week of 8/17 – 8/24+ and prices started the week being quoted above last Friday’s levels. Stud trim sales remain robust and producers are quoting production scheduled for the week of 8/17- 8/24+, with prices being quoted above last Friday’s levels first thing on Monday morning.  Producers simply cannot keep up with the demand from pressure treaters, pro dealers and large box stores for small squares and timbers. Prices on 4x4, 4x6, and 6x6 started the week double-digits above last Friday’s levels and climbed steadily higher through the balance of the week. Mills are quoting production scheduled for the weeks of 8/17 – 8/24+. Demand for 5/4 x 6 Standard and Premium Radius Edge Decking from pressure treaters remains nothing short of spectacular. Mills are no longer providing buyers with a firm production schedule time frame. Prices started the week being quoted high double-digits above last Friday’s triple-digit higher reported levels. Mills are reporting that late shipments (2 –8 weeks) abound as they continue to deal with an outbreak of confirmed COVID-19 cases at their facilities. This has resulted in their need take down time to deep clean the facility as well as letting those who have been in contact with confirmed cases self-quarantine for 14 days. Mills are also continuing to report machinery breakdowns and transportation issues.

Pressure Treated -: The inquiry and sales pace of pressure treated lumber, plywood and accessories continues at its blistering pace. Demand from pro dealers and large box retailers continues to overwhelm treaters ability to produce finished product. Treated buyers continue to follow up daily, or more frequently, on late shipments. While at the same time trying to show some flexibility to their treated supply partners. Nevertheless, the lack of treated product is resulting in DIY projects remaining uncompleted and some jobsites stalled due to lack of product. Treaters’ production issues are well documented. Topping the list are late mill shipments, treating chemical in tight supply, a lack of flatbed trucks and coronavirus issues, all which continue to hamper production and shipments to customers in a timely manner. Some shipments are running 3 – 7 weeks late.

OSB & Veneer Panels Overview –:  The inquiry and sales pace of OSB and plywood panels remains chaotic. Producers continue to report that they are unable to keep up with surging demand due to ongoing production and transportation issues. Making a bad situation . . . worse.  Prices on OSB and Southern Pine plywood started the week double-digits above last Friday’s level. Western Fir once again trailed the pack. All prices moved higher through the remainder of the week. Mills are quoting production for the weeks of 8/24 – 9/14. Contracts and extra contracts are receiving producer’s full attention. As a result, there were little to no open market panels available for spot cash buyers. Secondaries are lite on product as well. 

OSB -: The inquiry and sales pace of OSB remains fully energized. Again, this week, demand continued to well outpace mill production capabilities. A majority of producers started and ended the week off market. As they concentrated their full attention on trying to get caught up with late contract and extra contract shipments. Mills are quoting production for the weeks of 8/31 – 9/14. Prices were up double-digits above last Friday’s reported levels first thing on Monday and they continued to climb higher from there. It was being reported that a handful of mills were offering Price Time of Shipment to ally buyers’ pricing concerns. Buyers looking for open market panels to purchase at either the mill or secondary level, even for the extended production schedules, found little if anything available. If a buyer was fortunate enough to stumble onto a quicker shipping truckload, it typically came at a significant premium.

Southern Pine Panels -: The inquiry and sales pace of Southern Pine Rated Sheathing was a bit more subdued this week. Especially, when compared to the activity of the past 6 – 8 weeks. Mills started the week having little to no open market panels available and quoting production for the weeks of 8/31 – 9/7 +. Prices started the week double-digits above last Friday’s reported levels and prices continued to edge higher over the course of the week. Buyers, and that includes those with contracts, started the week checking on late (2 – 4 weeks) shipment and listening to producer’s issues about lost production due to machinery failures and a surge in COVID-19 cases at their facility; along with the never-ending transportation SNAFUS.  Buyers in need of prompter shipping panels made the rounds again through the mill and secondary markets and once again found a dearth of available panels. The sale of value-added panels – underlayment, sanded, siding, concrete form and other specialty panels remains steady to strong and once again, prices started the week being quoted above last Friday’s levels for production scheduled for the weeks of 8/17 – 8/24 +.

Western Fir Panels -: The inquiry and sales pace of Western Fir Rated Sheathing remains steady. Mills are quoting production for 8/31 – 9/14+ and prices started the week being quoted modestly / moderately above last Friday’s levels and they edged higher from there. Buyers in need of quicker shipping panels continue to search through the mill and secondary markets, but once again found little to anything available. Due to ongoing production and transportation issues, mills and secondaries are continuing to report they are shipping 2 – 3+ weeks behind schedule. Which is making limited supplies, even tighter. 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 8/17 – 8/24+ and prices were being quoted at or above last week’s levels throughout the entire complex.

Food for Thought-: “Those who cannot remember the past are condemned to repeat it.” Those are the words of George Santayana, a Spanish born philosopher, who wrote them in his The Life of Reason, Volume 1, written in 1905. Those words are certainly ringing true 115 years later – especially in the lumber, and panel industry.

If you are wondering if buyers remember the history and lessons learned from the 2018 lumber and panel markets debacle, first going to record highs, only to abruptly plunge to new lows, the answer is a resounding, YES! Buyers continue to check daily, if not more frequently with producers and secondaries about late shipments. Buyers acknowledge that machinery does breakdown and know transportation issues are always plentiful, especially at this time of the year. They understand that the coronavirus has completely changed the production process and is limiting the number of people on the mill floor and in the shipping office. However, the impact of late shipments on jobsite activity, as well as DIY projects is starting to stall building and DIY projects and furthermore it is negatively impacting their relationship with their customers, who are looking for construction materials, not excuses.  

Over the past 10 – 14 days, shipments from production scheduled early to mid-June have finally started to arrive at their destinations. Buyers are starting to calculate that if late shipments were to persist within the current time frame (2 – 8 weeks), that would mean production scheduled for early to mid Septembre would actually be arriving anywhere from mid to late Septembre through mid to late Octobre. In areas where winter is not a particular hardship, it is probably in and of itself no big whoop. But as buyers Up North know, once you get past mid Octobre – anything can and usually goes. Then of course there is the price and the obvious potential for downside risk. Late shipments arriving just as demand declines and prices drop would be a repeat of 2018. As you may recall several companies both on the buy and sell side did not survive intact from that sudden and swift change of events.

This week buyer’s anxiety levels seemed to be increasing and they appeared to be much more vocal about their concerns. While trying to remember lumber and panel purchasing protocol, many buyers are asking mills and secondaries for greater clarity on shipment dates and asking that some level of price protection be added to those late shipments. Perhaps, PTS or quoted levels whichever is less. Needless to say, producers and secondaries are not particularly interested in that scenario. Which, in turn, has many buyers saying in early August, that they need to carefully limit their new purchases until we get past Labor Day and see how the markets are performing. If this sounds familiar it is an exact repeat of their thinking prior to Memorial Day and the 4th of July. But they keep asking, why buy more of what you need but can’t get, only to have it all arrive when you don’t need it?

Will their lack of participation be enough to trigger a slowdown in price increases? Perhaps a correction? Or will this be as Shakespeare said, ‘the sound and the fury that signifies absolutely nothing?’ Meaning they will return sooner rather than later to the marketplace and buy pressing needs.  As they say on TV . . .  Watch this space.