Notes from the Forest 9-16-22 Edition

Ladies and Gentlemen:?

Concerns about the potential for a U.S. nationwide rail strike, which has since been averted with a tentative agreement reached with all 12-unions, helped to draw buyers with lite field inventories back into the lumber and panel markets. Oddly enough, most of those buyers were in search of highly mixed truckload(s) needed to fill specific inventory outages. It was far from a runaway market, but the overall tone of the lumber and panel markets seemed a tinge more upbeat and while prices remained vulnerable on many items, some items were able to firm and some even move higher. ?

The U.S. Bureau of Labor Statistics on Tuesday (9-13-22) reported that the Consumer Price Index for All Urban Consumers (CPI-U) increased 0.1% in August, on a seasonally adjusted basis. This followed no reported change in July, and an increase of 1.3% in June, 1.0% in May, 0.3% in April, 1.2% in March, 0.8% in February and 0.5% in January. Over the past 12 months, the all-item index has increased 8.3% before seasonal adjustment. The 8.3% increase in August is a smaller figure than the 8.5% increase reported for the period ending in July. ?

Spruce Markets -: Producers’ efforts to stabilize and advance prices in the Eastern and Western SPF Std. & Btr., and No.2 & Btr., markets last week, were bolstered by Monday’s significant upward movement in the CME Lumber Futures market. However, Tuesday back months dropped, and Wednesday and Thursday’s current and back months drops had buyers who had purchased modest volumes late last week and early this week questioning their decisions. Western mills markets started the week quoting at or above last Friday’s levels and prices held at or trended modestly higher from there, for shipment available for the week of 10/3+/-. Eastern producers started the week quoting below last Friday’s levels and prices held at or traded on either side of those levels from there, for shipment the week of 10/3+/-. Low-grade sales in both markets continue to lack energy. Mills started the week quoting low-grade at or below last Friday’s levels and prices traded at or edged lower from there, for shipment available the week of 9/26+/-. Buyer’s concerns about inflation and the overall strength of the housing markets for the balance of the year limited their interest in the stud markets. Mills started the week quoting stud trims at or on either side of last Friday’s levels and prices traded in a similar pattern from there, for shipment available the week of 9/26+/-. Trucking availability showed signs of improvement, just as railroads slowed service in anticipation of a U.S. nationwide rail strike, which has since been averted.?

CME Lumber Futures –: The CME Lumber Future Contract for September expired today, Thursday, 9-15-22, at 12:00 Noon CDT. For the past 5-days (9/9 – 9/15) CME Futures were up 2-days and down 3-days. For the past 5-days CME Futures have lost $29.90 and are trading below the Midweek Cash Market $515, by $31.50, CME Futures at $483.50. November is now the forward month, and it will expire on Tuesday 11-15-22 at 12:00 Noon CST. For the day (9/15/22), CME Futures down $35.40 and were trading below the Midweek Cash Market $ 515 by $ 24.70 CME Futures at $ 490.30. One Year Ago, today (9-15-21) CME Futures closed at $454.40.?

Hem\ White Fir -: Sales in the Hem \ White Fir Std. & Btr., and No. 2 & Btr., built unevenly on last week’s improved pace. Buyers remain cautious and prompt shipment on a highly mixed tally, needed to fill specific inventory outages, was the key to a successful sales transaction for any mill or secondary. Mills started the week quoting construction grade at or on either side of last Friday’s levels and prices proceeded to trade in a similar pattern from there; for production available for shipment, the week of 10/3+/-. Demand for low-grade remains sluggish. Mills started the week quoting low-grade at or below last Friday’s levels and prices held at or trended lower from there, for shipment available the week of 9/26+/-. Stud trim sales remained on the quiet side this week. With producers having certain stud trims ready for prompt shipment, mills started the week quoting at or modestly below last Friday’s levels and listened carefully to ‘reasonably small’ counteroffers. Truck availability eased, but empty railcars tightened. ?

Green Doug Fir -: Follow through from last week’s modest uptick in the Green Doug Fir (GDF) Std. & Btr., and No.2 & Btr market was helped along this week by a strike at Weyerhaeuser facilities in Oregon and Washington and the potential for a nationwide (since averted) freight railroad strike. Apart from 2x10, where pricing remains soft, producers were able to start the week quoting the remainder of the complex at or above last Friday’s levels, and prices proceeded to trade at or edge higher from there, for production available for shipment the week of 10/3+/-. Low-grade sales remain slow but steady. Mills started the week quoting low-grade at or modestly below last Friday’s levels and prices held at or drifted lower, for shipment available for the week of 9/26+/-. Buyer interest in stud trims was focused on 2x6 and prompt shipment. Mills started the week quoting GDF stud trims at or below last Friday’s levels and prices traded at or on either side of those levels from there, for shipment available, depending on the tally, anywhere from prompt to the week of 9/26. Trucking showed signs of improvement; however, rail service was definitely slower as railroads cut service during the week in preparation for the potential of a nationwide rail strike, which has now been averted. ?

Cedar Lumber -: ?Trading in the Western Red Cedar lumber market remains lackluster. While traders noted a very modest uptick in inquiry and sales, almost all of the activity was limited to must have fill in replenishment, that needed to ship promptly, and depending on the specific item a price concession was also part of the sales scenario. As in previous weeks, if it was a slower moving item, boards, dimensional decking, fencing, or narrow width dimensional lumber, mills were willing to accommodate the buyer. However, on items that remain in tight supply, siding, timbers, wide dimension and now a tighten supply of 5/4 x 6 decking, producers were far less willing to accept those lower price offers. Trucking showed signs of improving but longer hauls to several specific locations remain difficult to cover. ?

Shake & Shingles -: ?Western Red Cedar (WRC) Shakes and Shingles producers in both B.C. and Washington State, reported that the level of inquiries continued to improve during the week, with a handful of significant volume projects being quoted. However, converting those inquiries into sales remains challenging. As a result, producers started the week at quoting at or modestly below last Friday’s levels and listening to counteroffers in the hopes of finding a trading level that would prompt buyers to offer a purchase order. Those lower prices, in many instances, were the cause for buyers to pause and hesitate to purchase at this time; waiting and hoping for even lower prices in the weeks to come. ?

Southern Pine -: ?The Southern Pine No.1 and No.2-dimensional lumber markets started the week with increased buyer engagement. No one was looking to load the warehouse, but with field inventories lite and early Q4 typically busy as builders look to button up projects, covering near-term and a bit extra, appeared to be the goal of most pro dealer and buyers for treaters. Buyers’ interest in No.1 grade was stronger than for No.2. Mills started the week quoting construction grade lumber 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 9/26+/-. High-grade sales are tepid, but mills have been able to parlay extended production schedules to hold prices firm to modestly higher. Low-grade sales remain lackluster as industrial users continue to report slower sales and replenishment needs. Mills started the week quoting low-grade at or below last Friday’s levels and prices held at or trended lower from there. Stud trim pricing continues to give ground as producers lower prices to remain competitive with the other species. The dynamics in the small square and timber markets remains little changed from previous weeks. Buyers’ interest in 6x6 remains steady and prices are moving incrementally higher. 4x4 sales are focused on the treater’s lengths of 8’- 12’ and prices are holding steady, while 14’ and 16’ pricing remains vulnerable. 4x6 is still in search of a trading level and mills started the week quoting below last Friday’s levels. Sales of 5/4 x 6 Standard and Premium Radius Edge Decking to treaters continues to cool as the end of the treated season draws near. Mills started the week quoting R.E.D at or on either side of last Friday’s levels, for production available for shipment the week of 9/26+/-. Trucking appeared to be modestly improving. ??

Pressure Treated-: The uptick in pressure treated sales at the large box store level had minimal follow through this post Labor Day week. As many holiday DIY projects were minor fixes or short-term projects. Pro dealers who service the multifamily and tract builders continue to report steady but somewhat slowing sales as builders continue to focus on the completion of in progress projects. Both pro dealers and large box store retailers are continuing to manage their inventory levels on the lean side. This as they try to limit their exposure to both the downside risk in the market and the soon to be changing of seasons and a slower building pace. Trucking availability loosened slightly during the week. ?

OSB & Veneer Panels Overview –: ?Conflicting messages coming from the OSB, and plywood markets had panel buyers wanting to limit their exposure to the potential of further market gyrations. In addition, concerns about inflation, other economic issues, Q4 consumption, as well as waiting for August housing data, which will be released next week, further reinforced buyers’ desire to limit any purchases to immediate needs, which had to ship promptly, and that the mill or secondary was willing to consider their counteroffers. Some OSB buyers sensed a bottom might be attempting to form, while others remained dubious. Trucking availability improved in many regions, and with a nationwide rail strike averted, traders are now hoping for improved and more reliable rail service. ??

OSB -: ?Even as some buyers sensed a bottom was forming in the OSB markets, they nevertheless remained concerned about the potential for further price deterioration and the impact negative housing and economic news would have on consumption during Q4. As a result, buyers continue to limit their purchases to covering early Q4 needs, while showing little interest in expanding their purchases beyond that. Mills started the week quoting OSB at or below last Friday’s levels and prices continued to trade in a similar pattern from there; for production available for shipment the week of 9/26+/-. Office wholesalers continued to offer their contract ownership at or modestly below mill replacement levels and emphasized their ability to control shipment of that ownership, perhaps, better than a mill. Trucking was improving in many areas but was still tight in others. ??

Southern Pine Panels -: Southern Pine Rated Sheathing sales continue to be devoid of energy. What little interest there was in the marketplace was focused on thinner panels. Buyers are reporting that they are receiving their contract and recent open market purchases in advance of quoted shipment dates. After weeks of flat pricing, mills last week opened to counteroffers to help eliminate excess inventory and those cracks widened further during the week. With the prices in the process of correcting, buyers limited their purchases to units or a highly mixed truckload to cover immediate needs, which had to ship promptly and which the mill or secondary was willing to accept their counteroffers. Mills started the week quoting below last Friday’s levels, opened to ‘reasonable’ counteroffers, which resulted in prices declining further, with shipment available on most items as soon as a truck could be secured. Mill Cert., sales were not immune to the markets’ downward pressure. Mills started the week quoting Mill Cert., at or below last Friday’s levels and prices traded unevenly lower from there, with prompt shipment available on most thicknesses. The inquiry and sales pace of concrete form, siding, underlayment, and other specialty panels slowed during the week. Mills started the week quoting the entire complex at or below last Friday’s levels and prices traded at or modestly below those levels from there; for production available for shipment the week of 9/26+/-. Trucking improved in some areas of the South but remained difficult in other areas. With a nationwide rail strike averted, pending union ratification of the agreement, both buyers and sellers are hoping for improved and more reliable rail service. ?

Western Fir Panels -: ?Western Fir Rated Sheathing sales remain lackluster. With prices declining but still well above average, buyers’ concern about further price deterioration was heightened. As a result, buyers are limiting their purchases to highly mixed truckloads, which needed to ship promptly and with the mill or secondary willing to accept their counteroffers. Extended production schedules were typically a nonstarter for buyers. Carload volume buyers were noticeably absent from the market again this week. Mills started the week quoting below last Friday’s levels and prices proceeded to decline further from there; for production available for shipment the week of 9/26+/-. The inquiry and sales pace of CD Struct I, CC, CC PTS and Mill Cert. continue to trade in their familiar pattern. With mills starting the week quoting the entire complex at or below last Friday’s levels and prices traded in a comparable pattern from there, for shipment the week of 9/26+/-. The inquiry and sales pace of value-added panels remains slow but steady. Mills started the week quoting concrete form, sanded, and siding at last Friday’s levels and prices continued to trade at or a few dollars lower. Sales of underlayment are failing to keep up with production and mills started the week quoting below last Friday’s levels and prices trended lower from there. Mills are offering shipment on all value-added panels for the week of 9/26+/-. ?

Food for Thought -: Granted, it is only mid-September but here’s hoping that the Old Farmer’s Almanac (OFA) is off target on their recently released prediction for winter 2022 – 2023. The OFA boasts of an accuracy rate of 80%+ on their 2022 predictions. Of course, if you consider their 200 years of publications it is probably closer to 50%, but still way better than Punxsutawney Phil, or other famed weather predictors. ?

Without giving away the entire plot, the OFA is forecasting that winter 2022 – 2023 will start earlier than last year, closer to Thanksgiving, as opposed to the Winter Solstice which will start on Wednesday, December 21st, 2022. The front cover of the OFA winter predictions says it all, as it advises readers to prepare to “Shake, Shiver and Shovel,” this upcoming winter season. ?

Over the past 32+ months traders have seen a variety of weather and other outside influences, the pandemic for instance, and now inflation, higher interest rates, sales of new and existing homes going from red or white hot to cool and slumping, declining builder confidence, along with other socioeconomic headwinds. These events have sent the lumber and panel market prices soaring to new record highs, only to see them abruptly plunge, only to soar higher again and then drop. As financial advisers like to say, ‘keep in mind that past performances do not guarantee future results.’?

At this point you would think that traders would have seen or heard just about everything and would be prepared for the challenges of the markets. However, as always it is important to separate the facts about the markets, from the hype, rumors, and position talk. Although certainly difficult to do, as buyers begin the daunting task of preparing to cover Q4 needs, try to keep emotions out of the purchasing equation. Perhaps it is time to return to my old mantra of 30 – 45 days on the ground or coming at you. Do allow for shipment disruptions but do not forget that having too much inventory, can be just as detrimental and painful or perhaps more so than having too little. Just because the herd is suddenly on the move, does not mean you have to run with it. Just some food for thought.?