Notes from the Forest

Ladies and Gentlemen:?

With downside risk quickly becoming a reality on many lumber and panel products, buyers headed for the safety of the sidelines. The softness in the markets, which started mid-last week has quickly expanded. Even a sudden upward surge in CME Lumber Futures could not alter buyers’ view of the markets. As a result, buyers are further restricting their purchases to must have fill ins. Often looking at a substitute product (higher grade or longer length) already in stock, before considering purchasing additional inventory. If a purchase were necessary a local 2-step distributor was the preferred source for units out of warehouse. Producers with extended production schedules did their best to hold prices steady but a lack of sales during the week had them more open to ‘modest’ counteroffers as the week progressed. Office wholesalers with contract ownership sold below mill replacement levels and a 2-step market has developed. Transportation issues continue to delay shipments much to buyers’ understandable frustration.?

The U.S. Census Bureau has announced on Monday (11-1-21) that total construction spending during September 2021 was estimated at a seasonally adjusted annual rate (SAAR) of $1,573.6 billion, -.05% below the revised August estimate of $1,582.0 billion. The September figure is 7.8% above the September 2020 estimate of $1,459.3.0 billion. During the first 9-months of this year, construction spending amounted to $1,177.5 billion, 7.1% above the $1,099.8 billion for the same period in 2020. Private construction spending was at a SAAR of $1,229.9 billion, -0.5% below the revised August estimate of $1,236.1 billion. Residential construction was at a SAAR of $773.5 billion in September, -0.4% below the revised August estimate of $776.8 billion. Nonresidential construction was at a SAAR of $456.4 billion in September, -0.6% below the revised August estimate of $459.3 billion. In September, the estimated SAAR of public construction spending was $343.7 billion which was -0.7% below the revised August estimate of $345.9 billion. Educational construction was at SAAR of $80.7 billion, 0.9% above the revised August estimate. Highway construction was at a SAAR of $99.8 billion, -0.7% below the August estimate.?

Spruce & Stud Markets -: The inquiry and sales pace of Western and Eastern Canadian SPF Std., & Btr., and No. 2 & Btr., remains subdued. The prices softening that appeared mid-last week continued to expand during the week. This as CME Lumber Futures basis-traded offering entered the market; reportedly being quoted well under mill replacement. A 2-tiered market has quickly developed, with secondaries working feverishly to sell off any contract and\or open market ownership. Producers started the week quoting below last Friday’s levels and prices moved lower from there; for production available for the week of 11/15+/-. Buyer concerns about the growing price correction had many of them turning to local 2-step distributors for units out of warehouse. Low-grade sales, especially the narrow widths, continues to hold steady. Mills started the week quoting low-grade at or modestly above last Friday’s levels and price were flat to slightly higher; for production available for shipment the week of 11/15+/-. Stud trim sales remain sluggish. Mills started the week quoting stud trims at or below last Friday’s levels and prices moved lower from there; for production available for shipment the week of 11/15+/-. Transportation issues had buyers wary of purchasing from sellers shipping from a distance.?

CME Lumber Futures –: The CME Lumber Future Contract for November will expire on Monday November 15th, 2021, at 12:00 Noon CST. For the past 5 days (10/29 – 11/4), CME Futures were up 2-days and down 3-days. CME Lumber futures have lost -$7.60 and are trading above the midweek Cash Market of $590 by $16.00 CME at $606.00. One Year Ago, today (11-04-20) CME Futures closed at $549.00.?

Hem\ White Fir -: The inquiry and sales pace of Coastal and Inland Std. & Btr. No.2 & Btr., White and Hem-Fir, lost additional energy during the week. Softness in the WSPF and panel markets has crept into the Hem\White Fir markets, giving buyers additional reasons to be cautious and to keep inventories lite. As a result, many buyers are limiting their purchases to immediate needs. Often turning to local 2-step distribution for units out of warehouse as they try to limit their exposure to downside risk. Again, this week, buyers’ attention remained focused on the narrow widths. Producers started the week quoting construction grade products 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 11/22+/-. Growing needs from the industrial sector for low-grade continues to keep demand ahead of supply. Mills started the week quoting low-grade at or above last Friday’s levels and prices traded close to those levels from there; for production available for shipment the week of 11/22+/-. Stud trim sales have also cooled. Slower sales had mills starting the week quoting at or on either side of last Friday’s levels and prices traded flat to lower from there; for production available for shipment the week of 11/15+/-. ?

Green Doug Fir -: The inquiry and sales pace of Green Douglas Fir (GDF) Std. & Btr., & No. 2 & Btr., has suddenly become lackluster. With high double-digit differences, in the narrow widths, still in play between KD products and GDF, buyers in a position to make the switch continue to do so, but at a noticeably slower pace this week. Mills started the week quoting construction grade GDF at or above last Friday’s levels and prices traded at or moved modestly higher from there; for production available for shipment the week of 11/22+/-. Sales of long lengths (22’+) continue to accelerate with some mills not having production available until early to mid-December. Demand for low grade continues unabated. Mills started the week quoting low-grade above last Friday’s levels and prices trekked higher from there; for production available for shipment the week 11/22+/-. Stud trim sales slowed in step with other western species. Mills started the week quoting stud trims at last Friday’s levels and price traded in a narrow range on either side of those levels from there; for production available for shipment the week of 11/22+/-.??

Cedar Lumber -: ??The inquiry and sales pace of Western Red Cedar (WRC) boards, fencing, dimension, radius edge decking, siding, pattern stock and timbers remains slow but steady. Traders noted that unlike the previous 2 years, at this time, pro-dealer buyers do not seem to be as keen on getting next year’s programs formalized. The same cannot be said about the buyers for the large box store retailers, who are actively pursuing those programs. Traders frequently discussed the expected increase in duties on lumber shipments coming into the U.S. from Canada as they wondered what the impact might be on the overall WRC markets. Many pro dealer buyers have indicated that very issue is of one of the major causes for their hesitancy on wrapping up a 2022 program. With supply and demand just about in sync, mills started the week quoting 1” boards, decking, dimensional lumber, various siding patterns, timbers, and fencing at or on either side of last Friday’s levels. Transportation issues continue unabated. ?

Shake & Shingles -: The inquiry and sales pace of Western Red Cedar (WRC) Shake, and Shingles continue at their previously established patterns. Shingles remain in tight supply, with buyers once again noting the scarcity of both R&R’s and No.1 Perfections, and that their prices are being quoted higher again this week. 5X Shingles are more available and as a result, their prices held at last Friday’s levels. The sale of Mediums and Heavy Shakes are not quite as strong. With supply and demand just about in sync, mills started the week quoting Shakes at last Friday’s levels. Mills have made some inroads on production of late shipments. That, however, is little comfort to buyers who are still waiting for shipments due out 4 – 7 months ago. Transportation issues continue to add another layer of complexity into the markets.?

Southern Pine Lumber -: ?The inquiry and sales pace of Southern Pine No.1 & No.2-dimensional lumber has suddenly stalled. Buyers started the week limiting their purchases to near-term needs, as the potential for downside risk moved to the forefront of every purchasing decision. The limited number of orders this week were for a highly mixed truckload(s). Which buyers allowed the mills, and secondaries to fight over the order for. ?Producers started the week quoting 2x4 and 2x8 at or above last Friday’s levels, while quoting 2x6, 2x10, 2x12 at or below last Friday’s levels and prices traded in a similar pattern from there; for shipment, the week of 11/22+/-. Demand for high-grade remains strong. Buyers willingly paid more this week to get much needed production inventory on order, and hoped for shipment the week of 11/22. Low-grade sales continue to hold steady. Mills started the week quoting low-grade above last Friday’s levels and prices edged higher from there; for production available for shipment the week of 11/22+/-.?Demand for stud trims remain steady. Mills started the week quoting stud trims at or modestly above last Friday’s levels and prices traded at or moved slightly higher from there; for shipment, the week of 11/22+/-. Small squares and timbers experienced a shift in market demand. 4x6, which had languished for the past several weeks returned to life, as lower prices had domestic and buyers from Mexico active in the marketplace. Demand for 4x4 and 6x6 eased. Mills started the week quoting all 3-items at or on either side of last Friday’s levels and prices traded in a similar pattern from there; for shipment, the week of 11/22+/-. Demand for 5/4 x 6 Standard and Premium Radius Edge Decking continues to outpace limited mill production. Mills started the week quoting both grades 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 11/22+/-. Transportation issues continue to delay shipments.?????

Pressure Treated -: ?The inquiry and sales pace of pressure treated lumber, panels and specialty items remains unrelenting. Even the recent change in the weather pattern did little to slow the demand down from tract and multifamily builders and the DIY sector remains active as well. It was being reported that several buyers are attempting to line up product for deliveries for mid-November into early December, as their deck building customers try to complete projects promised for completion prior to year’s end. A pending price increase on the chemicals used in the pressure treatment process had both buyers and treaters wondering what the impact will be on production costs for the remainder of the year and into Q1 of 2022.?Transportation issues continue to delay inbound brite feedstock to treaters facilities, as well as outbound finished product to anxiously waiting dealers. ?

OSB & Veneer Panels Overview –:?The OSB and panel markets remain lackluster. Downside risk has buyers nervous, cautious, and concerned. Widening price cracks in the Southern Pine markets, and an overall flattening in the OSB and Western Fir markets had many buyers opting for the safety of local 2-step distribution services. Avoiding the shipment delays at the mill and office wholesaler level and limiting their exposure to a sudden devaluation in market pricing. Mills with production schedules as far out as the week of 11/22, did their best to hold the line on pricing, but as sales continued to drag throughout the week, mills became more amiable to discussing (not necessarily accepting) small counter offers. ?

OSB -: The inquiry and sales pace of OSB remains lackluster. Uncertain of the OSB market’s direction, buyers limited their purchases to near-term needs, while avoiding any speculative purchases. Local 2-step distributors helped many buyers fill in inventory gaps, enabling them to limit their exposure to the potential for downside risk while at the same time avoiding the transportation issues with shipments coming from mills or office wholesalers. Mills started the week quoting at last Friday’s levels and prices traded at or modestly below those levels from there; for production available for shipment the week of 11/22+/-. Mills were encouraging buyers with contracts to take advantage of the extra contract loads available this month. However, only a tiny fraction of those buyers accepted their invitation. ?

Southern Pine Panels -: The inquiry and sales pace of Southern Pine Rated Sheathing continues to dwindle. Buyers chased after late shipments and limited their purchases to covering immediate needs. Often turning to local 2-step distributors for units out of warehouse to limit their exposure to a correcting marketplace and to guarantee that shipment would be as soon as the next route truck delivery day. Producers started the week quoting below last Friday’s levels and prices traded lower from there; for production available for shipment the week of 11/22+/-.?Demand for Mill Cert. stabilized, as mills have been able to sell off a large amount of their excess inventory. Mills started the week quoting Mill Cert. at or slightly above last Friday’s levels and prices traded in a similar pattern from there; for shipment, the week of 11/15+/-. The inquiry and sales pace of underlayment, sanded, siding, concrete form and other specialty panels remain subdued. Mills started the week quoting specialty panels at or below last Friday’s levels and prices hovered close to those levels from there; for production available for shipment the week of 11/15+/-. Transportation issues continue to delay shipments. ?

Western Fir Panels -: The inquiry and sales pace of Western Fir Rated Sheathing continues to plod along. Industrial sector buyers were active again this week, but they too were reducing their purchase volumes. The remainder of the market partakers continue to limit purchases to near-term needs and often turned to local 2-step distribution for units out of warehouse. This as they attempted to limit their exposure to downside risk, while at the same time guaranteeing that shipment would be as soon as the next scheduled route truck. Producers started the week quoting at last Friday’s levels and prices traded at or below those levels from there; for product available for shipment the week of 11/22 +/-.?Sales of CC, CC Plugged & Touch Sanded, Struct I, and Mill Cert. remain slow but steady. Mills started the week quoting these items 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 11/15+/-. The inquiry and sales pace of value-added panels, underlayment, sanded, siding, concrete form and other specialty panels remain lackluster. Mills started the week quoting 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 11/15+/-. A lack of trucks continues to delay shipments. ?

Food for Thought-: ?At some time in your youth someone asked you to look at a glass that was partially filled. The questioner would ask, ‘is the glass half empty or half full?’?Unless you were an engineering student and felt compelled to pull out a ruler and get an exact measurement before deciding, you probably answered with your perception of the glass and its contents. If you responded to the questioner ‘half full’ he or she would say that ‘They’ say people who see the glass as half full are optimists. Optimists see boundless opportunities in every situation and enjoy the chance to seek a better solution to any problem. If on the other hand, you responded to the questioner that it was ‘half empty’, the questioner would tell you that ‘They’ say that those who see the glass as half empty are pessimists. Any problem almost seems insurmountable, and they choose to seek paths away from the problem. This of course leads me to ask - - “Who are They?”?I will allow you to ponder that for now. ?

So, let me ask – is your current lumber, panel and building material inventory half full \ half empty or exactly right for this time of year? ?I ask because “They” are saying that lumber, panel and building material reloads across North America are loaded to the brim. There is little to no outdoor storage space available and even less for products that needs to be stored indoors. “They” are saying that there will be some buying at the end of December into early February and that by the time springtime arrives the market will be totally overbought. “They” are saying that a harsh and\or prolonged winter will make it even worse. ?

I have to wonder if “They” are the same experts that back in March of 2020, at the start of the COVID-19 pandemic, predicted that the need for lumber, panels and building materials would decline anywhere from 50% to 80%. And in turn many buyers stopped purchasing and mills slowed or ceased production. Of course, with perfect hindsight, we all know how that turned out. But I have to wonder if “They” ever admitted they were wrong? Well, “They’ would certainly be the ones who would know.?As for the “They’s” current predictions we will just have to wait and see. After all spring is really not that far away.?Just some Food for Thought.?