Activity perked up quite a bit in the lumber market yesterday. Upward movement in the futures’ market helped curb some concerns that prices were flattening out. Instead, a renewed vigor overtook buyers and had them pressing the mills for material. The indication that prices could go higher had many re assessing their positions. Demand was strong throughout the day but once again the lack of availability from the mills frustrated buyers. There was evidence of a two tier market as some wholesale quotes were considerably under replacement prices quoted by the mills.
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Where are the choke points in the supply chain at this point, in your view? How are mills running capacity relative to what is typical?
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When wholesalers believe that prices will go higher they will speculate and buy lumber from the mills without selling it. When and if prices spike higher the wholesaler will come back into the market and sell their positions at or below replacement prices offered by the mills thus establishing a two tier market. Depending on how much is speculated on and how long the price runs will determine how long the two tier market will be in play. Often they are short lived because the aim on most speculative positions is to sell quickly and not chance a reversal.
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