Notes from the Forest 5-13-22 Edition by Joe Glitman

Ladies and Gentlemen:

The lumber and panel markets are suddenly devoid of the energy and urgency of past several weeks. The upward price momentum is quickly running out of steam, and on some select items the impetus has stalled, or is already in correction mode. Buyers’ concerns about the increasing potential for greater downside risk, coupled with unrelenting transportation issues, and distressing socio-economic news have them back limiting their purchase to absolute necessities and nothing else. Often choosing to purchase units from a local 2-step distributor to avoid transportation snafus. Depending on the specific species and tally, producers are quoting production available for shipment anywhere from the week of 5/23 to the week of 6/6+.

The U.S. Bureau of Labor Statistics (BLS) reported on Wednesday (5-11-22), that the Consumer Price Index for All Urban Consumers (CPI-U) increased 0.3% in April. This follows a 1.2% increase in March, a 0.8% increase in February, and a 0.5% in January. The all-items index continues to accelerate in April, rising 8.3% before seasonal adjustment. The all items less food and energy index rose 0.6% in April, and 6.2% over the last 12 months. The energy index is 30.3% higher year-over-year, and the food index increased 9.4%, the largest 12-month increase since the period ending April 1981. A few major component indexes declined in April. The apparel index fell- 0.8% over the month, ending a string of six consecutive increases. The index for communication fell -0.4% in April, its third consecutive monthly decline. The index for used cars and trucks also fell -0.4% over the month, its third straight decline after a long series of increases.

Spruce Markets -: Last week’s slower trading pace in the Eastern and Western SPF Std. & Btr., and No.2 & Btr., carried over into this week. Buyers in search of prompt shipments to address inventory shortfalls found few, if any, quick shipping solutions available at the mill level. Mostly due to a lack of available trucks and railcars to load. As a result, many buyers turned their attention to the secondary market, local 2-step distributors in particular, where the prices were less negotiable than at the mill level, but with quicker shipment available. Mills started the week quoting construction grade at or below last Friday’s levels and prices traded in a similar pattern from there; for production available for shipment the week of 5/30+/-. Low-grade sales have also moderated. Mills started the week quoting low-grade at or on either side of last Friday’s levels and prices traded at or on either side of those levels from there; for production available for shipment the week of 5/23+/-. Sales of stud trims remain slow but steady. Mills started the week quoting stud trims at or modestly on either side of last Friday’s levels and prices traded at or drifted lower from there; for production available for shipment the week of 5/30+/-.

CME Lumber Futures –: The CME Lumber Future Contract for May will expire on Friday, May 13th, 2022, at 12:000 Noon CDT. For the past 5- trading days (5/6 – 5/12) CME Lumber Futures were up 2-days, and down 3-days. For the past 5-days CME Futures have lost -$16.00 and are trading below the Midweek Cash Market of $1085 by $81.00 CME Futures at $1004.00. One Year Ago, today (5-5-21), CME Futures closed at $1610.00.

Hem\ White Fir -: Late last week’s slowdown in the Hem\White Fir Std. & Btr., and No.2 & Btr., markets, carried over into this week. Higher interest rates, Wall Street continuing to trend lower, and other socio-economic issues have quickly put buyers back into a more conservative frame of mind. As a result, buyers remain focused on covering near-term needs which they needed /wanted to ship within 7 – 10-days. A challenging task considering the lack of empty railcars and trucks available to load. Mills started the week quoting construction grade at or modestly 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 5/30+/-. Low grade sales have stabilized. Mills started the week quoting low-grade at last Friday’s levels and prices hovered close to those levels from there; for production available for shipment the week of 5/23+/-. Stud trim sales have quieted and with it the upward momentum in pricing. Mills started the week quoting stud trims at or below last Friday’s levels, for shipment available the week of 5/30+/-.

Green Doug Fir -: It was a noticeably quieter week in the Green Doug Fir (GDF) Std. & Btr., and No.2 & Btr., market. Distressing socio-economic news has quickly pushed buyers back into a more conservative and cautious mindset. Mills started the week quoting construction grade GDF at or modestly above last Friday’s levels and price traded at or on either side of those levels from there; for production available for shipment the week of 5/30+/-. Low-grade sales continue to hold steady. As a result, mills started the week quoting low-grade at last Friday’s levels and prices traded close to those levels from there; for production available for shipment the week of 5/23+/-. GDF stud trim sales moderated, as upward momentum in the KD markets stalled. Mills started the week quoting stud trims at or modestly above last Friday’s levels and prices traded at or on either side from there; for production available for shipment the week of 5-30+/-. Buyers and sellers continue to voice their displeasure with unrelenting transportation issues. Rail traffic in particular was the focus of their ire, as loaded cars continue to linger on mill sidings waiting for pickup and at the same time for empties to be dropped off. Sadly, trucks are not any more readily available, especially for long hauls.

Cedar Lumber -: It was another week of limited inquiries and sales activity in the Western Red Cedar (WRC) lumber market. Mills had expected that this year would be somewhat slower than the previous pandemic years of 2020 – 2021, but traders are now saying that sales are starting to lag traditional, pre-pandemic, year levels. Nevertheless, extended production schedules and higher prices on a limited number of WRC logs, allowed mills to hold prices at or modestly on either side of previously established levels on boards, dimensional lumber, fencing, siding, and timbers. Decking sales continue to lag behind even limited production and mills once again lowered prices in search of a price level that would attract buyers back into the market for these products. Logistic issues remain a constant headwind as mills continue to struggle to find available trucks and empty railcars to load.

Shake & Shingles -: Buyers of Western Red Cedar (WRC) Shake & Shingle found themselves, once again, making outbound calls to WRC manufacturers both in the U.S. and Canada, in search of additional replenishment, while at the same time checking on previously placed orders. They are not looking to build inventory; on the contrary, they are desperately in search of product that will match upcoming jobsite activity. Regrettably, as in previous months, they found producers had little to no new products available, and a dearth of available logs made near-term prospects of additional production bleak. Complicating the situation is an ongoing shortage of available trucks to move the limited amount of sold product that is ready for shipment. Mills started the week, again, quoting above last Friday’s levels, and as per usual, anything sold this week was sold PTS+, with no firm shipment date available.

Southern Pine -: Activity in the Southern Pine No.1 & No.2-dimensional lumber markets continued to erode during the week. Construction sector and pro dealer buyers continue to limit their purchases to highly mixed truckloads. When mills started quoting shipment for the late May \ early June, buyers’ interest faded even further. Buyers for pressure treatment facilities continue to keep a low profile, as economic conditions have them concerned about the increased potential for greater downside risk in the markets. Producers started the week quoting construction grade at or below last Friday’s levels and prices traded at or moved lower from there; for production available for shipment the week of 5/30+/-. High grade sales have begun to moderate in sympathy with the other products in the SYP complex. High-grade buyers continue to deal with limited availability, shipping issues and expanding demand from their production facilities. Overall prices on high-grade traded at or inched higher during the week. Low-grade sales continue on the quiet side. Mills started the week quoting low-grade at or below last Friday’s levels, and prices traded in a similar pattern from there; for production available for shipment the week of 5/23+/-. Stud trim sales continue to be slow but steady. Mills started the week quoting stud trims at last Friday’s levels and prices traded at or modestly on either side of those levels from there; for production available for shipment the week of 5/23+/-. The inquiry and sales of small squares and timbers as well as 5/4 x 6 Standard and Premium Radius Edge Decking remain in the doldrums. With treated facility buyers absent from the marketplace, production continues to exceed limited demand. As a result, prices on these products started the week being quoted at or below last Friday’s levels and prices drifted lower from there; with many items on the ground and ready to ship. Transportation issues are being reported as hit or miss, but with more misses being reported this week; as flatbed trucks remaining difficult to source.

Pressure Treated -: With DIY activity beginning to perk up and pro dealer activity accelerating, pressure treaters are starting to experience increased interest in their treated lumber, panels, and accessories product lines. Some treaters are reporting that on some selected items they have been able to build a modest order file. A lack of available trucks has slowed both inbound brite feedstock and outbound finished product shipments. Nonetheless, treated buyers are continuing to keep their field inventories as lite as possible, to reduce their exposure to a brite feedstock market that is continuing to show signs of fatigue; with some items already entering price correction mode. While buyers want and continue to need prompt shipments, in many instances treaters, without a dedicated fleet of trucks, are not able to promise nor provide such quick shipment service.

OSB & Veneer Panels Overview –: The OSB and plywood panel markets remain fluid. However, the upward price pressure of the past several weeks has moderated and on some items it has already stalled. Delayed shipments and production schedules into the late May or early June, have buyers back in a conservative and cautious frame of mind. As a result, the potential of downside risk in the panel markets is once again the driving force behind every purchasing decision. Mills with extended production schedules are taking the slowdown in stride. Confident that buyers will be returning to the marketplace as lite field inventories force them to replenish. Late in the week, there were a handful of mills attempting to extend their production schedules further into June. Those producers listened to and accepted modest counteroffers but noted a lack of buyers’ interest. Office wholesalers with contract and open market ownership continue to seek ways to get in between the mills and the buyers but found the only path to success is to sell below mill replacement levels and ship on time as promised.

OSB -: The slower pace that enveloped the OSB markets late last week has carried over into this week. Unrelenting logistics issues, coupled with higher interest rates, increasing inflation worries and other socio-economic issues have buyers again concerned about the potential of downside risk in the OSB markets. As a result, buyers are limiting their purchases to near-term replenishment with some buyers once again relying on local 2-step distribution for minimal coverage and quicker shipment. Mills started the week quoting at or modestly above last Friday’s levels and prices traded at or moved modestly in either direction from there; for production available for shipment the weeks of 5/23 to 6/6, or beyond.

Southern Pine Panels -: Activity in the Southern Pine Rated Sheathing markets ebbed and flowed during the week. Buyers wanting to limit their exposure to the potential of downside risk, continue to rely on “Just in Time” purchasing to help them keep their field inventories lite. This despite a lack of flatbed trucks and empty railcars available for loading in the South. Mills started the week quoting sheathing at or modestly above last Friday’s levels and prices traded at or inched higher from there; for production available for shipment the week of 5/30+/-. Mill Cert., sales remain steady. Producers started the week quoting Mill Cert., at or modestly above last Friday’s levels and prices hovered close to those levels from there; for production available for shipment the week of 5/23+/-. The inquiry and sales pace of value-added panels, underlayment, sanded, siding, concrete form, and other specialty panels remain in close alignment with production. Mills started the week quoting the entire value-added complex at or modestly above last Friday’s levels and prices traded in a similar pattern from there; for production available for shipment the week of 5/30+/-.

Western Fir Panels -: Sales activity in the Western Fir Rated Sheathing market slowed further during the week. Buyers having covered their near-term needs have stepped to the sidelines waiting for those purchases to arrive at their facilities. Those recent purchases, coupled with mill production schedules moving into late May have taken a significant amount of energy and urgency out of the marketplace. Mills started the week quoting sheathing grade 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 5/30+/-. A handful of producers looking to extend their production schedules into June, listened to and accept a few modest counteroffers later in the week. The sales trends in the CD Struct I, CC, CC PTS and Mill Cert panel markets, continue to hold at previously established levels. Mills started the week, once again, quoting the entire complex 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 5/23+/-. The inquiry and sales pace of underlayment, siding, concrete form, and other specialty panels continues to hold steady. Mills started the week quoting the entire complex at or modestly above last Friday’s levels, prices traded close to those levels from there, with production available to ship the week of 5/30-+/-.

Food for Thought-: Traders’ frustration with North American railroads intensified during the week. Late shipments have been an issue since the onset of the pandemic. However, they seemed to have deteriorated even further during the late fall of 2021, and the winter and spring of 2022. However, closer examination and research shows that the current railroad issues have been in existence since the early 1980’s. Or perhaps, long before that.

The Stagger Act of 1980 deregulated the freight rail industry and provided railroads with the latitude to set their own pricing. The Association of American Railroads described the Staggers Act as “allowing railroads to take a smart, customer-focused, and market-based approach to railroading.

The deregulation of the railroads led to a railroad executive by the name of Rick Patterson, who was working for the CSX at the time, to develop an operating system for railroads called Precision Railroad Scheduling or “PSR.” On the surface the PSR was simple, shorter trains, would require less locomotive power, allow those trains to move faster and make railroads nimbler in adjusting to freight traffic demand. This in turn would free up train crews and track maintenance personnel, thanks to less wear and tear on the rails. Again, shorter trains = better service.

That, however, is not what happened. The railroads took the surplus engines and if they were leased gave them back to the lessor, or if owned they sold them. The extra train crews and track maintenance people were separated from the railroad company. As a result, CSX profits improved, and it did not take long for other railroads to copy and institute their own PSR programs.

To this day, the PSR continues to exploit both the railroad customers and their employees. The railroads continue to say that the PSR has improved their service and profitability. While the cuts in service may have improved company profits, the same cuts and inadequate staffing has made shipments by rail difficult, at best. And think about it – the railroads currently are blaming winter weather for the delay in service. Well, unless I am missing something, we have winter cold and summer heat every year in North America. Surely by now they could have found a resolution to their problems.

Perhaps now is the time for shippers – mills, chemical, oil, grain etc., to hold the railroads to their pledge of better service, thanks to shorter trains. I am sure their response will be something close to ‘if you do not like our service find another carrier.’ But wait, you bought most of the other smaller carriers years ago. And we already know trucks are currently not a better alternative. Just some food for thought. You can read the entire article here: Shippers, unions slam freight railroads over poor service, demand changes - FreightWaves

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WELL DONE JOE

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