Notes from the Forest by Joe Glitman

Ladies and Gentlemen:

The lumber and panel markets remain remarkably quiet and unsettled for this time of year. Buyers seeing prices continuing to erode in both markets, and late shipments finally starting to arrive at their facilities, remain firmly on the sidelines. Doing everything within their power to limit their exposure to the ongoing downturn in the markets. Often turning to local 2-step distribution for units of warehouse. Mills running out of order file to lean on, became more receptive to counteroffers during the week. However, the counteroffers producers were willing to accept varied from item to item and mill to mill and all came with the buyers’ demands for prompt shipment. Which is a challenge for mills in the various regions in North America where available flatbed trucks and empty railcars still remain difficult to source. Office wholesalers continue to struggle to sell their contract ownership.

The National Association of Realtors® (NAR) on Thursday (5-19-22), reported that total existing home sales, which are completed transactions for single-family homes, townhomes, condominiums, and co-ops dropped -2.4% in April from March to a seasonally adjusted rate at 5.61 million homes. Year-over-year, however, sales are down -5.9% (5.96 million in April 2021). At the end of April unsold inventory was at a 2.2-month supply, at the current sales pace, up from 1.9 months March 2022, and down year-over-year from the April 2021 rate of 2.3 months. The U.S. Census Bureau reported on Wednesday (5-18-22) that privately‐owned housing starts in April were at a seasonally adjusted annual rate (SAAR) of 1,724,000. This is -0.2% below the revised March estimate of 1,728,000 but is 14.6% above the April 2021 rate of 1,505,000. Single-family housing starts in April were at a rate of 1,100,000, this is -7.3% below the revised March figure of 1,187,000. The April rate for units in buildings with five units or more was 612,000. Building Permits are the forward-looking portion of the report and in April privately-owned housing units authorized by building permits were at a SAAR of 1,819,000. This is -3.2% below the revised March rate of 1,879,000 but is 3.1% above the April 2021 rate of 1,765,000. Single-family authorizations in April were at a rate of 1,110,000; this is -4.6% below the revised March figure of 1,163,000. Authorizations of units in buildings with five units or more in April were at a rate of 656,000. On Tuesday (5-17-22), The National Association of Home Builders (NAHB) /Wells Fargo Housing Market Index (HMI) reported that builder sentiment in the market for newly built single-family homes tumbled 8-points lower in May, to a reading of 69. The fifth consecutive month that builder sentiment has declined and at its lowest level since June 2020. Any reading above 50 indicates that more builders view conditions as good rather than poor and that demand remains strong.

Spruce Markets -: Trading activity remains well below seasonal norms in the Eastern and Western SPF Std. & Btr., and No.2 & Btr., markets. Buyer interest was limited to highly specified truckloads and with the caveat that they had to ship promptly. With an influx of Euro Spruce arriving at the docks along the East Coast, Eastern mills in particular, and Western mills to some extent had unwelcomed competition that was priced competitively and available for immediate shipment, albeit limited to select delivered destinations. Mills started the week quoting below last Friday’s reduced levels, and prices traded lower from there; for production available for shipment the week of 6/6+/-. Low-grade sales have stalled. Mills started the week quoting below last Friday’s levels and prices trended lower from there; for production available for shipment the week of 5/30+/-. Stud trim sales continue to moderate. Mills started the week quoting stud trims below last Friday’s levels and prices moved unevenly lower from there; for production available for shipment the week of 6/6+/-. Trucking availability improved in Eastern Canada, but a lack of railcars is adding several weeks onto any shipment. In Western Canada trucks and railcars remain difficult to source.

CME Lumber Futures –: The CME Lumber Future Contract for May expired at 12:00 Noon CDT on Friday, May 13th, 2022. For that trade shortened day, CME Futures for May lost -$84.00, closing at $920.00, and trading below the Weekly Cash Market of $ 1055 by $135.00. The July contract is now the forward month and will expire on Friday, July 15th, 2022, at 12;00 Noon CDT. For the past 5-days (5/13 – 5/19), CME Lumber Futures were up 2-days, and down 3-days. For the past 5-days CME Futures have lost -$87.30 and are trading below the Midweek Cash Market of $1010 by $319.50 CME Futures at $690.50. One Year Ago, today (5-19-21), CME Futures closed at $1327.00.

Hem\ White Fir -: Buyers’ interest in the Hem\White Fir Std. & Btr., and No.2 & Btr., markets slowed further during the week. The result of continuing negative economic news and buyers believing that current market pricing is unsustainable. With discounts, in varying degrees starting to surface, buyers remained on the sidelines anticipating even lower prices would soon be available. Anything that could ship quickly was of some interest to buyers. However, anything for shipment the week of 5/30 or beyond was of limited to no interest. Mills started the week quoting below last Friday’s levels and prices proceeded to trend lower from there; for production available for shipment the week of 6/6+/-. Low-grade sales are, once again, lackluster. Mills started the week quoting low-grade below last Friday’s levels and prices continued to trade lower from there; for production available for shipment the week of 5/30+/-. With discounts appearing on various width and trims, stud sales have noticeably quieted. Mills started the week quoting stud trims below last Friday’s levels and prices moved lower from there; for production available for shipment the week of 6/6+/-.

Green Doug Fir -: The slower pace that enveloped the Green Doug Fir (GDF) Std. & Btr., and No.2 & Btr., market late last week easily carried over into this week. Prices correcting in the KD markets, and concerns about the economy’s strength through the remainder of the year, had GDF buyers back to purchasing hand to mouth. With some already regretting what they had recently purchased. This even as jobsite activity remained steady to strong. Mills started the week quoting below last Friday’s levels and prices traded lower from there; for production available for shipment the week of 5/30+/-. Low-grade sales are not keeping up production and mills lowered prices and encouraged buyers to make modest counteroffers; for production available for shipment the week of 5/30+/-. With KD stud trim prices drifting lower, GDF stud trims sales have stalled. Mills started the week quoting GDF stud trims below last Friday’s levels and prices deteriorated further from there; for production available for shipment the week of 5/30+/-. Late shipments remain a constant source of angst for traders.

Cedar Lumber -: Trading in the Western Red Cedar (WRC) lumber markets ebbed and flowed throughout the week. There were moments when buyers were checking on price and availability, and some small purchases were made. However, that was typically followed by hours of lackluster activity. Producers reported that logs are becoming more available, but noted they often come with inflated prices. Narrow width dimensional lumber has joined decking as items mills are struggling to sell. As a result, prices on these items continued to move lower. While demand for boards, wider width dimensional lumber, fencing, siding, and timbers continue to hold steady and prices on these items traded at or on either side of last Friday’s levels. Logistics problems continue to limit the shipment of finished products.

Shake & Shingles -: Buyers of Western Red Cedar (WRC) Shake & Shingle continue to struggle to find enough available products to meet their ever-growing list of items needed for previously sold jobsite orders. Manufacturers in Canada and in the U.S. continue to report sourcing raw materials is challenging. Several Canadian mills were closed again this week, as insufficient log supplies prohibited them from bringing workers back into the facility. Finished product continues to linger at the manufacturer, as trucks remain in tight supply, pricey when sourced, and now oft times include a pickup and delivery bonus for the driver, plus a fuel surcharge. Producers started the week quoting above last Friday’s levels, but most transaction this week were completed as PTS+, with no firm shipment date.

Southern Pine -: Buyers for pro dealers, pressure treaters and the construction sector continue to limit their purchase to quick shipping, highly mixed truckloads. As buyer concerns about the near-term and future health of the SYP markets, and the overall economy had them in total risk avoidance mode. Mills started the week quoting construction grade, in varying degrees, below last Friday’s levels, and prices trended lower from there; with shipment available on many items as soon as a truck or railcar could be secured. High-grade sales continue to run counter to the rest of the SYP complex. Limited production, the resulting tight supply, coupled with consistent demand from high-grade users had prices being quoted at or above last Friday’s levels; for production available for shipment the week of 6/13+/-. Low-grade buyers continue to keep a low profile, relying on contracts to keep them supplied. Mills started the week quoting at or below last Friday’s levels, and prices traded at or below those levels from there, with shipment available on most items for prompt. After holding steady for several weeks, demand for stud trims has faltered. Mills started the week quoting stud trims below last Friday’s levels and prices traded lower from there; for shipment, the week of 5/30+/-. Small squares and timbers moved closer to finding a trading level during the week. Mills started the week quoting 4x4 – 4x6 – 6x6 at or below last Friday’s levels and prices traded close to those levels from there; for shipment available the week of 5/30+/-. Sales of 5/4 x 6 Standard and Premium Radius Edge Decking remain paltry. Mills started the week once again in search of a trading level and quoting below last Friday’s triple-digit price concessions and seeking buyer counteroffers. Trucks remain tight, railcars are reportedly becoming more available.

Pressure Treated -: Despite ongoing steady to strong jobsite activity, pressure treated buyers for pro dealers and the construction sector continue to keep their inventories extremely lite, especially for the end of the month of May. This as brite feedstock prices continue to deteriorate and additional downside risk is evident. In turn, pro dealers are putting the burden on their treated suppliers to keep them sufficiently stocked. Unfortunately, this is proving to be a challenge for treaters without their own dedicated fleet, as flatbed trucks remain in tight supply and the cost for their services continues to escalate. Even treaters with their own fleets are being forced to add fuel surcharges to keep up with rising fuel and insurance costs. Large box store retailers reported that this week’s sales were in closer alignment with pre-pandemic levels. Resulting in their need to take additional limited replenishment from their VMI managed programs.

OSB & Veneer Panels Overview –: The OSB and plywood panel markets continue to struggle with increasingly negative economic and building news. As a result, buyers’ concern about the increasing potential for downside risk in the panel markets is on the rise. Wishing to avoid exposure to those risks buyers are limiting their purchases to immediate fill in needs. With flatbed and curtain van trucks as well as empty railcars still difficult to source in many regions, buyers are turning to local 2-step distribution for units out of warehouse. The advantage of warehouse shipments include: 1) Shipment on the next scheduled route truck. 2) Competitively priced products to mill replacement levels. 3) Most importantly – limited exposure to the market. Mills are quoting shipment for the weeks of 5/30 – 6/13 and continue to lean on their extended order files to support their current pricing structure. Office wholesalers are reporting that they are having limited success in selling their contract and what remains of their open market ownership. Prompt shipment remains the greatest headwind to any potential sale.

OSB -: Trading in the OSB markets remains at a pedestrian pace. Negative economic, builder and transportation news continue to limit buyer engagement with the OSB market to purchasing immediate needs, and little else. The uncertainty in the OSB market has buyers once again relying on local 2-step distribution to provide them with fill ins. Producers started the week quoting OSB at last Friday’s levels and prices traded at or on either side of those levels from there; for shipment available anywhere from the week of 5/30 to 6/13.

Southern Pine Panels -: Increasingly negative economic and home building news have Southern Pine Rated Sheathing buyers doing everything that they can to limit their exposure to the markets’ potential for downside risk. At the same time buyers are being challenged to keep enough product on hand or on order to meet steady to strong jobsite activity. As a result, many buyers have turned to local 2-step distribution for units out of warehouse to assure faster delivery. Mills started the week quoting sheathing at last Friday’s levels, and prices traded at or moved lower from there; for production available for shipment the week of 6/6+/-. Eastside zone mills reported that the market pressure from imported panels lessened during the week. As a large percentage of those would be imported panels are now destined for Europe. Mill Cert., sales continue to hold steady. Producers started the week quoting Mill Cert., at or modestly on either side of last Friday’s levels and prices hovered close to those levels from there; for production available for shipment the week of 5/30+/-. The inquiry and sales pace of underlayment, siding, concrete form, and other specialty panels remains slow but steady. Mills started the week quoting the entire complex at or modestly below last Friday’s levels, prices traded close to those levels from there, with production available to ship the week of 6/6+/-.

Western Fir Panels -: With questions about the overall health of the nation’s economy, as well as the Western Fir Rated Sheathing plywood market, buyers limited their purchases again this week to immediate fill ins, which they wanted and needed to ship quickly. East Coast carload volume buyers were MIA from the marketplace again this week as they continue to limit their exposure to downside risk. Producers started the week quoting sheathing below last Friday’s levels and prices traded at or moved lower from there; for production available for shipment the week of 5/30+/-. The trading pattern in the CD Struct I, CC, CC PTS and Mill Cert panel markets, remains unchanged from previous weeks. Mills started the week quoting the entire complex at or a few dollars below last Friday’s levels and prices hovered close to those levels from there; for production available for shipment the week of 5/30+/-. The inquiry and sales pace of value-added panels, underlayment, sanded, siding, concrete form, and other specialty panels remain near production levels. Mills started the week quoting the entire value-added 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 6/6+/-.

Food for Thought-: What exactly does normal mean? According to the Oxford Language Dictionary, the word normal means “conforming to a standard; usual, typical or expected.”

But as we all know normal can and frequently does change with time. For example, a blood pressure reading of 140 over 80 was considered normal back when I was young. Today that level will get you diagnosed with high blood pressure, and you will probably be placed on some sort of blood pressure lowering medication regiment. As the ‘new normal’ for BP is 120 or less, over 70 or less.

So, what is normal, or what will the ‘new normal’ in lumber and panels markets look like? If you have only been in the lumber, panel and building materials industry since late 2019, you probably believe that the markets’ volatility – the soaring highs and then crashing lows and then a spike higher – is normal. However, for those of us who have been around it for a decade or two or more, we can all remember years where the markets traded in a range of $40 - $70 M and on wilder years maybe $100 - $150 M – and some years it barely moved at all. While inflation, higher interest rates, soaring gas prices, military conflict etc. are making the headlines, our markets have been through all of this plus a handful of recessions and let us not forget the Great Recession. As for me I would like to see the ‘new normal’ lumber and panel markets be less volatile, somewhat more predictable and trading in a much narrower range throughout the year. Perhaps just wishful thinking.

As I look at lumber and panel prices year-over-year, one thing is clear, today’s prices are hundreds and hundreds of dollars below May 21st, 2021, levels. But of equal interest, is that the following week, 5-28-21, the price slide began and lasted through September 3rd. Again, no two years are ever the same. We could just as easily see another spike in prices, similar to the start of this year, or they might even get closer to their record 2021 highs. However, with April’s housing starts, permits and completions just posted, it appears builders are switching gears. Going from putting in foundations to focusing on completing homes. Exactly what they said they would be doing at the start of this year. If that factoid continues to hold true, then lumber and panel demand and usage could \ should ease and the volatility of the past 2+ years exit the markets and with that transportation calm down as well. Just some food for thought.

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