EXPANDED LUMBER MARKET UPDATE – JUNE 2021
There is a lot of news and talk about these record lumber and panel prices! Being a commodities market, prices change continually and have been highly unpredictable. We’ll try to cast some light on what has been going on and what may (or may not) happen next. It is definitely a multi-faceted market and a case study for economics students well versed in supply and demand.
Summary. To make a long story short, the wild ride up on lumber has at least paused and looks to decline – we’ll know more of this trajectory in the next few weeks. OSB and plywood panels continue to climb with no crest spotted yet. LVL’s, EWP and subfloors remain scarce and require as much advance planning as possible to avoid delays.
Fortunately, we are a member of LMC, with over 1,400 lumberyards and $5+ Billion in purchasing power. We have committed contracts with mills through LMC, but everyone is on allocation with trucking delays on top of that. We still can’t get solid timing or pricing commitments from our LMC buyers because they can’t get reliable commitments from either the mills or the trucking companies. “It is what it is” is the phrase we hear a lot. While our current inventories are in pretty good shape, we are having to turn away a lot of new cash buyers to preserve material for you, our loyal customers.
So, please, continue to talk often with your salesman and let us know your upcoming needs as soon as possible! Thanks for your patience and understanding as we continue to navigate these unprecedented supply chain disruptions together.
For more detail, we’ll attempt to outline some of the relevant issues and include comments from experts in the industry in the three categories below the charts:
Still in Bull Market that is Correcting or Start of Bear Market?
- Lumber pricing roller coaster may be at top of the climb – must go down!? Speculation and panic buying seems to have ended on lumber side as this market appears to top out.
- Lumber prices are softening and a correction is due, but when, how much and how long?
- However, OSB and plywood panels are still climbing in price (see discussion below)!
- Lumberyards are digesting recent purchases now – waiting on late shipments from mills, buying only quick shipping loads (little to none available), watching inventories and waiting out any market correction before buying more.
- Some lumber traders wonder: Is this just a holiday and wet weather pause or a true correction?
- Demand at job sites still strong, homebuyer cancelation rates not extreme (rising to 12%)
- Supply chain disruptions remain a factor – such as steel truss plate allocations, fiber cement siding allocations, LVL and subfloor shortages and others.
- Though conspiracy theories persist of mills “hiding” wood, with these margins and knowledge this windfall won’t last much longer, mills are producing and selling as much as they can.
- Any near-term price correction will need to come from lowered demand, but eventually mills will overproduce and swing the supply/demand ratio in the opposite direction.
Futures Pricing Different from Cash Market
- Lumber futures numbers are often what is discussed in the news, but they are not the cash price where we can buy wood today. Futures contracts are hedging tools that speculate about future cash markets only.
- July futures are trading at a $300 discount to the current cash market and September futures at $500 discount to cash. Even if cash market declines to the projected November futures contract (near $1,000), that is still more than double the “normal price range” over last five years.
- The cash market and the July futures contract must “converge” by July 15th, but that does not mean that cash automatically drops to futures number (futures may rise to meet cash).
- Five week order files at Mills – meaning mills have already sold their next 5 weeks of production and loads purchased at these high prices will still be rolling into lumberyards through early July.
- Trucking remains an issue causing shipment delays of 2 – 3 weeks. Slight improvement.
- Mills continue to say that it will be end of July or August before non-committed wood will be available on the open market (meaning supply has finally caught up to demand).
Panels Moving Different from Lumber
- The OSB and Plywood Panel market is not in synch with the Lumber market (2X material).
- Panels do not have feeling of nearing a top like lumber, with demand still outpacing supply. Traders expecting panel prices to remain historically high through the summer months.
- Simply not enough OSB products to go around – every manufacturer placing sales limits, with lead times into August and virtually no open market offerings.
- Subfloor scarcity has been an issue all year, with more production going to sheathing.
- Builders shifted from OSB to substitute products, which has pushed up prices of all panels.
- Huber’s Zipwall in very tight supply, so builders may consider Tyvek Homewrap over regular OSB