Lumber prices have bottomed out, but are likely to stay double the historical average for at least the next 5 years, a lumber trader says

A lumber yard
  • Lumber has probably found a bottom at current levels, but prices will remain over double the average for the next few years, Stinson Dean told Insider.
  • The Deacon Trading founder expects lumber to trade above $1,000 for potentially the next three to five years.
  • He added that the current state of the lumber futures curve confirms that lumber prices have bottomed.
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Lumber price have probably found a bottom at current levels, but will remain higher than average for the next few years, a lumber trader told Insider.

Stinson Dean, CEO and founder of Deacon Trading, expects lumber to trade above $1000 for potentially the next three to five years. The historical average is around $400, he said.

“My argument is the new normal is going to be significantly higher than the old normal while others think we’re going to go back to pre-COVID price ranges,” Dean said.

After an intense run-up in the beginning of the year, Lumber has fallen nearly 50% from May’s record high of over $1,700 per thousand board feet.

“Business has slowed dramatically. There’s ample supply. So there’s just not pressure on buyers to cover those needs…they’ve bought enough to cover whatever needs they do have,” Dean said.

He added that the current state of the lumber futures curve confirms his take that lumber prices have bottomed out. The curve can give an indication of the health of the underlying supply and demand market, he said.

Lumber futures recently began trading in contango – a situation in commodities wherein the future price is higher than the spot price. For the past year, the futures curve was inverted and in backwardation, where the future price is cheaper.

The backwardation and subsequent premium on front-month futures occurred because everyone needed lumber as soon as possible, and they were willing to pay whatever price for it, said Dean.

“People didn’t care about two months down the road, they only cared about right now because they were in the middle of a short squeeze. They had to get covered,” he added.

Now, that dynamic has changed and supply is ample. Dean explained that the futures curve in contango isn’t bearish for lumber, but it’s not necessarily bullish. It means that supply and demand are normalizing, and an equilibrium is being found.

He expects lumber prices to average around $900, but remain volatile.

Over the next five years, he sees lumber trading around $1000.

“For the rest of 2021, the phrase I would use is grind higher,” Dean added. “I think we’ll start trading around above $1000 this fall and stay there.”

Before this fall, he sees prices staying muted until homebuilders begin to expand production and deliver more homes in the next quarter. What partly caused the prices to fall from the peak was that homebuilders began to slow down and lumberyards grew hesitant to lock in future business. Now that homebuilders’ near-term needs have been covered, there’s less of a scramble for wood.

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Lumber continues to skid below $900 with the commodity in free-fall from May highs

Saw mill.
Pieces of lumber are cut to size, to be used to assemble trusses for homes at Wasatch Truss on May 12, 2021 in Spanish Fork, Utah.

Lumber futures fell as much as 3% Wednesday to $859.8 per thousand board feet, extending the fall beneath $900 as the commodity’s rally continues to cool off.

Lumber prices surged throughout the pandemic as homebuilding boomed and supply tightened. Now, prices are trading nearly 50% below their May 10 peak of $1,711 per thousand board feet.

Over the past 12 months, however, lumber is still up over 107%.

Expanding supply is partly to blame for lumber’s recent downturn. US lumber production has jumped 5% over the past 12 months with another increase of 5% on the way, according to Domain Timber Advisors LLC, a subsidiary of Domain Capital Group, per Bloomberg.

Lumber’s soaring prices were one of the first indicators to many investors that inflation could be increasing too quickly as the economy climbed out of the pandemic. Now, lumber’s decline is signaling to some that inflation will prove to be temporary after all, as the US Federal Reserve has been insisting. Fed chief Jerome Powell reiterated this view in his press conference last week, and again at Tuesday’s congressional testimony.

“The thought is that prices like that, that have moved up really quickly because of shortages and bottlenecks and the like, they should stop going up. And at some point, they, in some cases, should actually go down. And we did see that in the case of lumber,” Powell said.

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Lumber prices avoid 7th straight decline with late-day surge as the commodity’s blistering 250% rally whipsaws

Worker loading lumber
  • Lumber prices avoided a seventh straight day of losses on Wednesday after spiking into positive territory right before 3:30 pm ET.
  • Prior to the surge, the commodity fell 2.41% to trade at $1,237 per thousand board feet.
  • Despite recent weakness, prices are still up roughly 250% since this time last year.
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A late-day surge helped lumber prices avoid a seventh straight daily decline as the commodity’s blistering 250% rally over the past year whipsaws.

Prior to the recovery, lumber futures traded down 2.41% to $1,237 per thousand board feet on Wednesday. Despite the rebound, the commodity is still down roughly 20% from its May 7 record high of $1,670.50 per thousand board feet.

As lumber prices fluctuate, local news outlets continue to reveal the effects of historically high lumber prices on consumers.

ABC’s Louisville outlet reported the story of Kenny Marine, the founder of Kentucky Hot Brown Pedalboards, who says his costs have more than doubled since last year.

“Something last year that cost me $12, $14 is costing me $30, $35, $60 in some cases depending on what wood I buy, and that’s the killer right there,” Marine told ABC.

CBS’s affiliate KXAN in Williamson County, Texas, reported that the construction of a new county-run children’s advocacy center is on hold due to increasing construction costs brought about by the spike in lumber prices as well.

Republicans have used rising lumber prices and inflation concerns as political tools to attack President Biden’s administration.

Rep. Bob Gibbs, R-Ohio, who serves on the House Oversight Committee’s environment subcommittee, told FOX Business that increasing lumber prices are “just one of the many indicators that President Biden is failing American workers.”

“Lumber prices are an issue that has many causes, from economic complications from the coronavirus pandemic to difficult trade issues with Canada. Biden has shown he is either unwilling or incapable of tackling these obstacles,” Gibbs told FOX Business.

The representative is referring to a proposed tariff hike on imports of Canadian softwood lumber. The US Commerce Department recommended doubling tariffs on Canadian softwood to 18.32% from 8.99% just two weeks ago despite rising lumber prices.

However, it’s important to note a similar tariff was originally imposed by the Trump administration before a decision favoring Canada by the World Trade Organization caused the tariff to fall to around 9% late last year.

Read more: ‘If lumber crashes, stocks might be next’: An award-winning portfolio manager who’s tracked lumber prices for years breaks down why futures hitting a record high of $1,600 is an ominous sign – and shares what investors can do ahead of the eventual crash

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US authorities move to double tariffs on Canadian lumber despite a meteoric rise in prices and demand

British Columbia Lumber
  • The US Commerce Department recommended a doubling of tariffs on Canadian softwood lumber last Friday.
  • The move comes despite lumber prices being up more than 275% since April of last year.
  • “The White House does not care about the plight of American home buyers and renters,” National Association of Home Builders chairman Chuck Fowke said.
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The US Commerce Department recommended a more than doubling of the tariffs on Canadian lumber last Friday despite a meteoric rise in prices and demand for the commodity.

Specifically, the department recommended the “all others” preliminary countervailing and anti-dumping rate move to 18.32% from 8.99%.

The proposed rates are subject to further review over the next six months before final duties are set sometime in November.

Former President Donald Trump’s administration imposed a similar 20% tariff on Canadian softwood in 2018, but lowered it to around 9% late last year after a decision favoring Canada by the World Trade Organization.

The move to increase tariffs on Canadian lumber suppliers comes as lumber prices have risen over 275% since last April alone. Canada’s share of the US lumber market sits at around 25% as well, according to the Wall Street Journal.

On May 22, National Association of Home Builders chairman Chuck Fowke released a statement criticizing the move to increase tariffs.

“At a time when soaring lumber prices have added nearly $36,000 to the price of a new home and priced millions of middle-class households out of the housing market, the Biden administration’s preliminary finding on Friday to double the tariffs on Canadian lumber shipments into the U.S. shows the White House does not care about the plight of American home buyers and renters who have been forced to pay much higher costs for housing,” Fowke wrote.

“The administration should be ashamed for casting its lot with special interest groups and abandoning the interests of the American people,” he added.

Canadian authorities also rebuked the newly proposed tariffs.

“US duties on Canadian softwood lumber products are a tax on the American people. They make housing less affordable for Americans and hinder economic recovery from the COVID-19 pandemic,” said Mary Ng, a Canadian MP and the minister of Small Business, Export Promotion, and International Trade.

“We will keep challenging these unwarranted and damaging duties through all available avenues. We remain confident that a negotiated solution to this long-standing trade issue is not only possible, but in the best interest of both our countries,” she added.

On the other hand, US timber producers applauded the new tariffs on Canadian companies. Jason Brochu, the US Lumber Coalition co-chair, said the Commerce Department’s decision represents a move to create a level playing field in the industry.

“A level playing field is a critical element for continued investment and growth for U.S. lumber manufacturing to meet strong building demand to build more American homes,” Brochu said in a statement.

“More lumber being manufactured in America to meet domestic demand is a direct result of the trade enforcement, and we strongly urge the Administration to continue this enforcement,” he added.

Insider spoke with Stinson Dean, the founder of Deacon Lumber Company, about differing perspectives from experts regarding the newly proposed tariffs.

Dean said he doesn’t know how the new tariffs will impact prices, but said that last time a tariff increase was announced, prices skyrocketed, although from much a lower base.

However, Dean also said the “tariff should be judged on its merits and not a kneejerk reaction to the current market,” noting that scarcity of supply is the main issue when increasing tariffs, not pricing.

“In my mind, any tax on Canadian lumber incentivizes them to look sell to other markets. The US needs all the supply it can get-and buyers will clearly pay for it-but if it doesn’t exist, it brings construction to a halt. Scarcity is the problem, not price,” Dean said.

Dean recommended a “ceasefire” from tariffs for the next 12 months to give both sides time to lock in a long-term agreement because the industry needs “all the supply in the world pointed at the US.”

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Lumber prices fall for an 8th straight day, deepening a roughly 30% pullback

lumber and building materials store

Lumber prices fell for an eighth straight day on Wednesday, deepening a roughly 30% pullback in the commodity.

Specifically, lumber futures fell roughly 5% to $1,201 per thousand board feet on the day.

Despite the pullback, lumber futures are still up 224% since May 19 of last year, and retailers like Home Depot have made it clear demand remains strong.

Home Depot’s chief financial officer Richard McPhail said in a Tuesday interview with Bloomberg that lumber sales are comparable to “a storm environment where literally as soon as you bring it in, it’s selling.”

“We’re really just focused on making sure we stay in stock and making sure we have the appropriate level of staff to serve our customers. The market will go where it goes,” McPhail added.

On Home Depot’s post-earnings conference call, Edward Decker, the executive vice president of merchandising, said the company had seen a “record-setting quarter for lumber prices.”

“At the end of the first quarter of last year, a sheet of 7/16 OSB [oriented strand board] was approximately $9.55. As we exited the first quarter this year, that same sheet of OSB more than quadrupled in price to $39.76,” Decker said.

Lumber prices have increased so much that CBS Denver reported thieves have taken to stealing the commodity from construction sites.

And KUTV Utah reported builders are looking for alternative materials to get around the rising costs of lumber, with some even turning to Bamboo.

US home construction also fell 9.5% in April, according to US Census Bureau data, as homebuilders struggled with rising commodity prices in lumber, copper, and steel.

Still, lumber prices are falling in the past week due to the end of a “de facto short squeeze” on the commodity, according to Stinson Dean, the owner of Deacon Lumber Company.

Brian Leonard, an analyst for RCM Alternatives in Chicago, also noted lumber futures are being driven down by “computerized trading and other platforms not related to the physical product, so it may end up going lower than the real market need to go,” per Bloomberg.

“The mills know there’s a lot more buying than needs to happen,” he added.

Lumber stocks like Weyerhauser and West Fraser Timber fell as much as 4.58% and 5.77%, respectively, on Wednesday in lock-step with declining lumber future prices.

Read more: ‘If lumber crashes, stocks might be next’: An award-winning portfolio manager who’s tracked lumber prices for years breaks down why futures hitting a record high of $1,600 is an ominous sign – and shares what investors can do ahead of the eventual crash

Read the original article on Business Insider

Lumber prices decline for a 6th straight day even as supply bottlenecks persist

Saw mill.

  • Lumber futures fell to $1,327 per thousand board feet on Monday.
  • Prices are still up more than 85% year-to-date and 280% in the past year.
  • The National Home Builders Association told NBC if lumber prices don’t continue to fall “you will see the homebuilding sector slow down and grind to a halt.”
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Lumber prices fell for the sixth straight day on Monday, even as supply bottlenecks at mills across the US and Canada persist.

Specifically, lumber futures fell to $1,327 per thousand board feet and are now down roughly 20% from May 7’s record high of more than $1,670.

Of course, despite the recent fall in prices, lumber futures are still up more than 85% year-to-date amid supply bottlenecks at mills and rising demand for home offices, renovations, and new homes.

Looking back a little further, lumber futures are up an incredible 283% over the last year alone.

Lumber’s rise has been so significant that NPR reported DIYers have begun to cut out the middlemen by creating their own sawmills to cut timber.

Typically, when demand increases, suppliers will increase the number of mills available to process timber. But Chad Hesters, a forest-product advisor and managing partner of the consulting firm Korn Ferry, told the Wall Street Journal that’s not an option for many suppliers these days because of how long it takes to create a modern mill and the significant capital investment involved.

“Trying to build capacity and make investments that have a lot of lead time at the top of a cycle is historically a good way to lose money,” Mr. Hesters said, per WSJ.

On top of that, semiconductor and rural labor shortages make it almost impossible for mill owners to build new operations profitably.

However, according to Stinson Dean, the owner of Deacon Lumber Company, there has been some reprieve for lumber pricing of late due to the end of a lumber short squeeze.

Dean told Bloomberg’s Joe Weisenthal and Tracy Alloway on the “Odd Lots” podcast at the end of April that lumber’s historic price run-up was a “de facto short squeeze.”

The squeeze was caused by commitments lumber yards made to homebuilders prior to a run-up in lumber prices and a tightening of the market, which forced them to buy at any price to meet obligations to customers.

Now, Dean says those conditions have abated, leading to some breathing room in the lumber market, according to a report from Bloomberg.

That’s good news considering Jerry Howard, the CEO of the National Home Builders Association, recently told NBC that if lumber prices continue to climb, “you will see the homebuilding sector slow down and grind to a halt.”

“This problem with lumber and other building material costs is sort of setting another potential perfect storm for housing to lead us into a recession,” Howard added.

Read more: ‘If lumber crashes, stocks might be next’: An award-winning portfolio manager who’s tracked lumber prices for years breaks down why futures hitting a record high of $1,600 is an ominous sign – and shares what investors can do ahead of the eventual crash

Read the original article on Business Insider

Lumber prices have soared 230% in the last year, pushing timber and homebuilding ETFs to record highs

Lumber
  • Lumber’s 230% 12-month rally has pushed timber and homebuilding ETFs to record highs.
  • The iShares Global Timber & Forestry ETF has climbed 89% in the last year, Bloomberg first reported.
  • While the triple-leveraged Direxion Daily Homebuilders & Supplies Bull 3X Shares fund has surged roughly 100% year-to-date.
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Lumber has staged an incredible rally in the last year and is taking exchange-traded funds that track the commodity along for the ride.

The iShares Global Timber & Forestry ETF (WOOD) has climbed 89% in the last 12 months and now sits at a record high. The fund tracks global timber and forestry stocks and gained nearly 7% in premarket trading Tuesday but pulled back at the open. Bloomberg first reported on the funds record performance.

Meanwhile, the triple-leveraged Direxion Daily Homebuilders & Supplies Bull 3X Shares fund (NAIL) has surged roughly 100% year-to-date and is the second-best performing U.S. equity fund this year, according to Bloomberg data. NAIL seeks daily investment results of 300% of the performance of the Dow Jones US Select Home Construction Index.

Spot lumber prices hit a record high of $1,326 per 1,000 board feet on Monday, bringing the commodity’s 12-month gain to 231%. Soaring lumber prices are a sign of the pandemic-induced housing boom, fueled by record low mortgage rates and an exodus to the suburbs.

But the rising lumber costs have added more than $24,000 to the price of the average new single-family home, and timber companies are struggling to keep up with demand surge.

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