Lumber prices spike as wildfires cause producers to cut output, citing ‘significant’ supply chain challenges

Bootleg Fire burns through vegetation in Oregon, tree on fire
The Bootleg Fire burns through vegetation near Paisley, Oregon, U.S., July 20, 2021

  • Lumber futures have jumped in recent days on concerns over the impact of wildfires on supply.
  • One of North America’s largest lumber producers said it would cut output at sawmills due to the fires.
  • One lumber expert told Insider the production cut was the catalyst that confirmed to traders prices had hit a bottom.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

Lumber futures have jumped in recent days as concerns mount that wildfires in Canada and the Western US will snarl production and supply chain routes.

On Tuesday, Canfor Corporation, one of North America’s largest lumber producers, said it was curtailing approximately 115 million board feet of production capacity at its Canadian sawmills. The company cited “significant supply chain challenges” amid a “transportation backlog in Western Canada as a result of the extreme wildfire conditions.”

Lumber futures jumped 10.8% Thursday, and are trading nearly 15% higher than Tuesday’s prices. Lumber is still more than 62% below the record-high reached in May. Prices skyrocketed earlier in the year as the pandemic-fueled housing boom pushed up demand, though recently supply and demand levels have begun to even out.

“The market overcorrected, it was waiting for a catalyst,” said Michael Goodman, director of speciality products at Sherwood Lumber, referring to recent moves higher after weeks of lumber prices falling.

He added that curtailment of operations at sawmills was not the sole reason for lumber’s recent price movement, but instead the catalyst that showed people prices had hit a bottom.

Goodman now sees prices moving higher as customers start buying again, though he also expects the market to be highly volatile for some time.

While prices are rising and production cuts are creating new supply constraints, Goodman said lumber will be volatile for the next year.

Read the original article on Business Insider

Lumber prices will fall back to pre-pandemic levels within a year amid considerable volatility, investment chief says

Worker loading lumber
  • The price of lumber futures has fallen to its lowest level since November 2020, erasing this year’s dizzying gains.
  • An investment chief says the price of the commodity could reach its pre-pandemic level in the next 12 months.
  • He added, however, that the price trends will vary by geography.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

Prices for lumber futures have descended to levels not seen since November 2020, erasing this year’s dizzying gains amid a cooling demand for the red-hot commodity.

Lumber prices fell for the 10th consecutive week to trade at $536 per thousand board feet – 67% lower from their May 7 peak of $1,670 per thousand board feet. Around a year ago, the commodity was hovering just above $400.

Despite weeks of decline, there is likely room to fall further, said Stuart Katz, CIO at wealth management firm Robert Stephens. He said the price of the commodity could reach its pre-pandemic level in the next 12 months, but whether prices remain at that level is the real question.

“This is a dynamic economy,” he said. He added that in order to predict the price of lumber, one must make a number of assumptions about the Federal Reserve’s monetary policy and the ability of home builders to pass along price increases or take margin compressions.

“You can’t lean on history when you turn off and then reopen the largest economy on the face of the earth,” Katz said. “No one has the crystal ball, so you need to look at the key fundamentals which provide push and pull pressures on, ultimately, the equilibrium of the price.”

One thing he is certain of is that the price trends will vary by geography.

“There may be regional aspects of this,” Katz said. “There’s an aggregate lumber price but because of some of the secular trends in home building and multifamily units … I could see there being local geographic tensions and price that would maybe make it more elevated than if you went to broad headline price.”

Katz said the Sunbelt states could continue to see heightened lumber prices as people move to the region from other parts of the US and drive up demand for housing.

Lumber prices at the start of the year surged, triggered by factors including concerns about an overheating housing market and millennials reaching home-buying age. But the main culprit behind its astronomical rally was the pandemic.

“I think it’s difficult to imagine a set of facts to support lumber prices going in excess of $1,600 per thousand for feet in the absence of the circumstances of the COVID crisis,” he said.

For some experts, the lumber phenomenon was a long time coming, especially given the chronic shortage of affordable homes for sale in the US.

Still, lumber wasn’t the only commodity that rallied this year despite the heightened interest. Many others from oil to copper also gained due in large part to distorted supply chains.

Read the original article on Business Insider

Lumber prices are on pace to plunge 45% in June after a record-breaking rally driven by homebuilding demand

A lumber yard

The price of lumber futures is on pace to plunge 45% in June for one of the largest monthly drops ever, as the hot commodity comes off a record-breaking rally.

Lumber prices have been on a rapid decline since their May 7 peak of $1,670 per thousand board feet.

As of June 30, the price of lumber has slipped around 45% to $721 per thousand board feet- and is now on track to have its worst month since 1978. Exactly a year ago, lumber futures closed at $435.

“I would not be surprised at all if we see the price continue to trail lower than $600 or below toward the year-end,” Mace McCain, president and managing director at Frost Investment Advisors, told Insider. “We will continue to see supply come on board but we will not see demand continue to grow.”

McCain added that this level will be more sustainable for the wood industry and will make housing more affordable.

While it is difficult to point to one specific reason why the price of lumber futures has pulled back, some experts attribute it to the economic reopening, which has caused more people to spend less time at home.

To begin with, the price skyrocketed at the start of the pandemic when restrictions forced Americans to shelter at home, prompting many to either build new houses or renovate existing ones.

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

Chip Setzer, director of trading and growth for Mickey Group, a commodity trading platform, agreed that this range is what he would consider a fair valuation as well.

He has told Insider in the past that the sweet spot would be $600-$900 as this range gives sawmill operators, truck drivers, and other players in the industry more cushion for capital upgrades and operational improvements.

Setzer did express concern that while the prices are much more reasonable now due in part to a more functional supply chain, the industry simply cannot afford another disruption.

“I have strong concerns that we will have interruptions, which will have adverse effects on supply,” he told Insider.

Setzer mentioned the recent wildfires in British Columbia, where the US gets part of its lumber supply, as well as the upcoming hurricanes in Texas and Virginia.

“If the forest is on fire we can’t get logs,” he said. “That will change the tables.”

Apart from supply chain issues, Brad McMillan, CIO at Commonwealth Financial Network, said the wild price fluctuations could also be due to market distortions, where a “real lumber shortage” turned into “something much worse.”

He said this, then, resulted in higher prices, which caused more panic buying, until some sort of limit was “reached.” At this point, which seems to be now, the price will head down, he said.

Earlier in 2021, lumber prices surged, triggered by a confluence of factors – a pandemic, concerns of an overheating housing market, and millennials reaching home-buying age. On top of this, there was already a shortage of lumber supply before the pandemic even began.

Read the original article on Business Insider

Lumber prices have bottomed out, but are likely to stay double the historical average for at least the next 5 years, 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.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

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.

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 record highs 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 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.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

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.

Read the original article on Business Insider

The price of a plywood substitute that used to be cheap is hitting repeated record highs even as lumber’s rally cools

TORZHOK, TVER REGION, RUSSIA - FEBRUARY 10, 2017: Inside the Talion Arbor high-technology timber plant launched as the Torzhok branch of STOD LLC.
  • The price of a formerly cheap plywood substitute called oriented strand board has surged 97% since the start of the year.
  • The rally in OSB is due in part to the storm in Texas, which caused a shortage in a substance needed to make the board.
  • OSB has continuously hit record highs in recent weeks even as the price of lumber has cooled.
  • See more stories on Insider’s business page.

The price of a plywood substitute that used to be cheap is hitting repeated record highs, adding to the already skyrocketing cost of building a home in North America.

Oriented strand board, or OSB, traded at $1,527 per thousand board feet in June, marking a 97% increase since the start of 2021, according to Bloomberg data.

The rally in OSB is due in part to a storm in Texas earlier this year that caused a shortage in resin, a chemical substance needed to make the product.

OSB is a versatile wood panel that shares many of the characteristics of plywood but at a more affordable price. It is a combination of wood and adhesives and is structurally stable and lightweight.

The wood industry has been one of the biggest beneficiaries of the pandemic, as more people built and renovated their homes. When new home construction and home-improvement sales boomed earlier this year, inventory for lumber and OSB, among other commodities, were running low.

Experts said the surge was unexpected. The industry, for that reason, struggled to catch up.

“You don’t just start up a mill at the snap of a finger,” Drew Horter, president and CIO of Tactical Fund Advisors told Insider. “This is a supply chain problem.”

OSB’s continued rally to new heights comes at a time when lumber prices are cooling after an epic 400% rally over 12 months.

“It’s even more difficult to get OSB at the moment than it is lumber,” David Flitman, CEO at Builders FirstSource, told Bloomberg TV on Wednesday.

Read more: Bank of America says to buy these 31 small- and mid-cap stocks with average implied upside of nearly 30%, as they represent its best ideas for the 2nd half of 2021

Read the original article on Business Insider

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.

Read the original article on Business Insider