Tumbling lumber prices are a sign that strong inflation will be temporary, Bank of England boss says

Lumber prices sawmill US logs wood
Lumber prices plummeted in June.

  • The plunge in lumber prices is a sign strong inflation should fade, the Bank of England’s governor said.
  • Andrew Bailey is among the central bankers to argue that inflationary pressures should be temporary.
  • Lumber prices soared but then tumbled 45% in June as sawmills upped production and demand slipped.
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The dramatic fall in lumber prices in the last month is a sign that strong inflation will be temporary, the governor of the Bank of England said on Thursday.

Lumber futures soared in the first few months of the year before dropping more than 40% in June. Prices peaked at more than $1,670 per thousand board feet of lumber in early May, but have since plummeted to around $760.

The drop is a sign that pandemic-driven booms in certain sectors will wear off as economies rebalance and supply catches up with demand, Bank of England Governor Andrew Bailey said in a speech on Thursday.

“We are seeing rebounds and normalisation of some commodity prices,” Bailey said. “In the US, lumber prices having risen sharply, are now retracting a sizeable part of that rise.”

“There are plenty of stories of supply chain constraints on commodities and transport bottlenecks, much of which ought to be temporary.”

Read more: An ex-Goldman trader breaks down why he is ‘salivating’ to buy the dip in grain stocks – and shares 5 stocks and an ETF to play the commodity supercycle

In the UK, year-on-year inflation jumped to a two-year high of 2.1% in May. In the US, year-on-year inflation hit a 13-year high of 5% in the same month.

But both Bank of England – the UK’s central bank – and the Federal Reserve argue that sharp price rises are a result of strong growth and bottlenecks in certain sectors. They say inflation will cool as growth slows, businesses adapt and people’s eagerness to spend wanes.

In the lumber market, analysts say prices are tumbling because people are spending less on home improvements as restrictions are lifted. Meanwhile, lumber producers have increased their supply.

However, not all analysts agree that falling prices in some sectors mean inflation will be temporary.

Hugh Gimber, global market strategist at JPMorgan Asset Management, said rising wages across economies as firms rehire workers could cause prices to rise more than expected.

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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.
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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.

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

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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.

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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

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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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Falling lumber prices show inflation will be temporary – and used car prices will soon follow suit, Fed’s Powell says

lowe's remodeling
A Lowe’s employee stocks lumber inside the home improvement store in New York.

Fed chair Jerome Powell said falling lumber prices illustrate that inflation will prove to be temporary in his press conference Wednesday.

The central bank head acknowledged that inflation data has come in above expectations over the last few months, but said that the data is consistent with the view that the prices that are driving higher inflation are from categories that are being directly affected by the recovery out of the pandemic, like lumber.

“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.

Lumber prices have fallen more than 43% since May’s record high of over $1,700 per thousand board feet, although they remain more than 139% higher over the last 12 months, making it one of the best-performing commodities in that time-frame.

Last week, lumber futures fell 18% in the biggest weekly decline for most-active futures in records going back to 1986, per Seeking Alpha.

The Fed chair said used car prices may soon follow Lumber’s trajectory. Used car prices accounted for more than a third of the total increase in core inflation from May’s reading. Powell said a “perfect storm of very strong demand and limited supply” has driven the prices up.

“It’s going up at just an amazing annual rate. But we do think that it makes sense that that would stop and that, in fact, it would reverse over time,” he added.

As for when the trend will reverse, Powell said the Fed is not sure.

“But over time it seems likely that these very specific things that are driving up inflation will be-will be temporary,” said Powell. However, he added that the bank is carefully monitoring the risk of inflationary pressures continue longer than expected.

“And if we see inflation expectations and inflation-or inflation moving up in a way that is really materially above what we-what we would see as consistent with our goals, and persistently so, we wouldn’t hesitate to use our tools to address that. That’s-price stability is half of our mandate, and we would certainly do that,” the Fed chair said.

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Lumber prices have further to slide as speculation dies down and supply catches up, a top commodity strategist says

Lumberjack lumber tree France forest
Lumber prices have fallen sharply in recent days.

  • The dramatic slide in lumber and copper prices has further to go, Saxo Bank’s chief commodity strategist said.
  • Ole Hansen said lumber supply was quickly catching up with demand, and speculators were leaving the market.
  • He also said demand for copper as an inflation hedge is falling as investors ignore price rises.
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The dramatic slide in lumber prices has further to go, as speculators pull out of the market and supply catches up with demand, Saxo Bank’s chief commodity strategist has said.

Lumber prices have fallen more than 42% since May’s record high of over $1,700 per thousand board feet, although they remain more than 150% higher for the year.

Ole Hansen, head of commodities at the Danish bank and a leading authority in the field, said a number of factors meant prices likely have further to drop.

“Something like lumber has been very much a pandemic-driven spike,” he told Insider. He said a lack of mill capacity and “people going crazy in their backyards, redoing their houses or buying a bigger house” had caused prices to soar.

Skyrocketing prices had sucked in speculators such as hedge funds, who are now pulling out of the market as prices dip, Hansen said.

“Some of that activity is bound to slow [and] supply is starting to meet the demand,” he said.

Hansen said the curve for lumber futures contracts is sloping downwards, showing that “the market is looking for quite some weakness as we head into the autumn and winter months.”

Hansen also said copper could drop another 10% from its current level over the summer, before rebounding later in the year. Copper is down roughly 10% from May’s high of around $10,750 per ton.

One reason for this is that investors think the chances of a dangerous rise in inflation have died down, he said. That means they are moving away from commodities like copper, which are seen as good stores of value at times of rising prices because they’re widely used in industry and technology.

Paul Donovan, chief economist at UBS Wealth Management, told Insider that commodities prices can be taken as a barometer of wider forces in the economy.

He said soaring home prices had cooled down some of the “frenzied” buying in the market, weighing on lumber. And he said peoples’ spending in many other areas had cooled after an initial splurge when economies first reopened.

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The CEO of the largest US lumber producer says that the commodity’s sky-high price is not the new normal, even as he foresees sustained demand over the next decade

home depot construction renovation
CHICAGO, IL – JULY 26: A customer’s lumber sits on a cart at a Home Depot store on July 26, 2017 in Chicago, Illinois. A shortage of single-family homes for sale in the U.S. is driving up home prices and causing many home owners to renovate rather than move, which is driving up earnings and stock prices for home improvement retailers.

Devin Stockfish, the chief executive of Weyerhaeuser, the largest lumber producer in the US, on Tuesday said the sky-high price of the commodity is a blip that is unsustainable.

“I don’t think $1,000 lumber prices are the new normal,” Stockfish told the Nareit REITweek 2021 Investor Conference, Bloomberg reported.

He continued: “With that being said, when you think about the amount of housing we’re going to have to build in the U.S. over the next three, five, 10 years, that’s just a significant amount of demand for wood products.”

Lumber prices have soared in the past year as housing markets around the world boomed during the coronavirus pandemic, with the random-length price rising around 40% in 2021.

Lumber stood at over $1,168 per 1,000 board feet on Tuesday afternoon.

“We’re going to continue to look for timberland opportunities,” Stockfish said. “Every deal that comes to market, we’re looking at, so I would expect us to continue to be active on that front.”

The Seattle-based company owns 11 million acres of timberland in the US.

Shares of Weyerhaeuser closed lower on Tuesday by 0.36%, at $35.57.

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Not so hot: Bitcoin’s 50% plunge since April puts it far behind lumber, copper and US banks for the year

2021 03 13T111735Z_1_LYNXMPEH2C07M_RTROPTP_4_CRYPTO CURRENCY BITCOIN TREASURY.JPG
Bitcoin has lost around half its value since April.

Once up more than 120% for the year, bitcoin’s dramatic plunge since April means the world’s biggest cryptocurrency is now lagging behind a host of more traditional financial assets in 2021.

  • Bitcoin’s 50% plunge since April has put its 2021 returns behind a host of more-traditional assets.
  • It now lags well behind commodities and US banks, which have jumped as economies have reopened.
  • Bitcoin’s gains were on a par with the S&P 500 and Dow Jones on Tuesday after another sharp drop.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

Bitcoin has lost around 50% of its value since peaking at close to $65,000 in April. It traded below $33,000 on Tuesday, around 13% higher than where it started the year.

The 13% increase put it far behind some of 2021’s biggest risers – particularly commodities and bank stocks, which have jumped as economies have reopened and markets have stayed buoyant.

Bitcoin’s plunge even put the cryptocurrency roughly on a par with the Dow Jones and S&P 500 for the year.

Lumber prices have rocketed as housing markets around the world have boomed despite the coronavirus pandemic, with the random-length price rising around 40% in 2021. It stood at just over $1,220 per 1,000 board feet on Tuesday, after a fall in recent days.

Copper has also jumped as global manufacturing has picked up again, rising roughly 28% across the year to above $4.50 a pound on the New York Mercantile Exchange.

Even US banks, the bedrock of the traditional economy, were far outperforming bitcoin on Tuesday as a rebound in growth and rising bond yields boosted share prices. The Dow Jones US banks index has risen around 36% since the start of the year after a lackluster 2020.

Bitcoin was down close to 5% on Tuesday morning. Analysts said one explanation was that former President Donald Trump said the crypto asset “seems like a scam” on Fox Business. Another was that the US has recovered a major ransom payment by breaking into a wallet, denting the anti-government case for crypto.

The cryptocurrency could crash again if it falls much further, said Jeffrey Halley, senior market analyst at currency firm Oanda. “Failure of $30,000 will basically put every long position since January 1 in the red, which, I believe, will trigger another capitulation trade,” he 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.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

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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