April 15, 2022

THE PRICE DROPPED HOW MUCH? Depending on which side of the transaction you are on, what is good news for some, can be bad news for others. So if you are a builder and have been searching for lower OSB prices, this is good news for you on a GOOD FRIDAY, as hope is on the way. BONUS – After speaking with an industry associate earlier this week, we discussed ideas of how I could enhance my weekly report. He suggested I consider adding a WHAT TO WATCH OUT FOR section to my updates. I loved the idea and have decided to add that as my closing section. So hence, WTWOF was born. Thanks, Tim! So be sure to check it out each week as I will use this section going forward to bullet point some closing thoughts about what the voices inside my head are whispering to me. So buckle up and get ready to explore all of the happenings that transpired this week in the place I like to call: ‘The Wonderful World of Wood.” Enjoy…

The Easter holiday-shortened trading week helped to tamper the lumber market’s downward springtime spiral. With the financial sector and trading offices closed for Good Friday, the bleeding continued but was cut one day short. Moreover, aggressive counter-offers between buyers and sellers helped the market move closer to a near-term bottom. As a result, 2×4 2/Btr KDHF dipped by a mere 5-1/4%, a fraction of the previous week’s 14-3/4% hammering. Over the past month, we have experienced a bloodbath as 2×4 2/Btr KDHF has faltered more than 23%, while it now stands more 9-3/4% below its mid-April 2021 level.

2×6 2/Btr KDHF followed a similar path, as it too pulled the reins back on its march lower. As a result, 2×6 2/Btr KDHF slumped more than 5-1/2%, which eased back from the prior week’s 13-3/4% tumble. As a result, we now find 2×6 2/Btr KDHF is off nearly 23% over the past 4-weeks while remaining positioned more than 16% below its price point posted one year ago.

A similar vulnerability was faced in the wide dimensional stock category, as 2×10 2/Btr KDHF posted losses totaling in excess of 4-3/4%, adding to the previous week’s losing 11-3/4% effort. For the month, 2×10 2/Btr KDHF is off more than 20-1/2%, as it crosses April mid-point 18-1/2% lower than it stood one year ago.

2×12 2/Btr KDHF took the most significant shot to the ribs this week, among its dimensional counterparts, as Ressurection Day neared. Once the week was said and done, 2×12 2/Btr KDHF carved out losses totaling more than 8%, adding to last week’s 11-3/4% falter. As a result, 2×12 2/Btr KDHF closes out the previous 4-weeks off 24% more than its mid-March 2022 mark while finding itself now down upwards of 27-1/4% below its trading level from precisely one year ago.

HOLDING FIRM. As the rest of the market continued to feel the pain, Green DF Timbers managed to keep their chins up and stand firm. Green DF Timbers ended the week unchanged by the end of business Thursday, a minimal slowdown compared to the previous week’s 3/4% effort. Over the past 4 weeks, Green DF Timbers are up more than 5-3/4% while remaining positioned nearly 12% above its mid-April 2021 level from one year ago.

2×4 Western S-P-F 1650fb MSR accelerated the downward losses as Easter neared, declining 8%, doubling the previous week’s 3-1/4% retreat. As a result, 2×4 Western S-P-F 1650fb MSR now finds itself lower by more than 14-1/2% over the past month, while it stands upwards of 1-3/4% below the mid-April 2021 level.

IS THE CANARY SINGING GROWING FAINT? As the middle of April came to pass, the extreme retreat in the stud category began to ease. However, the monstrous discounts posted over the past few weeks managed to catch traders’ attention, as comfort that a near-term bottom was sensed. As a result, this week brought less severe bleeding, as 2x4x8′ PET KDHF Solid Studs dropped more than 4-1/3%, a significant improvement compared to the previous week’s substantial hit of 17-2/3%. Nevertheless, over the past month, we see that 2x4x8′ PET KDHF Solid Studs find themselves upwards of 28-3/4% lower, as they now stand more than 12% below their mid-April 2021 trading level.

The sounds of the canaries were consistent as the downward momentum eased for the longer counterpart. For the week, 2x4x9′ PET KDHF Solid Sawn Studs dipped by a mere 2-1/2% as the retreat began to evaporate, compared to the previous week’s 7-2/3% drop. Over the past month, 2x4x9′ PET KDHF Solid Sawn Studs find themselves down nearly 28-1/2% from their mid-March level while positioned 33% below their price posted exactly one year ago.

LET THE BEATING CONTINUE! Like last week, prices were whipped again as buyers went into hiding, opting to wait out the panic. Unfortunately for producers, purchases inquiries were infrequent at best, as 4x8x1/2” CDX Plywood dipped by more than 10-3/4% by the close of business Thursday, eclipsing the previous week’s 9-1/3% decline. As a result, 4x8x1/2” CDX Plywood now finds itself nearly 25-1/2% lower over the past 4-weeks while standing upwards of 35-2/3% below its price posted one year ago.

After suffering minimal losses in the past weeks, the plywood floor sheathing category continued down the same path. Skittish buyers hid in the hills as the losses added up as mills did their best to attract buyers. For the week,  4x8x3/4″ T&G UDLX Plywood edged lower by 3%, mirroring the previous week’s 3% losing effort. Year-on-year, 4x8x3/4” T&G UDLX Plywood finds itself standing 10% below its trading price posted from this time in April 2021 while remaining just 8-1/4% lower over the past month.

AND YOU THOUGHT LAST WEEK WAS BAD! Well, it was until this week arrived. The “Commodity King” had its worst week since late July 2021, when it lost 47% of its value in just one week. Ouch! Things were terrible this week, but not that awful. Producers searched for trading levels attractive buyers but failed in the efforts, as that number crept lower and lower as the week progressed. Thankfully for the millS, there were only four trading days this week, or the bloodbath may have been worse. For the week, 4x8x7/16” OSB plunged upwards of 23-1/4% after finishing down 21-3/4% the previous week. The king ends the past 4-weeks more than 43% lower and now sits more than 40-2/3% below its mark from precisely one year ago.

IT IS AMAZING HOW FAST THINGS CAN CHANGE! Intense weakness in the OSB market provided a colossal imbalance to the previous OSB to Plywood premium. As a result, the spread from the record-setting high we saw three weeks ago is now but a distant memory. As a result, we closed out the week with 7/16″ OSB vs. 1/2″ CDX now at a DISCOUNT of 12.6%, falling from the previous week’s 1.4% premium mark. And to think OSB was an 18.8% premium to plywood just a few weeks ago. Wow!

A comparable pattern was seen in the OSB floor sheathing category, as it too suffered sizeable blows leading up to Easter weekend. As Good Friday arrived, 4x8x23/32” T&G OSB drifted lower by more than 16%, as it added to the previous week’s 16-1/4% losing effort. Over the past month, we have seen 4x8x23/32″ T&G OSB slip more than 32-1/3% while leaving it nearly 20-1/4% below its trading level from one year ago.

CAN YOU SAY: ABOUT, FACE? The imbalance of price erosion of plywood versus OSB destroyed the previously experienced plywood premium over OSB from just a few weeks ago, as it finished with a 19.1% DISCOUNT, compared to last week’s 6.6% mark.

The brutality of the market erosion did little to attract significant buying during the week, as traders were more focused on the Easter holiday and spring break than attempting to catch a falling knife. However, once the week was said and done, the red font was abundant as the multiple shades of red were flowing. The composite closed out the short trading week by falling $102.1mbf, dropping nearly 8-3/4%, as it buttoned up the trading week at $1071.4mbf.

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A lackluster desire to add inventories leading into the holiday week made things difficult for producers as pricing continued eroding away. The chase to the market’s near-term bottom continued, as buyers were only interested in covering short-term needs. The sizable May futures-to-cash discount totaling nearly 12-1/4% only contributed to the trader’s pessimism. For the week, 2×4 2&Btr Kiln Dried Spruce-Pine-Fir Western Mill was beaten by more than 7-3/4% after suffering losses of nearly 9-1/4% last week. Over the past month, we have seen 2×4 2&Btr Kiln Dried Spruce-Pine-Fir Western Mill dip by more than 28-1/4% as it stands upwards of 16-2/3% under its price point from precisely one year ago.

Like a small-dog syndrome, the short holiday trading week offered up quite a bit of noise as the market’s softness continued. On Monday, the May futures contract experienced a Steve Martin-like, WILD & CRAZY day. The contract experienced a very volatile session, trading as high as $992.6mbf and as low as $870.0mbf, before closing the day on the downside of that range. Trading on Tuesday brought us the week’s low-tick, as the contract touched $829.3mbf before inching higher. The trading tone remained muted for the remainder of the short trading week as the May 2022 contract with a 12.21% discount to cash improved slightly from the previous week’s 12.85% mark.

The July 2022 futures to cash discount declined, closing at 18.52% versus the previous week’s 20.76% mark. The downward swing also softened with the September 2022 futures to the cash mark, as it settled at a 24.13% discount compared to last week’s 24.13% mark. The November 2022 contract also improved, closing out the week with a 22.89% discount, weakening from the previous 27.52% mark. Looking out to next year, the January 2023 contract buttoned up the week with a futures-to-cash discount of 21.09%, compared to last week’s 27.21% mark. The March 2023 contract left us with a 20.46% discount, eroding compared to the previous week’s 26.62% mark. And last but not least, the May 2023 contract finished out the week with a 22.87% discount, edging significantly lower compared to the previous week’s 34.08% mark.

CONGRATULATIONS – YOU MADE IT TO THE  WTWOF section! Give yourself a pat on the back. In my closing section, I offer up my two-cents as to what my gut tells me. Right or wrong, good or bad, it is, what it is. So let’s dive in!

  • Follow Studs (or my canaries). The downward momentum has been waning as of late. The near-term downward correction is nearing an exhaustion point, which could mark the end of the market’s latest BEAR-ish charge lower.
  • Keep an eye on lumber futures. If the low $800’s support level fails next week, look out! The BEARS could continue to run, seeing pricing drop another 14%. Not likely, but anything is possible.
  • On the other hand, if lumber futures found the support level needed, which was touched on Tuesday, April 12th of $829.3mbf holds, the near-term bottom for lumber has arrived, and the cash market retreat is nearly done.
  • OSB suffered big hits this week, but the pain is not done. 2022 experienced lower highs than 2021, as sky-high OSB prices will soon be a thing of the past. I would not be shocked to see OSB easily dropping another 25+% from here before finding support.

Enough for this now. Until next week, Shoe out!

Jim Schumacher
Shoe’s Lumber Report
(425) 219-6118
jim@shoeslumberreport.com