April 29, 2022
BEAR DOWN – BULL UP! After last week’s hint of a turn-around, the falling bears propelled the bulls back into control for the time being. Buyers sensed the opportunity and grabbed it, stepping in to take advantage of the recent price deterioration to dollar cost average their inventories lower. However, with the lumber market’s recent price drop, buyers remained cautious about rising world tensions and exploding interest rates impacting future demand. So get ready as we jump in to catch up on all of the happenings that transpired this week in the place I like to call: ‘The Wonderful World of Wood.” Enjoy…
As the end of April neared, bulls perked up, coming out of hiding, and managed to intimidate the bears for the time being. As a result, traders stepped in to make purchases, adding to inventory levels akin to someone walking out onto the frozen lake, cautious of thin ice. The market’s recent retreat totaling more than 23% was enough to attract buyers. Still, it lacked the confidence needed of an actual market near-term basement to push pricing significantly higher. As a result, once the week was complete, 2×4 2/Btr KDHF rose by 2-1/4% by Friday, an official, directional momentum shift compared to the last week’s unchanged effort. Over the past month, losses have accumulated more than 17-1/4%, while 2×4 2/Btr KDHF now stands more than 20-1/2% below its late-April 2021 level.
2×6 2/Btr KDHF saw a similar shift, as it too dipped lower, closing out the week on sifter ground. Traders sensing a bounce off of recent lows stepped in to take advantage of the opportunity to average down on inventory costs. Once the trading week came to a close, 2×6 2/Btr KDHF gained nearly 2-1/2%, recouping all and then some of the prior week’s 1% dip. As a result, we now find 2×6 2/Btr KDHF is off more than 17-1/2% over the past 4-weeks while remaining positioned 27% below its price point posted one year ago.
Much of the same was seen in the wide dimensional stock categories as the downward momentum halted and the trend reversed course. For the week, 2×10 2/Btr KDHF added more than 2% by Friday, adding to the previous week’s losing 1% effort. For the month, 2×10 2/Btr KDHF is off more than 15-1/4%, as it crosses April late-point 28-1/3% lower than it stood one year ago.
LIKE IT NEVER HAPPENED! The softness experienced last week with 2×12 2/Btr KDHF evaporated as the market did an about-face compared to the previous week’s action. 2×12 2/Btr KDHF managed to jump higher by 3%, neutralizing last week’s 3% stumble, making the past two weeks’ worth of activity irrelevant. As we look in the rear-view mirror, we find 2×12 2/Btr KDHF closing out the previous 4-weeks down 19% compared to its late-March 2022 mark while now lower by nearly 37-2/3% from its trading level from precisely one year ago.
SAME OLD PATTERN, DIFFERENT WEEK. As the balance of the market shifted course turning from red to green, Green DF Timbers were steady as she goes, marking their 16th week of flat to upwards action. By Friday, Green DF Timbers ended the week up more than 1-1/4%, adding a bit of momentum to the previous week’s ¾% action. Over the past 4 weeks, Green DF Timbers are up more than 2-3/4% while remaining positioned nearly 10-1/3% above its late-April 2021 level from one year ago.
2×4 Western S-P-F 1650fb MSR fell in line with the balance of the market, as it too reversed course, as the font color rotated from red to green. As a result, 2×4 Western S-P-F 1650fb MSR comes into Friday with gains totaling 3/4%, changing course from last week’s 1-3/4% collapse. As a result, 2×4 Western S-P-F 1650fb MSR now finds itself lower by more than 12% over the past month, while it stands more than 17% below the late-April 2021 level.
As the end of April arrived, the drastic retreat in the stud category has officially found its near-term bottom. Buyer interest that was virtually non-existent a few weeks ago resurfaced as buyers stepped in to capitalize on lower prices. As the calendar page was prepared to flip from April to May, 2x4x8′ PET KDHF Solid Studs added over 4%, a notable improvement to the previous week’s minimal 1/2% gain. Regardless of the recent bottom bounce, 2x4x8′ PET KDHF Solid Studs find themselves upwards of 17-2/3% lower over the past month, as they now stand nearly 22-1/3% below their late-April 2021 trading level.
FLY, CANARY FLY! Similar to the movie line: “Run, Forest, Run” from Forest Gump, 2x4x9′ PET KDHF Solid Sawn Studs did precisely that, they ran. One of my critical canaries in the coal mine is KDHF studs, as this week was a prime example. After substantial losses from the recent market high posted in early March, 2x4x9′ PET KDHF Solid Sawn Studs rocketed by more than 11-3/4% this week on strong demand, further cushioning the previous week’s 3-1/4% pop. Over the past month, we have seen 2x4x9′ PET KDHF Solid Sawn Studs rise more than 3-3/4% from their late-March level while positioned roughly 33% below their price posted one year ago.
The pricing retreats over the past month and change reversed course as font color changed as May approached. Buyers focused on immediate needs, remaining reluctant to add to late spring inventories. Nevertheless, producers reported solid sales for the week, as inbound purchase inquiries were the best in weeks. Once Friday came, 4x8x1/2” CDX Plywood rose nearly 1-2/3%, reversing course compared to the previous week’s 1% loss. As a result, 4x8x1/2” CDX Plywood now finds itself about 18-3/4% lower over the past 4-weeks while standing nearly 41% below its price posted one year ago.
Skittishness and uncertainty were present in the plywood floor sheathing category this week, as prices increased mid-week, only to fall back as the week progressed. 4x8x3/4″ T&G UDLX Plywood closed the teeter-totter week unchanged, coming off the previous week’s 3% eroding effort. Year-on-year, 4x8x3/4” T&G UDLX Plywood finds itself standing 16-1/3% below its trading price posted from this time in April 2021 while remaining over 6% lower over the past month.
DID THE BOTTOM ARRIVE? YES… Last week’s report of a strengthening OSB market rang true, as pricing ticked up for the first time in 4-weeks. In addition, increasing interest extended mill order files to the 3-4 week plus range, with buyer hesitancy becoming prevalent for deliveries that would not arrive until mid-late June. As a result, 4x8x7/16” OSB or my namesake, the “Commodity King,” posted gains of 2-2/3%, a turn-around compared to last week’s 9-2/3% drop. Nevertheless, the king ends the past 4-weeks upwards of 44-1/4% lower and now sits upwards of 53-1/3% below its mark from precisely one year ago.
A turn-around in plywood and OSB helped keep the 7/16″ OSB vs. 1/2″ CDX DISCOUNT close to last week’s level, ending at 19.4%, declining slightly compared to the previous week’s 20.2% mark.
Contrary to last week, producers managed to grab the upper hand as pricing in the OSB floor sheathing category edged higher, posting gains for the first time in more than a month. Once Friday arrived, 4x8x23/32” T&G OSB pressed higher by nearly 3%, reversing course compared to the previous week’s 11-1/2% erosional effort. Over the past month, we have seen 4x8x23/32″ T&G OSB slip more than 35-3/4% while leaving it upwards of 41-2/3% below its trading level from one year ago.
The uneven price action of OSB versus plywood helped to carve into the previous week’s plywood premium over OSB, as Oriented Strand Board floor sheathing finished with a 26.0% DISCOUNT, compared to last week’s 28.1% mark.
As April faded over the horizon and May prepared to come into play, price action altered course after a solid month of downward pressure. With business still robust for the time being, buyers’ appetite to step back into the market was apparent. However, once the week was said and done, the composite closed out the week lower once again as it fell, falling $25.7mbf, adding nearly 2-1/2%, closing out the trading week at $1063.6mbf.
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A slight bump in the May contract added strength to the cash market, as 2×4 2&Btr Kiln Dried Spruce-Pine-Fir Western Mill added to recent gains. 2×4 2&Btr Kiln Dried Spruce-Pine-Fir Western Mill rose more than 3-3/4% for the week, adding to last week’s 3-1/2% effort. However, over the past month, we have seen 2×4 2&Btr Kiln Dried Spruce-Pine-Fir Western Mill dip by 10% as it stands nearly 24% below its price point posted precisely one year ago.
The futures market found top-side resistance around the $1064mbf range, as prices finished green every trading day this week. Monday offered a bit of shuck-and-jive as pricing initially dipped lower, falling to an intraday low of $945.6mbf before ending the day near its intraday trading high of $1017.3mbf. As we enter the expiration month of May, daily limits are thrown out the window, so anything goes. Once the week was said and done, the May 2022 contract closed with a 3.02% discount to cash, improving slightly from the previous week’s 3.6% mark.
The July 2022 futures to cash discount stumbled, dipping to 15.2% compared to the previous week’s 10.04% mark. The downward erosion expanded into other contracts, with the September 2022 futures to the cash mark settling at a 20.36% discount compared to last week’s 14.33% mark. The November 2022 contract also expanded, closing the week with a 20.46% discount, falling from the previous 15.38% mark. Looking out to next year, the January 2023 contract buttoned up the week with a futures-to-cash discount of 19.94%, compared to last week’s 14.15% mark. The March 2023 contract left us with a 19.34% discount, rising compared to the previous week’s 13.63% mark. And last but not least, the May 2023 contract finished out the week with a 21.58% discount, moving higher versus the previous week’s 15.96% mark.
- CYA FOR MAY: Cover yourself through May and then some, but not much longer. I am more steer-ish than bullish over the next 4-6 weeks, then turning bearish after Memorial Day.
- KEEP YOUR EYES ON OSB: A dead-cat bounce is upon us if we don’t see a substantial uptick in prices over the next few weeks.
- MAY LUMBER FUTURES: Look for the spot month of May to continue finding resistance near $1100mbf (or lower), as I don’t expect a strong run from here. As noted last week, expect lower highs and lower lows in the coming months.
- INFLATION, FOOD SHORTAGES, AND THE PROSPECT OF NUCLEAR WAR! Do I say more?
Enough for this now. Until next week, Shoe out!