May 13, 2022

OUCH – THAT WILL LEAVE A MARK! As the May futures contract crashed on expiration today, dropping 8.37% into close, the big question one everyone’s mind is: WHAT LIES AHEAD? Traders sensed a turning point and the prospect of a dead-cat bounce as the sounds of growling bears could be heard in the distance. So let’s cut out the small talk and get down to business; and simply dive in to find out what transpired this past week in the place I like to call: ‘The Wonderful World of Wood.” Enjoy…

Distress shouts of “mayday” could be heard echoing across the nation as the plummeting financial markets placed fear in traders’ minds. As a result, pausing on purchases was experienced this week, as the potential of a dead-cat bounce was in dealers’ minds. As Friday arrived, 2×4 2/Btr KDHF closed out the week cautious, ending unchanged, a slowing compared to the last week’s 3/4% increasing effort. Over the past month, 2×4 2/Btr KDHF finds nearly 3-1/4% higher while positioned 26-1/2% below its early-May 2021 level.

2×6 2/Btr KDHF was victimized with minimal losses, as producers were put on the defensive amidst the shakey economic factors. The approaching fear traders sensed last week came to fruition as pricing drifted south by the week’s end. 2×6 2/Btr KDHF dipped nearly 1/2%, a reversal from the prior week’s 2-3/4% move. As a result, we now find 2×6 2/Btr KDHF up almost 4% over the past 4-weeks while remaining positioned more than 31% below its price point posted one year ago.

Wide dimensional stock categories (2×10-2×12) followed the market’s hesitancy, taking a wait-and-see approach. Buyers became more reluctant to increase inventory levels amidst rising interest rates, pushing well north of 5.5%. For the week, 2×10 2/Btr KDHF shifted gears into neutral, ending the week unchanged, pausing compared to the previous week’s 1/2% effort. For the month, 2×10 2/Btr KDHF is up 1-1/2% from where it began last month and stands more than 34% below its level from one year ago.

A copy and paste effort was experienced with 2×12 2/Btr KDHF as it mirrored the action seen with 2×10. For the week, 2×12 2/Btr KDHF coasted into Friday unchanged, contrasting the previous week’s 1-3/4% effort. Looking in the rear-view mirror, we find 2×12 2/Btr KDHF closing out the last 4-weeks up by 1-3/4% compared to its early-April 2022 mark and lower by almost 43% from its trading level from precisely one year ago.

SO MUCH FOR THE PAUSE. As most of the market took a breather or a slight pull-back, Green DF Timbers shifted out of neutral and inched higher. As a result, Green DF Timbers ended the week higher by ¾%, a subtle momentum shift compared to the previous week’s unchanged action. Over the past 4 weeks, Green DF Timbers are up more than 2-3/4% while remaining positioned more than 8-3/4% above the early-May 2021 levels from one year ago.

2×4 Western S-P-F 1650fb MSR added to the weakness experienced last week, as the font color took on a deeper shade of red. By Friday, 2×4 Western S-P-F 1650fb MSR accumulated losses totaling 1-1/2%, doubling last week’s 3/4% falter. As a result, 2×4 Western S-P-F 1650fb MSR now finds itself lower by more than 3-1/3% over the past month, while it stands more than 24-1/3% below the early-May 2021 level.

The weakness sensed in the general market invaded the stud category but did not result in softer pricing (quite yet). Producers held their ground amidst the pull-back in buying interest, as they did their best to lean on current order files. 2x4x8′ PET KDHF Solid Studs coasted into Friday unchanged for the week, a momentum shift compared to the previous week’s 2-1/2% gain. However, 2x4x8′ PET KDHF Solid Studs are up by more than 7% over the past month, as they now stand nearly 28-1/2% beneath their early-May 2021 trading level.

The price burst experienced by 2x4x9′ PET KDHF Solid Sawn Studs two weeks ago is now a distant memory, as studs are seemingly experiencing a dead-cat-bounce. However, my canary could be singing a new tune, potentially sounding an early warning sign of another momentum shift. 2x4x9′ PET KDHF Solid Sawn Studs ended the week unchanged, pausing to digest the previous week’s 3-1/4% gain. Over the past month, we have seen 2x4x9′ PET KDHF Solid Sawn Studs rise more than 19% from their early-April level while they remain positioned more than 36% lower than their price posted one year ago.

A continuation of further hesitation that began last week continued, as doubts over a robust summer proved to be warranted. Buyers’ reluctance to add to inventory levels persisted as producers struggled to sell current production levels. As Friday arrived, 4x8x1/2” CDX Plywood coasted into Friday unchanged yet again, remaining stalled out, mirroring last week’s unchanged effort. As a result, 4x8x1/2” CDX Plywood now finds itself about 1/2% lower over the past 4-weeks while standing nearly 41-1/2% below its price posted one year ago.

Similar action was found in the plywood floor sheathing category, as the predominant tone was a wait-and-see approach. As a result, 4x8x3/4″ T&G UDLX Plywood ended the week unchanged, matching the previous week’s dull and unchanged effort. Year-on-year, 4x8x3/4” T&G UDLX Plywood finds itself standing 19% below its trading price posted from this time in May 2021 while remaining even-steven, closing unchanged over the past month.

Like last week, the softness experienced in the economic forefront let any wind out sales, stifling a further pricing uptick from the “Commodity King.” In addition, the continuation of logistical issues did little to provide any fallback for producers to gain the edge. As a result, the buying hesitancy that commenced last week intensified as 4x8x7/16” OSB closed out the week unchanged, a momentum pull-back compared to the previous week’s 2% rise. Nevertheless, the king ends the past 4-weeks nearly 5-1/2% lower as it now sits upwards of 53% below its mark from precisely one year ago.

A stagnation in both panel products left the 7/16″ OSB vs. 1/2″ CDX DISCOUNT in check, ending at 17.8% by Friday, mirroring the previous week’s 17.8% mark.

Similar concerns echoed into the OSB floor sheathing category as 4x8x23/32” T&G OSB as pricing managed to inch slightly higher, closing out the week ¾% higher, softer than the previous week’s 1-1/4% effort. Over the past month, we have seen 4x8x23/32″ T&G OSB slip more than 6-3/4% while leaving it 41-1/2% below its trading level from one year ago.

The hushed price action of OSB and plywood helped keep the previous week’s plywood premium over OSB near last week’s level, as Oriented Strand Board floor sheathing finished with a 24.7% DISCOUNT, compared to the previous week’s 25.3% mark.

As traders watched the stock market crumble for the second week, significant concerns over summer material demand surfaced even more than in previous weeks. All eyes glaring at the mammoth cash to futures discount north of 28% caught everyone’s attention, as expectations for another summer lumber price decline seem almost inevitable. Nevertheless, once the week was said and done, the composite closed out the week on a slow grind higher, rising a mere $2.1mbf, adding less than 1/4%, to finish out the trading week at $1080.mbf.

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As pricing drifted lower, the softness in July and September lumber futures contracts negatively affected 2×4 2&Btr Kiln Dried Spruce-Pine-Fir Western Mill. For the week, 2×4 2&Btr Kiln Dried Spruce-Pine-Fir Western Mill moved lower by nearly 3-1/4% by week’s end, virtually recouping all of last week’s 3-3/4% gain. Over the past month, 2×4 2&Btr Kiln Dried Spruce-Pine-Fir Western Mill finishes 5% higher, while it stands nearly 32-1/4% below its price point posted precisely one year ago.

The May futures contract came to rest, expiring in a ball of fire, plummeting into the close. Weakness presented itself Thursday, as the flood gates were opened on expiration Friday, as the contract fell hard, expiring at $920mbf. The May 2022 contract EXPIRED with a 15.21% discount to cash, nearly doubling the previous week’s 8.35% mark.

With May expired and off the books, July 2022 becomes the front month to watch. The July 2022 futures to cash discount further stumbled after last week’s drop, closing at 28.11% compared to the previous week’s 23.58% mark. The downhill momentum continued as the September 2022 futures to the cash mark settled at a 29.86% discount, adding to last week’s 27.06% mark. The November 2022 contract also expanded, closing the week with a 29.49% discount, growing from the previous 27.61% mark. Looking out to next year, the January 2023 contract buttoned up the week on the move, with a futures-to-cash discount of 28.24%, compared to last week’s 26.38% mark. The March 2023 contract left us with a 27.65% discount, expanding compared to the previous week’s 23.77% mark. And last but not least, the May 2023 contract finished the week with a 29.88% discount, climbing higher versus the previous week’s 25.99% mark.

  • GIVE IT A FEW WEEKS: Look for pricing to hold or slightly soften through Memorial Day. After that, I expect to see the market push lower as we move into the summer months.
  • KEEP YOUR EYES ON OSB: Yes, a repeat from the past two weeks. Watch for red numbers in the coming weeks, and the dead-cat bounce. It could happen before Memorial Day.
  • LUMBER FUTURES: Softness into May expiration opened the door for further widespread caution. Expect lumber futures to provide some near-term stability at current levels, which will push the cash market down to close the current gap.

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

Jim Schumacher
Shoe’s Lumber Report
(425) 219-6118