May 20, 2022

MORE THAN JACK AND JILL ARE TUMBLING THIS WEEK! A bit of deja vu set in this week, harkening back to the commencement of the late May 2021 lumber market crash experienced last year. The combination of a soft cash market and weakness in lumber futures brought the saying: “SELL IN MAY, AND GO AWAY” to life this week. Do I have your attention yet? If not, this week’s update is bound to perk up your ears. With my birthday this weekend, I will make this week’s intro short and sweet, and cut to the chase by simply diving right into the place I like to call: ‘The Wonderful World of Wood.” Enjoy…

The continuation of distress ensued, as the hammering the financial markets have been experiencing has now infiltrated the lumber market. Previously cautious traders had their suspicions validated as pricing crested and headed south. The temporary pause experienced last week of the fears of a dead-cat bounce was validated. As Friday arrived, 2×4 2/Btr KDHF closed out the week on the retreat, ending 7% lower, a momentum change compared to the last week’s unchanged activity. This week’s action leaves 2×4 2/Btr KDHF lower by 4% over the past month while positioned nearly 37-1/4% below its early-May 2021 level.

Similar pessimism was found with 2×6 2/Btr KDHF, as it succumbed to the widespread reversal, gaining downward momentum compared to last week. For the week, 2×6 2/Btr KDHF plummeted more than 7-1/2%, gaining some severe downward momentum versus the prior week’s 1/2% move. As a result, we now find 2×6 2/Btr KDHF off nearly 3% over the past 4-weeks while remaining positioned more than 41-1/2% below its price point posted one year ago.

Wide dimensional stock category (2×10-2×12) succumbed to the market shift, as it too was victimized by the turning sentiment. Buyer hesitancy was prevalent, as most opted to stand on the sidelines to allow the dust of the turning market to settle. For the week, 2×10 2/Btr KDHF shifted gears into reverse, closing out the week down 5-2/3%, retreating compared to the previous week’s unchanged effort. For the month, 2×10 2/Btr KDHF is lower by 1-1/2% from where it began last month and stands more than 34% below its level from one year ago.

As the market’s weakness turned into a reality, producers were forced to offer generous discounts to attract buyers. A shift in emotions could be sensed as traders ‘bearish’ personalities surfaced, as 2×12 2/Btr KDHF as it emulated the action seen with 2×10. For the week, 2×12 2/Btr KDHF softened going into the Friday, as it dropped 3-1/2%, contrasting the previous week’s unchanged effort. Looking in the rear-view mirror, we find 2×12 2/Btr KDHF closing out the last 4-weeks nearly 1-1/4% compared to its early-April 2022 mark and lower by more than 48% from its trading level from precisely one year ago.

DARE TO BE DIFFERENT! As most of the market took on a significant bearish tone, Green DF Timbers managed to hold their own again and buck the market’s overall pessimistic tone. Once the week was said and done, Green DF Timbers coasted into Friday unchanged, pausing after the previous week’s ¾% bump higher. 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.

ALL DOWN HERE FROM HERE? That is my vote and may well be the case, as the market’s frailty proved to be the catalyst pushing 2×4 Western S-P-F 1650fb MSR over the edge. By Friday, 2×4 Western S-P-F 1650fb MSR accumulated losses north of 8%, over five-fold compared to last week’s 1-1/2% stumble. 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 CANARIES SOUND OFF AGAIN! The vulnerability of the general market attacked the stud category, resulting in a solid downward move producing a bold move. Producers were forced to reduce pricing to attract interest from buyers as buyer interest evaporated amidst the softening pattern. 2x4x8′ PET KDHF Solid Studs plummeted into Friday off well more than 6%, a big momentum swing compared to the previous week’s unchanged effort. After this week’s move, 2x4x8 PET KDHF Solid Sawn Studs have been pushed down to their lowest mark of the year and now sit unchanged over the past month, as they stand nearly 37% underneath their early-May 2021 trading level.

THE CANARIES ARE CHIRPING AWAY. The brief stability experienced last week with 2x4x9′ PET KDHF Solid Sawn Studs has evaporated as the dead-cat-bounce I referred to last week came to fruition. 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 4-1/2%, pausing to digest the previous week’s unchanged action. Surprisingly over the past month, 2x4x9′ PET KDHF Solid Sawn Studs remain standing 10-1/4% above their mid-April level while standing more than 42-3/4% below their price posted one year ago.

Concern over the market’s near-term direction leaked into the plywood as buyer’s stepped back to evaluate the landscape before committing to increase inventories. As of Friday arrived, 4x8x1/2” CDX Plywood stumbled slightly compared to the previous week’s action, dropping 3-2/3%, a softer tone than the last week’s unchanged effort. As a result, 4x8x1/2” CDX Plywood now finds itself more than 2% lower over the past 4-weeks while positioned 54% below its price posted one year ago.

A better result was found in the plywood floor sheathing category, as the market’s pessimistic tone only slightly impacted pricing during the week. As a result, 4x8x3/4″ T&G UDLX Plywood ended the week off just 2/3%, a small change versus the previous week’s dull and unchanged effort. Year-on-year, 4x8x3/4” T&G UDLX Plywood finds itself standing nearly 32-1/2% below its trading price posted from this time in May 2021 while holding 1/3% lower over the past month.

NOW, THAT IS A DEAD-CAT BOUNCE! The recent price recovery that began 4-weeks ago abruptly ended this week, as traders were spooked to the sidelines amidst the week’s economic woes. As a result, the “Commodity King” suffered sizeable losses this week as severe weakness was prevalent during the second half. For the week, 4x8x7/16” OSB closed down a hefty 10-3/4%, a significant momentum shift compared to the previous week’s unchanged. Nevertheless, the king ends the past 4-weeks nearly 6-2/3% lower as it now sits more than 59% below its mark from precisely one year ago.

An imbalance of downward momentum in both panel products pushed the 7/16″ OSB vs. 1/2″ CDX DISCOUNT a bit deeper, ending at 23.9% by Friday, compared to the previous week’s 17.8% mark.

A similar yet gentler concern reverberated in the OSB floor sheathing category as 4x8x23/32” T&G OSB as pricing drifted lower to close the week. 4x8x23/32” T&G OSB took a lighter shot to the chin, falling by 7%, reversing course from last week’s 3/4% upwards effort. Over the past month, we have seen 4x8x23/32″ T&G OSB slip more than 2% while leaving it 47% below its trading level from one year ago.

The revived downward price action of OSB and plywood helped the previous week’s plywood premium over OSB remain intact, as Oriented Strand Board floor sheathing finished with a 29.5% DISCOUNT, compared to the previous week’s 24.7% mark.

Traders continued watching the stock market in horror as the red days added up, as significant concerns over the summer construction cycle became even more prevalent. All eyes were glued to the behemoth cash to futures discount, which now stands at 25-1/4%, as expectations escalated to their highest level that summer lumber prices will be much lower than the current values. Once the week was said and done, the composite closed out the week on its heels, falling $62.1mbf, as it lost 5-3/4%, to finish the trading week at $1017.9mbf.

FEEL THE PAIN! Plunge would be a great descriptor of the price action experienced this week by 2×4 2&Btr Kiln Dried Spruce-Pine-Fir Western Mill action. Unfortunately, the product that closely tracks future lumber pricing succumbed to the recent lumber futures weakness, as the outlook is not looking too bright for lumber prices. For the week, 2×4 2&Btr Kiln Dried Spruce-Pine-Fir Western Mill plummeted by more than 14-2/3% by Friday, more than 4x the loss of last week’s 3-1/4% drop. YIKES… Over the past month, 2×4 2&Btr Kiln Dried Spruce-Pine-Fir Western Mill finishes nearly 13-1/4% higher, while it stands more than 44-3/4% below the price point posted precisely one year ago.

Severe weakness in the new front month of July pushed pricing to its lowest level since November. The July contract pierced the $700mbf mark, trading as low as $660mbf, before settling on Friday marginally above its low-water mark of the week. The July 2022 futures to cash discount further remained solid, as it eased slightly compared to last week’s finish with the help of the cash market’s weakness, closing at 25.48% compared to the previous week’s 28.11% mark.

A similar slide was seen with the September 2022 futures to the cash mark, as it settled the week at a 26.11% discount, compared to last week’s 29.86% mark. The November 2022 contract retracted some, closing the week with a 25.31% discount, shrinking from the previous 29.49% mark. Looking out to next year, the January 2023 contract buttoned up the week with a futures-to-cash discount of 17.78%, much lighter than last week’s 28.24% mark. The March 2023 contract left us with a 17.07% discount, shrinking from the previous week’s 27.65% mark. The May 2023 contract finished the week with a 19.76% discount, climbing higher than last week’s 29.88% mark. And the newest contract to arrive on the trading board is July 2023, finishing its first trading week with a 20.93% discount to cash.

  • A FEW WEEKS EARLY: The cash market turned a couple of weeks earlier than expected. Watch to see if cash can stabilize in the next couple of weeks, as I don’t see it. After that, look for pricing to continue to soften for the next month to find a settling point.
  • KEEP YOUR EYES ON OSB: Yes, a repeat from the past few weeks. NAILED IT. Even a blind squirrel finds a nut once in a while. Watch for more red numbers as the dead-cat bounce continues in the coming weeks.
  • LUMBER FUTURES: I didn’t see that coming so fast. I expected weakness in the near term but not falling well below the $700mbf before June. Watch to see if the July contract can hold the $652mbf range of support, as it touched $660mbf this week before settling higher.
  • STOCK MARKET: Bad mojo corrupts any chance of the cash market stabilizing. Watch for the market to mirror the financial markets near-term action.

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

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