May 27, 2022
WATCH OUT FOR BEAR TRACKS! If you had followed any of my updates over the past month, you would have recognized the bear tracks! If you recall, last year, in late May 2021, the lumber market found its tipping point before beginning its rapid descent lower. The plummet of lumber futures took its toll on the pessimistic cash market this week, as the MAYDAY cries were all around, as mills discounted heavily to attract buyers. So, with Memorial Day upon us, let’s just dive right in to find out all that transpired this past week in the place I like to call: ‘The Wonderful World of Wood.” Enjoy…
COMING SOON – CHANGES STARTING NEXT WEEK FOR SHOE’S LUMBER REPORT. After providing my updates to the market for more than 27 years, the time has arrived to add a small charge to ensure costs and expenses are adequately covered. Therefore, commencing on the June 3rd Shoe’s Lumber Report will transition from a free update to an extremely affordable subscription-based service. This will allow everyone to remain up to date in the place I like to call: “the Wonderful World of Wood.”
The bears were out in full force this week, as pricing took on its weakest effort in quite some time. In addition, excess inventories at the production facilities created a sense of urgency to attract buyers as prices tilted lower. As a result, traders licked their chops for lower numbers as the anticipated pullback arrived. As the Memorial Day weekend approached, 2×4 2/Btr KDHF plummeted, as they doubled up last week’s losses, falling 14-2/3% by Friday, a vast momentum gain compared to the previous week’s 7% drop. This week’s action leaves 2×4 2/Btr KDHF lower by 20% over the past month while positioned nearly 46-2/3% below its early-May 2021 level.
Severe price retraction was seen with 2×6 2/Btr KDHF, as it took a solid shot to the chin this week, as the downward accelerate compared to the previous week’s effort. By Friday, 2×6 2/Btr KDHF plunged more than 16-1/4%, gaining some severe downward momentum versus the prior week’s 7-1/2% move. As a result, we now find 2×6 2/Btr KDHF off nearly 20-2/3% over the past 4-weeks while remaining positioned nearly 51-1/4% below its price point posted one year ago.
Wide dimensional stock category (2×10-2×12) jumped onto the sentiment as pricing retreated, albeit slightly lower than its narrow counterparts. Buyers opted to take a ‘wait and see approach’ as pricing crumbled, similarly to last year’s Memorial Day week turning point. For the week, 2×10 2/Btr KDHF downshifted hard, closing the week down more than 11-1/3%, accelerating off of the previous week’s 5-2/3% losing effort. For the month, 2×10 2/Btr KDHF is now left down 14-1/2% from where it began 4-weeks ago, while it stands nearly 48% below its level from one year ago.
This week, nothing escaped the bearish wrath, as pessimism about near-term pricing was far from positive. The market’s recent shift left producers scrambling to find buyers, as most opted to pass on inbound inquiries. For the week, 2×12 2/Btr KDHF lost ground as the week progressed, dropping 8-1/3% by Friday, easily doubling the previous week’s 3-1/2% effort. As we look in the rear-view mirror, we find 2×12 2/Btr KDHF closing out the last 4-weeks down nearly 10% compared to its late-April 2022 mark and lower by 53% from its trading level from precisely one year ago.
UP AND UP SHE GOES, where she stops, no one knows. But, to the shock of many, Green DF Timbers are managing to buck the shifting trend for the time beginning as availability and demand keep prices propped up. Once the week was said and done, Green DF Timbers moved into Friday up by 3/4%, after pausing with the previous week’s unchanged effort. Over the past 4 weeks, Green DF Timbers are up more than 1-1/2% while remaining positioned upwards of 3-2/3% above the late-May 2021 levels posted one year ago.
The weakness which began last week continued and accelerated as pricing dipped to levels last seen in early December 2021. As a result, as Friday arrived, 2×4 Western S-P-F 1650fb MSR accrued 12-1/2% losses, higher than the previous week’s 8% falter. As a result, 2×4 Western S-P-F 1650fb MSR now finds itself lower by more than 21-1/3% over the past month, while it stands more than 41% below the late-May 2021 level.
BOY, OH BOY, DID THE CANARIES SOUND OFF. As noted last week, the susceptibility of the general market attacked the stud category viciously, as pricing dropped brutally. Buyers seemingly evaporated, leaving producers scrambling hard to generate sales with little to no success. 2x4x8′ PET KDHF Solid Studs crumbled by 22-3/4% by Friday, a massive downward momentum swing compared to the previous week’s 6% losing effort. After this week’s move, 2x4x8 PET KDHF Solid Sawn Studs have been pushed down to their lowest mark of the year as it now sits 25-3/4% lower over the past month while it is now positioned a shocking 52% below their late-May 2021 trading level.
ALL THE CANARIES ARE SINGING THE BLUES. Like their shorter counterparts, 2x4x9′ PET KDHF Solid Sawn Studs took the brunt of the market’s wrath this week, as the downward slide was punishing. By Friday. 2x4x9′ PET KDHF Solid Sawn Studs ended the week off an impressive 24-2/3%, a severe decline compared to the previous week’s 4-1/2% action. Over the past month, 2x4x9′ PET KDHF Solid Sawn Studs now stand 25-2/3% below their late-April levels while positioned more than 57-1/3% under the price they posted one year ago.
While lumber and studs were beaten severely, the plywood sheathing category escaped the week with only minor injuries. As Friday arrived, 4x8x1/2” CDX Plywood stumbled across the finish line down 6%, a hefty increase versus last week’s 3-2/3% sluggish effort. As a result, 4x8x1/2” CDX Plywood now finds itself more than 9-1/3% lower over the past 4-weeks while situated 58% below its price posted one year ago.
Surprisingly, the plywood floor sheathing category didn’t get floored during the severely adverse market week, as it finished with only minor losses. 4x8x3/4″ T&G UDLX Plywood slumped just 2-1/2%, a slight drop compared to the balance of the market, quickening from the previous week’s 2/3% effort. Nevertheless, year-on-year, 4x8x3/4” T&G UDLX Plywood finds itself standing nearly 35-1/2% below its trading price posted from this time in May 2021 while it is left 2-3/4% lower over the past month.
The pricing weakness experienced last week remained, as the pre-holiday week buyers were absent and interest for inventory accumulation was as cold as ice. As a result, the “Commodity King” suffered another hefty loss this week, with 4x8x7/16” OSB closing down 7%, a little momentum easing compared to the previous week’s 10-3/4% drop. Nevertheless, the king ends the past 4-weeks off nearly 15-1/2% as it now lies more than 62-1/3% below its mark from precisely one year ago.
The downward momentum of both panel products pushed the 7/16″ OSB vs. 1/2″ CDX DISCOUNT a bit deeper, ending at 24.9% by Friday, compared to the previous week’s 23.9% mark.
A virtual copy and paste effort from last week was seen in the OSB floor sheathing category as 4x8x23/32” T&G OSB as pricing continued eroding at a constant rate. By week’s end, 4x8x23/32” T&G OSB took a small shot to the chin, dropping 6-2/3%, virtually mirroring last week’s 7% losing effort. Over the past month, we have seen 4x8x23/32″ T&G OSB fall more than 11-1/3% while leaving it 51% below its trading level from one year ago.
The imbalance of plywood versus OSB price action of OSB helped to push the previous week’s plywood premium over OSB lower, as Oriented Strand Board floor sheathing finished at a 32.5% DISCOUNT, compared to the previous week’s 29.5% mark.
OUCH – THAT HURTS! Another severe plunge occurred this week with 2×4 2&Btr Kiln Dried Spruce-Pine-Fir Western Mill, as prices were seemingly flushed down the toilet. For the week, 2×4 2&Btr Kiln Dried Spruce-Pine-Fir Western Mill tumbled by more than 16-2/3%, adding to last week’s 14-2/3% fall. Over the past month, 2×4 2&Btr Kiln Dried Spruce-Pine-Fir Western Mill has fallen more than 30-1/2%, while it stands more than 53% below its price point posted precisely one year ago.
The extreme weakness experienced last week in the new front month of the July futures managed to gain stability this week, as a near-term bottom was found. The July contract touched a low tick mark of $636.3mbf Tuesday before moving higher the remainder of the week. The July 2022 futures closed out the week above the $700mbf mark to close at a 6.57% discount to cash, a massive improvement over the previous week’s 25.48% mark, thanks to the weakness experienced this past week in the cash market declines.
A similar shift was seen with the September 2022 futures to the cash mark, as it settled the week at a 6.96% discount, compared to last week’s 26.11% mark. The November 2022 contract retracted some, closing the week with a 8.67% discount, decreasing from the previous 25.31% mark. Looking out to next year, the January 2023 contract buttoned up the week with a futures-to-cash discount of 5.33%, a three-fold improvement compared to last week’s 17.78% mark. The March 2023 contract closed with a 4.15% discount, a massive retraction from the previous week’s 17.07% mark. The May 2023 contract finished the week with a 4.15% discount, declining from last week’s 19.76% mark. And the newest contract to arrive on the trading board is July 2023, finishing at 5.55%, a significant drop versus the previous weeks with a 20.93% discount to cash.
- NEW HOME SALE CANCELATIONS: New home sale cancelations are beginning to trickle in. Leaks ALWAYS start as a small trickle. Beware the second half of the year for the trickle to transition to a more constant and potentially steady drip, which will impact lumber pricing as new home builders slow
- FUEL COSTS, FUEL COSTS, FUEL COSTS: Insanely high costs will impact log pricing coming from hill to mill. Expect to come into play as we move into summer. That is even before bringing forest fires into the discussion.
- BUYER TRAFFIC SLOWING: From low consumer confidence to higher interest rates, end of lock-downs, and people wanting to get out and simply enjoy life, expect to see sales YOY decline. I do.
- SUPPLIER INVENTORY POSITIONS: Keep a close eye on your current supplier’s inventory position in their facilities. Heck – drive by their yard(s) to see how full it is. Their costs will be out of whack in the coming weeks if they stocked up big for the spring build and did not foresee the correction signs coming. Buyer beware!
- LUMBER FUTURES: Found support around the $650mbf range, as it touched a low for the week of $636.3mbf on Monday. Futures pricing moved higher through the week’s balance topping out around $700mbf, settling in the expected range. With the future-to-cash now back to single digits, look for pricing fluctuations to calm down near-term.
Enough for this now. Until next week, Shoe out!