June 10, 2022

I TOLD YOU THIS MAY NOT END WELL! The higher the BULLS rise, the farther they will fall. The BEARS consoled the bulls this week as the hang-over from the market’s severe retraction is taking its toll. To find out just how bad the porcelain worshiping was, take a few minutes and catch up on all the happenings that transpired this past week in the place I like to call: ‘The Wonderful World of Wood.” Enjoy…

HOW LOW WILL IT GO? The pricing pullback that began in mid-March continued as the downward momentum slowed slightly compared to last week’s sheer plummet. Although hardcore negotiations dominated the market, buyers and sellers bartered back and forth ‘BIG TIME’ to find levels that spurred sales above last week’s. For the week, 2×4 2/Btr KDHF sank 12-1/2% by Friday, slowing a touch compared to the previous week’s 20% nosedive. However, once Friday arrived, 2×4 2/Btr KDHF is left lower by 44-1/2% over the past month while positioned nearly 58% below its early-June 2021 level.

As the market dropped, shoppers were out in full force doing their best-throwing lowball toward producers to see what would stick. Discounts nearing triple-digits were seen as that was what was needed to entice buyers. As a result, 2×6 2/Btr KDHF collapsed 12-1/2% by Friday, adding to last week’s enormous drop of 22-1/4%. As a result, we now find 2×6 2/Btr KDHF lower upwards of 47-1/2% over the past 4-weeks while remaining positioned over 62-3/4% below its price point posted one year ago.

There was no escape for the wicked, as the market’s downhill slide raided the wide dimensional stock category (2×10-2×12), spreading the pain across the board. Producers cried “UNCLE” as prices eroded faster than last week. As a result, 2×10 2/Btr KDHF was hammered, dropping more than 13-1/2% by Friday, accelerating from the previous week’s 9-1/3% falter. For the month, 2×10 2/Btr KDHF is now left down more than 33-1/3% from where it began 4-weeks ago while standing more than 56-3/4% below its level from one year ago.

There was no escape, as the market’s weakness took no prisoners. 2×12 2/Btr KDHF faired no better, as it too felt the pain, declining more than 12-1/2% by week’s end, as it virtually copy-and-pasted the previous week’s 12-1/3% losing effort. As we peer into the rear-view mirror, we find 2×12 2/Btr KDHF closes out the last 4-weeks down more than 32% compared to its early-May 2022 mark and lower by more than 56-3/4% from its trading level posted precisely one year ago.

IT MUST BE STUCK. Incredible as it may sound, but that is precisely where Green DF Timbers are at – STUCK AT THE TOP! Will the third week be a charm when we finally see timbers align with the markets downward trend? We shall see, as Green DF Timbers coasted into Friday unchanged, marking their second week of inactivity, mirroring last week’s unchanged effort. Over the past 4 weeks, Green DF Timbers are up more than 3/4% while remaining upwards of 2% above the early-June 2021 levels posted one year ago.

The crushing losses were relentless as the market found little footing amidst the general softness. 2×4 Western S-P-F 1650fb MSR faired a little better this week, as the losses accumulated significantly. Once Friday arrived, 2×4 Western S-P-F 1650fb MSR accrued 10-1/2% losses, a touch slower than the previous week’s 13-1/3% drop. As a result, 2×4 Western S-P-F 1650fb MSR now finds itself lower by more than 37-1/2% over the past month, while it stands nearly 46-1/2% below the early-June 2021 level.

THE CANARY CHIRPS CONTINUE TO FADE. The recent losses continued piling up as the downward momentum eased as the week progressed. Deep discounts were needed to attract buyers, as mills bit the bullet in their attempts to find the near-term bottom. For the week, 2x4x8′ PET KDHF Solid Studs deteriorated by 7-1/2% by Friday, another improvement compared to the previous week’s awful 13-3/4% losing effort. After this week’s losing effort, 2x4x8 PET KDHF Solid Sawn Studs were yet again pushed down to their lowest mark of 2022, sitting more than 42% lower over the past month, positioned a shocking 60% below their early-June 2021 trading levels.

Similar to their shorter counterparts, 2x4x9′ PET KDHF Solid Sawn Studs saw deteriorating price erosion ease compared to previous weeks as momentum slowed. 2x4x9′ PET KDHF Solid Sawn Studs dropped 9%, improving ever so slightly compared to the previous week’s 11-3/4% tailspin. Over the past month, 2x4x9′ PET KDHF Solid Sawn Studs are left nearly 42-1/4% lower than their early-May levels while positioned upwards of 64% below their price one year ago.

The plywood sheathing sector could not escape the market’s bloodbath, as it too felt the pain. However, most buyers remained cautious of the market weakness and opted to continue taking a wait-and-see approach before stepping in to add to inventories. 4x8x1/2” CDX Plywood dipped lower as the first full whole week of June went, easing back 6-3/4%, as it added to the previous week’s 7-1/2% losing effort. As a result, 4x8x1/2” CDX Plywood finds itself more than 22% lower over the past 4-weeks while positioned 64-2/3% below its price from one year ago.

Of the items I follow, the plywood floor sheathing category continues performing the best regarding price stability. 4x8x3/4″ T&G UDLX Plywood sagged a mere 2%, close to the previous week’s 2-1/2% drop. Nevertheless, year-on-year, 4x8x3/4” T&G UDLX Plywood finds itself standing more than 40-2/3% below its trading price posted from this time in June 2021, while it is left 7-1/3% lower over the past month.

WHEN IT RAINS, IT POURS! Similar to this spring’s relentless rain squalls and downpours we have been experiencing this year in the Puget Sound, the OSB market is beginning to look like a watersoaked and drowned cat. Buyers kept an eye on the economic news this week, as the housing sector did not fare well with the most recent updates. Friday’s awful inflationary report panicked the financial markets, as it did little to comfort the housing sector. As a result, the “Commodity King” experienced a quickening in downward pressure, as 4x8x7/16” OSB plunged 12-1/2%, worsening from last week’s 7-2/3% decline. Nevertheless, the king ended the past 4-weeks off more than 33% as it now sits a shocking 70% below its price point from precisely one year ago when it sat atop its all-time historical highs.

The aggressive downward pressure in OSB helped keep expanding the 7/16″ OSB vs. 1/2″ CDX DISCOUNT, which ended the week at 29-1/2%, compared to the previous 25% mark.

Similar price erosion was found in the OSB floor sheathing category as 4x8x23/32” T&G OSB as pricing continued its downward slide. By Friday, 4x8x23/32” T&G OSB took a much bigger shot to the kidney this week than last, falling 10%, nearly double the previous week’s 5-2/3% losing effort. Over the past month, we have seen 4x8x23/32″ T&G OSB fall more than 26-1/4% while leaving it 59% below its trading level from one year ago.

The more aggressive decrease in OSB compared to Plywood pushed the previous week’s plywood premium over OSB lower, as Oriented Strand Board floor sheathing finished at a 40% DISCOUNT, compared to last week’s 34.6% mark. As a result, the price discount of OSB compared to plywood is creeping closer and closer to its historical record of 52.4%, which was posted way back in the spring of 2007.

CAN YOU SENSE IT? With the market retraction now entering its 12th week, the spidey sense many traders feel that the near-term bottom is close was the highest in months. Moreover, with the July futures contract trading at virtually even money with the cash market, confidence is building that the bottom may be upon us. For the week, 2×4 2&Btr Kiln Dried Spruce-Pine-Fir Western Mill fell by upwards of 12%, easing slightly compared to last week’s 16% fall, as the previous cash market premium is now gone. Over the past month, 2×4 2&Btr Kiln Dried Spruce-Pine-Fir Western Mill has dropped more than 47-1/3%, while it stands more than 56% below its price point posted precisely one year ago.

EVEN-STEVEN – NEED I SAY MORE? It took a little time, but the previously massive overpriced cash market has eroded to the level that it is now within a fraction of a percentage of the July lumber futures contract. The July bled four trading days this week, as Monday produced the worse effort. The contract began the week at $616.6mbf and proceeded to sell off the remainder of the week, touching an intra-week low of $550mbf Friday, before settling at its closing price of $556.0mbf. The July 2022 futures finished the week at a 0.18% premium to cash, an improvement versus the previous week’s 2.13% discounted mark.

GREEN LIGHTS AHEAD! Say goodbye to the red font for the time being, as the recent market retreat has run its course. September 2022 futures to the cash mark, as it rose, settling the week at a 4.41% premium, compared to last week’s .32% premium mark. The November 2022 contract followed a similar path, closing the week with a 4.9% premium, reversing the previous 3.17% mark. As we peer into next year, the January 2023 contract buttoned up the week with a futures-to-cash premium of 9.93%, a colossal gain compared to last week’s 3.44% premium mark. The March 2023 contract closed with a 16.23% premium to cash, a doubling compared to the previous week’s 8.21% mark. The May 2023 contract finished the week with a 17.14% premium, soaring higher than last week’s 8.22% premium mark. Last but not least, the July 2023 contract closed out the week with a 15.23% premium to cash, nearly tripling the previous week’s 5.55% mark.

  • MORTGAGE RATES: 30-year fixed-rate mortgage increased to 5.4% after three straits weeks of declines.
  • DECLINING PURCHASE APPLICATIONS: a 20.6% year-on-year drop. Not a good sign for builders, as this directly impacts new home construction lumber demand and the national builder’s forward planning.
  • HAVE AN OPEN CONVERSATION WITH YOUR CURRENT SUPPLIER: Ask them what their inventory position is and how the lower prices will impact your price! Does their storyline follow the EXACT SAME PATTERN (or strategy) when they were jacking your prices up when lumber was skyrocketing higher? It better. Just saying…

Until next week, Shoe out!

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