June 11, 2021
BYE-BYE, RECORD-HIGH… The higher it goes, the farther it must fall. After months and months of sky-rocketing prices, the market tone has officially shifted as the much-anticipated market crack turns into a chasm. As noted in my recent reports, the font color is changing, and relief has arrived in the RED-HOT market as a COOLING OFF period is upon us. This week began the market correction as we await the next resistance level. So, without further adieu, let’s jump in and see what transpired this past week in the place I like to call:‘The Wonderful World of Wood.’ Enjoy…
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How quickly the temperature changes. Who would have imagined that in just three weeks, the market’s momentum would turn from scorching HOT to nearly ice COLD? A mere three weeks ago, as the market set a new record high on May 28th, buyers were in full panic mode, attempting to cover material needs for committed projects. Mill order files extended out for weeks and weeks, and buyers were scrambling. For the first time since October 2020, the lumber market produced a noticeable downward move, as buyers sat back and took a hiatus for the first time in a while. Narrow dimensional stock posted its first downward double-digit percentage move since the last fall. 2×4 2/Btr KDHF plummeted by nearly 10-1/2% this week, adding to last week’s mere ½% drop. The solid downward move still leaves 2×4 2/Btr KDHF an impressive 257.1% higher than where it stood precisely one year ago.
2×6 2/Btr KDHF suffered a similar fate, as it too succumbed to the market’s weakness. Buyers went into hiding, as 2×6 2/Btr KDHF stumbled by nearly 10-1/2% by week’s end. This loss is added to last week’s tiny drop of ½%, as 2×6 drifts farther away from its all-time high posted just two weeks ago. After the mid-June beating, 2×6 2/Btr KDHF ends the week 271.6% above its mid-June 2020 level.
Wide dimensional stock (2×10-2×12) fared better than its narrow counterpart, as it could not escape the red font. The previous week’s caution and bearish sentiment prevailed, as 2×10 2/Btr KDHF fell by nearly 5-1/4%, adding to the dip of about 1/3% last week. 2×10 now finds itself 297.4% above its trading level from one year ago.
2×12 2/Btr KDHF was nearly a copy and paste effort this week compared to its wide dimensional cousin as 2x12 2/Btr KDHF dropped more than 5% for the week after ending the previous week unchanged. After its first sizable downward move in months, 2×12 ends the week 298.7% above its mid-June 2020 level.
Green DF Timbers managed to buck the market’s weakening trend again as they continued cruising along, to drift higher. Green DF Timbers added more than ¾% for the second straight week, mirroring last week’s more than ¾% effort. As a result, Green DF Timbers end the week just 109.8% above their mid-June 2020 level.
Di-STRESS is a good description of the Machine Stress Rated lumber category this week, as sizeable losses prevailed. 2×4 Western S-P-F 1650fb MSR sank by more than 11-1/3% for the week, adding to last weeks near 3-2/3% downward move. This week’s action marks the second downward weekly move since late January, as 2×4 Western S-P-F 1650fb MSR is now positioned 170.5% above its mid-June 2020 level.
Surprisingly, the significant shifting market wind did not fully impact the stud market, as pricing escaped the week with minimal losses. 2x4x8′ PET KDHF Solid Sawn Studs notched losses totaling more than 3-3/4%, tripling last week’s nearly 1% drop. As we reach the middle of June, 2x4x8′ PET KDHF Solid Studs sit 261.9% above their mid-June 2020 level.
2x4x9′ PET KDHF Solid Sawn Studs felt the retraction of interest from buyers as a wait-and-see approach dominated the unfolding market correction. 2x4x9′ PET KDHF Solid Sawn Studs fell 4% for the week, quadrupling last week’s 1% loss. 2x4x9′ PET KDHF Solid Sawn Studs now stand 295.6% higher than where they were precisely one year ago.
The apparent market momentum shift in lumber had little to no impact on the panel market as pricing continued to grind higher (for now). With order files remaining extended 8+ weeks, plywood producers could dig in their heels and garner premiums above last week’s numbers. As a result, 4x8x1/2″ CDX Plywood rose ¾%, adding to previous weeks near 1-1/2% effort. 4x8x½” CDX ends the week standing 338.5% above its mid-June 2020 level.
4x8x3/4″ T&G UDLX Plywood took the gold medal for the week for largest upwards move with gains near 1-2/3%, as pricing slowed a touch from last week’s more than 2% move. This leaves 4x8x23/32″ T&G UDLX Plywood 241.2% above its mid-June 2020 mark.
Amidst the market’s shifting tone, the Commodity King ignored the general bearish sentiment and continued marching along to the beat of its own drum. Supply constraints ranging from rebar to lumber, plumbing fixtures, and appliances continued to handicap builders as prices of OSB remained unfettered. 4x8x7/16″ OSB managed to lean on healthy order files to fend off the market bears, as lead times for mill orders held near the 4-week time frame. 4x8x7/16″ OSB added just ¼% for the week, nearly halving last week’s more than ½% effort. As the winds of change in the market arrive, the severe disconnect of the current printed prices versus prompt availability persisted. The COMMODITY KING ends the week at an unfathomable 508.0% above its mid-June 2020 level.
The DISCOUNT of 7/16″ OSB vs. 1/2″ CDX expanded a bit this week, ending at 17.1%.
4x8x23/32″ T&G OSB offered up another positive effort as continued under-supplied conditions persisted. As a result, 4x8x23/32″ T&G OSB rose more than 2/3% for the week, slightly above last weeks near 1/2% effort. This leaves 23/32″ OSB 366.0% higher than where it stood precisely one year ago.
Continued strength in the plywood floor sheathing category helped push the plywood vs. OSB premium higher for the fifth consecutive week. OSB moved lower to close out the week with a 13.3% DISCOUNT below its plywood counterpart.
Bring on the BEARS! The shifting market tone, propelled by weakness in the lumber futures market, helped officially start the market correction. Skittish buyers, uncertain of the market’s next support level, stepped to the sidelines to watch and wait. My composite fell the second week in a row, dipping by $66.4mbf, down nearly 4% for the week, ending at $1612.9mbf, further distancing itself from the record high set just two weeks ago. As mentioned in my May 28th post-Memorial Day report, I fully expected to see red font arrive; as the fingerprints were there as I was spot on. Glad to know that the gut feeling of 30+ years in the lumber supply business was right.
As the July lumber futures contract approached the 5-week mark prior to expiration, the previously twice-proven support level of $1,200mbf was fractured. Monday offered up a bearish red candle as it managed to hold above the pivotal $1,200mbf mark. Then Tuesday arrived, and red candles arrived and dominated the remainder of the week. Any chance of support at the $1,200mbf level was demolished as the July contract was pounded, closing out the week at $1059.2mbf. This move proved the double dead cat bounce correctly. The July contract plummeted $225.0mbf to fall by 17-1/2% compared to last Friday’s close, as red candles were posted four of five trading days this week. Once the bloodbath was said and done, the July futures-to-cash discount contract recoiled, closing out the week at 15.94% compared to last Friday’s 12.64% mark.
Looking out to September, the futures-to-cash discount grew to 27.38% discount versus the previous week’s 22.35% mark. The November discount expanded as this week’s dead cat bounce proved itself worthy, leaving November at 38.33%, growing from last week’s 32.8%. The January 2022 contract yielded to the board’s weakness as the discount expanded, closing the week at 41.07%, compared to last Friday’s 35.8% level. The March 2022 contract finished the week at 42.83%, down from the previous week’s 35.8% level. Looking ahead nearly 12-months, the May 2022 contract closed with a 41.33% discount, increasing from last week’s 39.1% discount. Looking out more than a year over the horizon, the July 2022 contract came in with a 41.33% discount, growing from last week’s 39.05% mark, as the board continues favoring lower prices down the road compared to the current markets trading level. Until next week… Shoe out!