July 2, 2021
ARE WE CLOSE TO THE BOTTOM? As the lumber markets aggressive retreat entered its fifth week, there is only one thing that is for sure. We are closer to the market bottom today than we were last week. With the blistering record-setting triple-digit temperatures hitting the Pacific Northwest region earlier this week, the cooling pattern of lumber prices offered up some relief for those residents without air conditioning. The real question to be asked now is: “How much farther will it fall?” That is a great question. If you want to gain a bit of insight on that question and more, dive in to find out what transpired this past week in the place I like to call:‘The Wonderful World of Wood.’ Enjoy…
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Let the beating continue. More than a month has passed since the lumber markets tipping point arrived at the end of May, and prices continued racing to the bottom. Compared to the previous week’s hefty losses, 2×4 2/Btr KDHF escaped the week with modest damage, as buyers stepped in cautiously with purchases. As a result, 2×4 2/Btr KDHF suffered only fractional losses compared to previous weeks, dipping more than 6-3/4%, further padding last week’s 17-1/3% pummeling. The fifth week of losses helped push 2×4 2/Btr KDHF down to its lowest level of 2021 as it is now positioned a mere 77.0% above its early July 2020 level.
2×6 2/Btr KDHF followed suit as it too suffered as the new month of July was ushered in. Record-setting triple-digit temperatures sent the mercury soaring, yet 2×6 2/Btr KDHF did little to mirror the rising summer temperatures. As a result, 2×6 2/Btr KDHF stumbled nearly 9-1/2%, adding to last week’s 17-1/3% loss. Nevertheless, 2×6 2/Btr KDHF enters the month of July positioned at its lowest of the year and now stands 79.2% above its trading level from precisely one year ago.
Amidst the supply challenges with engineered I joist manufacturers, wide dimensional stock (2×10-2×12) managed to retain much of the gains posted thus far in the year, opposite of its narrow counterparts. For the week, 2×10 2/Btr KDHF was hit with losses totaling nearly 6%, significantly less than last week’s near 10-1/4% drop. 2×10 2/Btr KDHF ends the week positioned more than 43-3/4% above its low of the calendar year and 137.9% above its trading level from early July 2021.
2×12 2/Btr KDHF followed the market’s retracting pattern but fared the best of all dimensional items. As a result, 2×12 2/Btr KDHF dropped just 5% for the week, more than halving last week’s near 10-2/3% drop. 2×12 2/Btr KDHF closed out the week more than 31-1/2% above its low-water mark of 2021 and 131.1% above its early-July 2020 level.
Remarkably, Green DF Timbers kept their foothold as prices continue to ignore the lumber market retreat. As a result, Green DF Timbers held their position again, as they ended unchanged for their third week in a row. As a result, Green DF Timbers ends the week at its high-water mark of the year and stands 96.9% above its late-June 2020 level.
2×4 Western S-P-F 1650fb MSR joined the crowd, as it too was victimized by the markets retracting prices. As a result, 2×4 Western S-P-F 1650fb MSR lost 11% by Friday, adding to last week’s more than 16-2/3% drop. This marks the fourth consecutive weekly downward move, as 2×4 Western S-P-F 1650fb MSR now sits 86.8% above its late-June 2020 level.
After suffering massive losses over the past few weeks, 2x4x8′ PET KDHF Solid Studs managed to escape this week with more minor losses in comparison. For the week, 2x4x8′ PET KDHF Solid Sawn Studs fell 9-1/2%, a massive improvement versus last week’s more than 25% hammering. As we close out the month of June, 2x4x8′ PET KDHF Solid Studs stand a mere 1.2% above their lows of the year and start the new month of July 81.1% above their early July 2020 level.
Cautiousness amidst the market weakness left buyers in the driver’s seat as producers scanned the market for interested buyers with mediocre success. 2x4x9′ PET KDHF Solid Sawn Studs escaped the week with losses totaling more than 8-1/3%, a massive improvement compared to the previous week’s enormous 30-3/4% plunge. In a matter of just five shorts weeks, 2x4x9′ PET KDHF Solid Sawn Studs have amazingly plunged from its high of the year on May 28th to its low. Over the last few weeks, the colossal moves have added up quickly. 2x4x9′ PET KDHF Solid Sawn Studs now stands at its low-water mark of 2021 and is currently positioned 85.1% above its early July 2020 level.
The shifting tone in the lumber market finally transferred into the sheathing market, as one of the four items I follow succumbed to the market’s retreat. As a result, a handful of producers leaned on existing order files, while others who could sense the shifting tone were open to counters. As a result, 4x8x1/2″ CDX Plywood closed out the week down more than 3-3/4%, after finishing unchanged the previous week. As a result, the record high stamp was removed from the chart, as prices dipped for the first time in 7-months. As a result, 4x8x½” CDX Plywood closes the week 282.1% above its early-July 2020 level.
4x8x3/4″ T&G UDLX Plywood continued holding on for dear life as pricing stood pat leading into the extended 4th of July weekend. As a result, 4x8x3/4” T&G UDLX Plywood closed unchanged for the third week in a row and started the month of July, positioned at its all-time high and 215.6% above its early-July 2020 mark.
Is this going to be the week the KING cracked? Sort of… Hairline fractures could be seen in portions of the country, as weakness was reported in some regions across the country but was unfortunately absent in the Pacific Northwest. As a result, 4x8x7/16” OSB remained positioned comfortably atop its all-time high for the 4th consecutive week. Procrastination may have been the culprit for this week’s inaction of OSB, as many traders escaped the office early this week, taking advantage of the long holiday weekend. If I were a betting man, I would double down and expect the odds to bring us some red numbers next week. Instead, 4x8x7/16″ OSB settled the week unchanged, hanging tough for its third week. The COMMODITY KING ends the week at an impressive 459.3% above its early-July 2020 level.
With the movement of ½” CDX, the DISCOUNT of 7/16″ OSB vs. 1/2″ CDX tilted lower to end the week at 13.8%, moving lower off of last week’s 17.1% mark.
4x8x23/32″ T&G OSB followed the king’s lead, as it too offered up a neutral effort leading into the long 4th of July weekend. 4x8x3/4” T&G OSB coasted into Friday unchanged for the third week in a row. As a result, 4x8x23/32″ OSB ends the week 333.7% higher than where it stood precisely one year ago.
The stagnation of both items helped keep the OSB to plywood DISCOUNT unchanged at 13.3%, matching last week’s mark.
The bearish sentiment in the market continued, as further erosion of pricing left many buyers opting to remain spectators. The pending long holiday weekend left offices absent of traders deep in the week, at a potentially critical moment. The July lumber futures contract found resistance on Thursday, as I will touch on that later. My composite price fell for the fifth consecutive week, slipping by $43.6mbf, stumbling more than 3-1/3%, as it closed out the month of June at $1258.6mbf. With the market changes that have taken huge chunks out of pricing over the past five weeks, signs of digestion are beginning to appear. Of which, the tone of the market could shift again in the not too distant future.
Has the bottom been found? After suffering additional losses early in the week, traders sensed that additional downside risk could be fading. Weakness was present two of the five trading days this week as June transitioned into July. A small number of traders felt a near-term bottom might have arrived as they stepped in and took positions. The July contract found support around the $700mbf mark Thursday, which was the resistance levels lows experienced during Q1 2021 (see chart below). The July contract jumped higher off that Thursday and Friday to end the week above the current cash market price. The July contract closed out the week at $756.7mbf, falling by just $22.6mbf, as it dipped by 2.9% compared to last Friday’s close. Once the pre-holiday weekend was said and done, the July futures-to-cash discount evaporated, reversing to a premium, to end the week at 6.58% compared to last week’s 10.94% discount.
Looking out at further months, the previous week’s discount entirely disappeared, and premiums were present across the trading board. For example, in September, the futures-to-cash reversed to a premium of 10.14%, up significantly compared to last week’s 11.54% discount as it settled into 2021’s Q1 trading zone (see chart below).
The final contract of 2021 followed suit, as it too spun on a dime, leaving the November contract at a 6.82% premium, higher than last week’s 16.23% discount. The 2022 contracts succumbed to the futures market strength as premiums arrived and were seen across the board. January 2022 contract closed out the week with a 7.32% premium, much higher than last week’s 14.86% discount. The March 2022 contract finished the week at a 5.07% premium, compared to the previous week’s 16.11% discounted level. Looking deep into next year, the May 2022 contract closed the week at a 7.32% premium, growing from last week’s 13.14% discount. Looking out a year plus, the July 2022 contract came in with a 5.24% premium versus the previous week’s 8.7% discount. Have a great 4th of July holiday. Until next week… Shoe out!