July 9, 2021
DON’T ATTEMPT TO CATCH A FALLING KNIFE! As the market retreat enters its sixth week, a few brave souls considered their options that a bottom could be near on some items. It takes a daring soul with big kahuna’s to attempt to catch a falling knife. Once the bottom is found, a sizeable rebound typically ensues. Gauging that precise moment is very difficult. The rewards can outweigh the risks, but more times than not, you get hurt. And hurt bad! With market weakness abound, the question on everyone’s mind is: “How long will it last?” To gain a bit of insight on my thoughts 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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The lingering fireworks from this weekend’s fourth of July celebration offered little to no spark to the market, proving that the bottom has yet to arrive. Weakness remained present as pricing continued to plummet like a skydiver waiting to pull the ripcord. After posting minimal single-digit losses last week, traders returned to their offices after the long holiday weekend, ready to liquidate building inventories. As a result, 2×4 2/Btr KDHF was hammered, losing nearly 18-2/3%, accelerating off of last week’s more than 6-3/4% drop. The sixth week of losses helped push 2×4 2/Btr KDHF down its basement trading level of 2021 even lower, as it is now positioned a mere 44.0% above its early July 2020 level.
2×6 2/Btr KDHF mirrored the pessimistic market pattern, as buyers remained well in control. Most opted to view from the sidelines instead of tempting fate by attempting to catch the falling knife. As a result, 2×6 2/Btr KDHF sank by more than 16-1/4%, increasing velocity compared to the previous week’s nearly 9-1/2% drop. Once the dust had settled, 2×6 2/Btr KDHF begins the month of July positioned at a new low-water mark of the year and now stands an even 50% above its trading level from precisely one year ago.
Continuing supply challenges amidst the engineered I joist squeeze this year did little to provide relief amidst the market retreat. As a result, 2×10 2/Btr KDHF was slapped with losses totaling more than 13-1/2% for the week, more than doubling last weeks near 6% decline. 2×10 2/Btr KDHF closes out the week positioned just 24.3% above its low of the calendar year and 105.7% above its early July 2020 trading levels.
2×12 2/Btr KDHF capitulated to the market’s downward spiral, suffering similar losses as its counterparts. As a result, 2×12 2/Btr KDHF dropped more than 13-3/4%, more significant than the previous week’s mere 5% loss. As the new month commences, 2×12 2/Btr KDHF buttons up the first week of July roughly 13-1/3% above its low-water mark of 2021 and nearly 99% above its trading level from precisely one year ago.
For the fifth consecutive week, Green DF Timbers remarkably ignored the market’s weakness to hold their ground, as they continue standing atop their historical apex level. As a result, Green DF Timbers concludes the week unchanged yet again, marking their fifth week of price stagnation. Green DF Timbers finish the week positioned 96.9% above its early-July 2020 level.
2×4 Western S-P-F 1650fb MSR eluded the market bloodbath, as it suffered minimal losses compared to the general market. As a result, 2×4 Western S-P-F 1650fb MSR dipped a smidgen more than 3-3/4%, nearly a third of last week’s 11% falter. This marks the sixth consecutive weekly downward move, as 2×4 Western S-P-F 1650fb MSR is now sitting 61.2% above its trading level posted precisely one year ago.
Is there an end in sight? Earlier this year, the once-dominant product that became the canary in the coal mine of soaring prices ahead offered zero evidence that a bottom had arrived. After escaping last week with single-digit losses, any hints that a near-term bottom was near were muted. Instead, 2x4x8′ PET KDHF Solid Studs were pounded by 20-1/4% for the week, more than doubling last week’s 9-1/2% drop, leaving buyers sensing that the end has to be getting close. As a result, 2x4x8′ PET KDHF Solid Studs start the new month 44.4% above their early July 2020 level.
Cautiousness amidst traders left buying at a minimum as producers did their best to attract interest. 2x4x9′ PET KDHF Solid Sawn Studs took a kidney shot, falling nearly 15% for the week, accelerating off the previous weeks more than 8-1/3% drop. In just six short weeks, 2x4x9′ PET KDHF Solid Sawn Studs have now experienced colossal downward moves and stand 57.4% above the position posted precisely one year ago.
After showing signs of vulnerability last week, plywood products fell victim to the market’s turning tide. Prices finally broke and sounded like a Black Cat firecracker as traders approached purchases with caution, placing orders sparingly as red numbers printed for the second week in a row. As a result, 4x8x1/2″ CDX Plywood closed out the week down more than 14-3/4%, significantly accelerating off the previous weeks more than 3-3/4% falter. 4x8x½” CDX Plywood closes the week 225.5% above its early-July 2020 level and looks to suffer additional losses in the coming weeks ahead.
After holding firm last week atop its historical apex, 4x8x3/4″ T&G UDLX Plywood also lost its grip and fell to the market’s bearish sentiment. The holiday-shortened 4th of July week proved to be the turning point, as 4x8x3/4” T&G UDLX Plywood dropped more than 9-3/4%, after finishing unchanged the previous four weeks. This week’s downward move marks the first sinking effort since late November 2020 and leaves 4x8x3/4” T&G UDLX Plywood positioned 184.4% above its early-July 2020 mark.
The long-awaited arrival of red numbers was a welcome sight for traders, as the COMMODITY KING remained as resilient as possible amidst the battle. The price fracture buyers sensed was due, finally transpired, as softness invaded in the Pacific Northwest. The post-holiday week ended up being a game of cat and mouse, as buyers returning to their offices avoided inbound sales inquiries from producers and wholesalers. Instead, most opted to work through existing inventories and previous inbound purchases before even considering dipping their toes into the market. The weakness remained more subdued than traders desired expectations, but it was a start. As a result, 4x8x7/16” OSB suffered only minimal losses, dipping a smidgen over 2-1/4%, after remaining unchanged atop its all-time high for the past four consecutive weeks. I am a double-down winner! As predicted last week, I stated that a double-down play would be in order, as I anticipated a downward move to occur. And it came to fruition. After its first drop since November 20, 2020, the COMMODITY KING finished the week in the red but remains an impressive 446.5% higher than its early-July 2020 level and looks to carve even more of that away in the coming weeks ahead.
With the downward movement of both panel products, the DISCOUNT of 7/16″ OSB vs. 1/2″ CDX made a massive shift this week, shrinking to a mere 1.2%, compared to last week’s 13.8% mark.
4x8x23/32″ T&G OSB drafted behind the king’s lead, as it too offered showed signs of weakness but fared the best of any item I track. 4x8x3/4” T&G OSB posted a minuscule loss totaling less than ½% after finishing the previous four weeks, unchanged. As a result, 4x8x23/32″ OSB ends the week 331.7% higher than where it stood precisely one year ago.
The solid downward move of plywood helped significantly shrink the OSB to plywood DISCOUNT to 4.2%, compared to last week’s 13.3% mark.
After the long holiday weekend, the return of traders to their offices helped turn the market’s bearish sentiment into a full-blown reality. Price erosion was experienced with all but one of the products I consistently follow, as sellers attempted to wheel and deal their products. As the market began showing signs of widespread retraction, the arrival of summer presents a wildcard factor, which brings with it the risk of a potentially challenging wildfire season. Traders did their best to keep their fingers on the pulse, looking for signs on just how they see things playing out this year. With 54 large wildfires burning across the United States and more than 180 wildfires creating havoc in British Columbia, the 2021 fire season is shaping up to be a big challenge. For the week, my composite price dipped for the sixth consecutive week, tumbling by $94.3mbf, as it dropped nearly 7-1/2%, to end the first full week of July at $1164.3mbf. With dimensional and studs having already taken enormous chunks out of their previous levels and sheet goods on deck looking to take their turn, expectations of further softening in the near term are a reality. I would not be shocked to see lumber products find their bottom sooner than later, while sheet goods have a bit more chewing away of their elevated prices before stabilizing.
Last week I started by asking the question: “Has the bottom been found”? Unfortunately, the answer to that question would be no. With the resilience experienced late last week and Monday, red font returned and wreaked havoc as the week concluded. This pushed the spot month of July down, teeter-tottering above and below the $700mbf level for the majority of the week. The July contract closed the holiday-shortened week at $702.5mbf, falling by $54.2mbf, as it dipped by more than 7% compared to last Friday’s close. Once the week was said and done, the July futures-to-cash premium remained, as it ended the week at 1.08% compared to the previous week’s 6.58% mark.
With just a few days remaining before the July contract expires, all eyes are on September to provide forthcoming clarity. As a result, the September contract closed out the week with a 9.35% premium, as a more bearish vision was seen versus last week’s 10.14% level.
The final contract of 2021 followed suit, as it too showed weakness, leaving the November contract with a 5.67% premium, lower than last week’s 6.82% point. The 2022 contracts provided a mixed bag, as the futures market fragility was not consistent across the trading board. January 2022 contract closed out the week with a 7.22% premium, dipping somewhat from last week’s 7.32% premium. The March 2022 contract finished the week at a 6.98% premium, rising a touch compared to the previous week’s 5.07% level. Looking further into next year, the May 2022 contract finished with a 9.28% premium, swelling from last week’s 7.32% premium. Peering out a year, the July 2022 contract landed at a 7.15% premium versus the previous week’s 5.24% mark. Until next week… Shoe out!