August 2012 Market Report

The summer months on Cape Cod generally lend to a lull in lumber sales as construction is typically limited in vacation communities, but this summer was off to relatively strong start as compared to recent years. The same can be said by New England dealers in general, as fill-in lumber orders out of reloads in many instances outpaced direct-mill orders.  Due to the historical lull of summer sales and mill shut downs, dealers will often take one of two positions: either run down their inventory with the intention of replenishing in early August when mills re-open, or carry enough on hand to cover their needs into September. Because of the recession years, many dealers had gotten into the habit of refraining from bulk-buying but, in today’s market, bulking up on inventory is much more preferable, as obtaining lumber just isn’t as easy as it used to be. The down side risks are a drop in market pricing and carrying more inventory than an ideal turn would merit (thereby tying up inventory dollars and affecting profit margins), but not having inventory is a worse position than having a little too much. Particularly with this year, the spate of business that depleted inventories at reloads in recent months left distributors and dealers alike a little too thin for comfort on their inventory levels. Mills realized that field inventories were low and, in anticipation of summer shut downs, didn’t give up much in the way of pricing. Dealers that opted to cover their needs through August (and did their buying by mid-July) were in the best position to service customers’ needs. Dealers that were going to skim by with what they had were in a worse position as there just isn’t as much wood in the market as in years past. As of print, lumber inventories at the reload and mill levels were extremely low as many mills were in shut-down mode and dealers who were trying to buy mixed loads (and even straight trucks) to even out their stock to cover their immediate needs had little success. As a result, pricing is firm and is expected to remain firm to up through August.

As mentioned in our July 2011 article, in years past it took strong swings in supply and demand to significantly impact lumber pricing. This was largely attributed to the volume of business that was being conducted as, with greater inventories, companies have a larger buffer to absorb price fluctuations. However, with thinner inventories, there is a greater impact. As those in the lumber trade have become accustomed to keeping their inventory levels as lean as possible in order to keep cash flowing, the luxury of maintaining heavier inventory levels in an effort to cover potential needs can have a devastating effect to profit margins. The buy-it-when-you-need-it strategy that many lumber dealers have gotten used to isn’t as flexible as it once was and, in many cases, not an option at all. Last year, the impact of Hurricane Irene created extreme shortages in reloads and dealers could not get the tallies, mills and grades that they wanted.  When this occurs, many are forced to take a wild-card truckload of tallies from sub-par mills of inferior grades in order to get some of what they need in order to cover holes in their inventories. As a result, pricing and lumber quality can suffer. It’s a difficult situation to be in but, if you are running out of inventory and substituting your normal mill choice, grade or dimension for ones that are available, you may lose business in the process. We are no exception to this risk, although we act to protect ourselves from these situations by entering into contracts with quality lumber mills and work to maintain and forecast a stable inventory so that we can be certain that we can provide you with quality lumber at competitive pricing when you need it.

So far this year, we have been blessed with spectacular weather and our hurricane season isn’t appearing to be a tumultuous one. Nonetheless, it doesn’t take a hurricane impact here on Cape Cod to have an adverse effect on lumber supplies in general. Other factors that impact the market, such as China’s draw on lumber, lack-luster housing starts, high unemployment rates and trucking shortages all play their part in availability and pricing. Despite these “white noise” global factors that impact us on a local level, the normal business trend is that approximately every four to six weeks, we get an uptick in business that firms prices and clears order files, followed by a slight relaxing. In an effort to flatten out the peaks and valleys, we plan our purchases strategically and analyze market pricing trends in order to remain competitive with high quality lumber. Based on this, we stake our reputation on being the company that contractors can rely upon for their needs, and we will work in earnest to maintain that reputation. Please remember that our sales staff is here to serve you in the best manner that they can and we all promise to work in your best interest, all the time. Should you have any questions or concerns about our lumber quality, levels or pricing, please contact your Shepley sales person today. Most sincerely, we thank you for your business!

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