July 2012 Market Report

Lumber pricing is remaining firm as demand has been strong but production has been somewhat lacking due to lumber mills’ inability to keep up with order files. New England had a robust spring which left many dealers short on wood. Mixed tally demands stripped what was available in reloads and mill production had been designated almost exclusively to filling order files, and not particularly for reload inventories. With current production being primarily for “sold” orders and with the onset of annual mill summer shut-downs (for retooling), supply is going to become tighter even with a moderate demand. Unlike previous years, spikes in pricing were met with a reflex that brought them back down but this year has been different: pricing has held steady and it’s attributed to a lack of wood. Nonetheless, the summer months are not normally very active for construction (and certainly not for Cape Cod) so we anticipate that pricing will flatten out, but not necessarily deflate.

Most in the building trade can agree that we’ve had a great spring as far as business is concerned and are optimistic for what lies ahead. However, there is a little anxiety as to where the market may go. Take into consideration that, halfway through 2012, the Random Lengths Framing Composite (the industry indicator for lumber market conditions) is holding steady in the $340’s, as compared to all of 2011 where it limped along with an average of $270, rarely cracking the $300 benchmark mill break-even point. With June as a direct comparison, the composite was at $262 last year as compared to $341 this year, a remarkable 30% increase. However, it’s not reflective of the volume of building that’s occurring as much as it is indicative of a short supply. The National Association of Home Builders and Macroeconomic Advisers are predicting that housing starts are only expected to increase by 17% in 2012 to 715,000 (as compared to 610,000 for 2011) and we are nowhere near the pre-recession 1 million plus housing starts that we used to enjoy. As we have experienced, a little bump in business can have a profound effect on the market and this past spring can be considered a taste of things to come. As a factor of the depletion of operational lumber mills, ramping up production to meet sustained demand will lie in the hands of the mill owners, many of which are reluctant to reopen mothballed facilities (or even add a second shift) in the event that demand drops off and prices slide. Mills only make a profit when the Random Lengths Framing Composite is over $300, so contributing to its decline is not one of their objectives. For dealers, obtaining competitively priced lumber when needed may force more to relinquish the habit of relying on reloads and instead require them into investing in larger inventories….or finding substitutes.

From all perspectives in the building industry, these are still tough times to make a profit. If obtaining quality wood comes with exorbitantly high prices, dealers will look for ways to shave their expenses in order to remain competitive. One method is to turn to alternative products that are similar in make-up, but of a lower quality (a tactic that we avoid). When it comes to maintaining our standards with lumber, we rely upon the feedback of our receivers, order pickers, drivers and most especially, you our customer. We have learned what grades, species and mills are favored (and which ones are not) and we purchase our lumber accordingly. As a rule, we buy only SPF (Spruce-Pine-Fir), #2 & Better stock as it is the benchmark in quality for our region. We buy only kiln-dried (KD) products and not green (KD products are much more stable and not prone to mildew or insect activity) and will not buy grades that are less than #2 and Better, such as #3 and Utility. We also avoid the lesser quality aspects of the species of White Fir and Hem-Fir, which have a propensity for splitting, checking, warping and are prone to mold growth. With some dimensions, however, SPF is not available so we will turn to Doug Fir, which is the next best quality to SPF. As lumber supplies tighten and prices escalate, these lesser grade alternatives to SPF have a tendency to become more common as they can be more readily available at a significant price concession, which is entirely reflective of the grade and specie. Although the lower pricing can be attractive, the waste factor is the largest detriment to using the Hem-Fir and White Fir products as what you save on the front-end will be easily lost on the back-end in terms of cull. Our method in avoiding escalating prices and shortages are to stay in tune with current market pricing conditions and to buy enough at the right time to cover our anticipated needs. Through our relationships with lumber traders, it has been an effective practice.

It is our goal and commitment to provide you with competitively priced, quality lumber and we are well positioned to handle all of your needs. Should you have any questions or concerns, please remember to contact your lumber sales person and thank you for your business.

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