September30

Lumber Update – October 2019

By Paul Rogers

It’s been a solid six months of lumber mills announcing and implementing curtailments and closures with the latest being from Canfor, to the tune of 75 million board feet. Although cutting back on production has helped to keep the market propped up, it still has fallen short of the lumber mills’ intention of creating enough of a shortage that would escalate prices to a more profitable level for the mills. How much will be enough? Early this year, it was estimated that 2 billion board feet would need to be withheld from the market in order to reverse the pricing trend. We are getting very close to that number now but, despite their best efforts, demand is such that they have not been able to move the needle much. With the fall season upon us, all attention is now drawn toward retailers and the prophecies that they are severely “under-bought” for market conditions. September sales did kindle the notion that perhaps retailers hadn’t bought enough to cover their needs (as sales were stronger than usual for the month). But that can also be attributed to the season, as well as the wet spring and hot summer we’ve endured this year pushed job starts out for many. The pretense that retailers were under-bought can likely be attributed to the fact that market conditions have allowed a “grazing” rather than a “gorging” consumption, allowing buyers to cherry-pick the good deals that they were offered and not be in a rush for delivery. Talk of a market rally is prevalent amongst traders, but few buyers are being spooked by it. Instead of asking “How much will be enough?” perhaps we should be asking “How much is too little?” as supply is still ample despite the constricted production. September sales were strong and there is great speculation that the fall building season will be robust. Depending upon the timing, we may see a rally that will escalate prices and, if we do, you can bet that the mills will be holding on for dear life to keep them inflated through the end of the year. It will all depend upon volume and sense of urgency, but both seem to be in check as of print. For October, we anticipate that pricing will be firm to up.

The lumber industry turns to the Random Lengths Framing Lumber Composite Price as a guideline for lumber pricing. The composite is a wide measure of pricing that is published every week by Random Lengths, whose primary function is to report lumber and panel market activity. It’s a marker for where pricing was, is and where it could be, and a great means to take the pulse of a market with many moving parts. It’s widely known that the break-even price for lumber mills is the $300mbf range, and it surely proved to be the case during the Great Recession, when it dipped below well below that (even below $200mbf). We lost many mills during that time and, since our arduous recovery, we’ve also had to endure many swings due to a recovering economy, natural disasters, trucking and rail disruptions and, last but not least, a 20.83% Softwood Lumber Act (SLA) countervailing and anti-dumping duty levied against our chief lumber supplier, Canada. For the most part (and since the Great Recession ended), the composite had averaged in the mid $300’s per year until the SLA duties were instituted (and at a time when building surged), in which they ratcheted up and breached the $500mbf waterline in June 2018. Much can happen in a year’s time, and the composite is proof of that. A burgeoning economy, lumber duties, numerous mill closings, and curtailments notwithstanding, the composite has resided in the “comfort zone” of the mid $300’s, where pricing is reasonable, for over a year now. Although there is no dispute that the cost of building a home in today’s economy has escalated, it’s good to know that lumber today is still a good deal. With what we have had to endure in recent years in terms of market volatility, it seems that we may have finally embarked on a trend of buying that is more solidly based upon supply and demand, rather than fear and panic. For that, we are grateful. Hopefully, in the face of the next rally, the reaction will be one of more controlled and logical reaction rather than irrational and emotional as we now have recent proof of how cyclical our market can be.  

Although summer started late, it was a roaster and the change to cooler temperatures is a welcome one for most. We are seeing many new projects starting and are excited at what the season will bring in terms of activity. Although the market will likely react to the uptick in business, you can rest assured that we work double-time to protect you from any violent market swings. We are currently well-stocked with quality lumber at very competitive prices, amongst many other products that are ideal for the Cape Cod home. Please be sure to turn to us for any assistance you may need with your project as we stand committed to providing you with the exemplary service you have come to expect. Thank you for your business!

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