May 2014- Market Update

Lots of talk, but little action seems to summarize the current lumber market. Traders and wholesalers are a little perplexed, looking for a reason why there hasn’t been a pop in business (especially with the onset of the warmer weather and reports that there is a lot of work in the pipeline). There is no doubt that the market is in a very odd position, as there isn’t a lot of wood available but prices are sliding anyway as demand isn’t very strong. Railcars are backlogged (due to the issues presented by this past winter) and are not expected to clear for several weeks, tying up a lot of Western wood. On the Eastern side, snowfall and mud season have kept many roads posted, restricting timber outtake. Still, theories that the market is oversupplied were the most common deductions as to the softening of pricing (although it could be strongly argued that it is only at the mill level and not necessarily at the distributor or retail level). Others took the opinion that it could perhaps be caused by the lack of tradesmen able to meet demand and work is just being sidelined until jobs are completed before they move onto the next one. In either case, pricing is faltering and it is bringing unease in that there is still the anticipation that there could be a sudden demand that could leave many buyers shut out, due to the lack of immediately available wood. If a rally does materialize, those who didn’t prepare themselves will likely be greeted with truckloads that may take 3 or more weeks to arrive (even if the wood is available) due to the extremely short supply of trucks and drivers. Theories and presumptions aside, the market is weakening during the “building season” and there isn’t a clear vision as for how long it will continue. This “gee, wait and see” approach has buyers on the sidelines and traders aggressively pushing offers, urging all to make sure that they have enough inventory to cover anticipated needs.

It should be noted that, from a lumber pricing perspective, it is still a great time to be building a house and it appears that it may remain so for some time. Unlike just about everything else today, lumber pricing is actually less than it was a year ago, with the Random Lengths Framing Composite coming in at $370/m versus $451/m. In looking at lumber pricing for the balance of 2014, an article by Steve Campbell in the March 2014 edition of ProSales magazine, cites Paul Jannke of Forest Economic Advisors: “Barring a sudden run-up in housing starts, lumber prices should hover in the $300 to $400/mbf range this year”. With economic issues (tight lending standards, rising interest rates, etc.) still somewhat limiting the purchasing strength of homebuyers, housing starts are not expected to suddenly increase this year. Although we would certainly welcome a bolt in housing starts, the upside is that moderate growth will help keep lumber pricing stable, which is welcome news for all.

The next few weeks should be rather telling, as we will likely either be dealing with pent up demand…or not. In any case, we have bought favorably under contracts that move with the market, so we are confident in not only our quality, but also our pricing. If you have any questions or concerns, please do contact your Shepley sales team, and thank you for your business!

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