Lumber Market Report - September 2021

In August, the lumber market fully hit the “reset” button, as pricing continued to drop to levels that were hard to see from the sky-high heights of where they once stood just a few short months earlier. If hindsight grants 20/20 vision, everyone in this supply chain can now clearly see how much hot air the market was full of at its peak as any profits that were gained during the record run-up have been given back during this record run-down. As painful as the escalating prices were for consumers, the deflation is hurting retailers as some obvious indicators on the way up were ignored by buyers who got caught in the fray and subsequently ended up with too much high-priced material. Unlike previous cycles, prices have never reached such stratospheric heights so this “corrective collapse” has been catastrophic to the resellers who have to answer to customers who are demanding to see immediate price relief, and suppliers need to react. The faster they can sell off their high priced material, the sooner they can replenish with lower priced stock and stop losing money. As it stands right now, the only replenishment that appears to be happening is for near-term needs, which is creating fits and starts to the daily market reports as one day business is strong and the next day it isn’t. As the market continues to languish in low-value territory, with plenty of inventory and scarce reason to buy farther out than a few weeks, prices appear to be flat-lining as dealers and wholesalers buy hand-to-mouth and mills curb back on production. However, there is still great optimism that the fall will be a busy season and undoubtedly dealers will need to get back in the game to fulfill their needs soon. For September, we anticipate pricing to bottom out and firm, with the potential for it to creep up by month’s end.

The past year was a painful one for all involved, and the tragedy of this crazy market is that none of it was necessary or, at least, it didn’t need to go to the extremes that it did if we only looked at it rationally and with some restraint. Like the hoarding that was seen during the Covid-19 shut-downs, human nature dictates that the right response is to selfishly grab all that one “needs” and more if there is a threat that said item will become unavailable or experience a severe price hike. However, rational thinking and showing some restraint could have curbed the abuse, making more available for others and tempering the prices. This is one factor that buyers should have taken in to account, as the irony of hoarding is that it is also what perpetuates the shortage and price increases. We often speak of “needs” in terms of determining what amount of product is required in order to meet predicted sales, but it’s a rather inexact term. Today’s modern lumber yards implement sophisticated software systems that are designed to streamline and take the guesswork out of the buying process by implementing algorithms that are based on many factors, not the least of which are sales history, seasonality and committed stock. As we watched the market ratchet up to stratospheric levels of volume and costs over the first two quarters of this year (coupled with the frenzy that ensued in summer of 2020), undoubtedly software systems were producing projected usage data and identifying trends that indicated that more stock was needed than in previous periods, and so some buyers were prone to trust that these projected sales volumes would come to pass (and likely be exceeded) without realizing that they could be over-inflated and that a deflation could happen at any time.

Having the foresight to know how cyclical this market is and to consult with your team and customers before relying upon computer-generated forecasts is a key part of a buyer’s responsibility to not over-indulge on inventory.

Aside of what software may say (and further bolstering the urge to volume-buy) is industry and media hype, which we know is at its worst when in the context of a bad situation. Leaving no crisis to waste, traders and mills want you to think that the situation will only get worse, as most crises are amplified by the ones who’ll benefit the most from them. They have a job to sell and we have a job to sort the wheat from the chaff and learn who you can trust and who you can’t (as well as to know when the bull is flying). As the hype was consumed, the buying ensued and pricing followed along in sympathy, with weeks upon end of double-digit increases on materials that we all knew didn’t justify their value. It was unsustainable, and would ultimately cause customers to cancel or postpone their projects, an understated tragedy for all of us in this industry. With clear vision now as we look in to our rearview mirrors, was there really a shortage of wood? Was there really that much demand? Were customers really going to pay the prices that mills were demanding? The obvious answer is “no” to all three, but the lesson learned is to remember this situation for the next time we go through an “up” cycle and collectively do ourselves a favor by employing the restraint and rationality that will ultimately lead to a less painful experience for us all.

Like the rest of the world, we don’t have a crystal ball for predicting the future, so we’re susceptible to the same traps that other dealers fall in to. However, we take a very well-rounded and rational view of market conditions and Shepley’s executive managers meet weekly to discuss market conditions, how our customers are doing, where our business is going and to determine the appropriate action to take. Because of this (and along with our partnerships with our suppliers), we have a distinct advantage in the marketplace in remaining well-stocked with competitively priced material. It’s extremely important to us to make sure that you have the quality materials you need at the best price, so please don’t hesitate to offer any feedback that you may have to your Shepley sales person, and we promise that we’ll take it into consideration and act appropriately. Thank you for your business.