In the day of a CM’s and framer’s life, lumber buying is considered the most enjoyable and easiest task to perform. Buying lumber is a huge ego booster. By your own admission, lumber is 40–50% of the cost of producing the finished product.
I find it simply stunning how very little thought, planning, effort, and emphasis the entire industry places on lumber buying. This lethargic/apathetic attitude makes CMs and framers sitting ducks for their lumber suppliers.
The softwood framing lumber market trades in predictable, repeating cycles. Forecasting lumber price movements is a function of identifying if and when disruptions to the cycle may, and are most likely to, occur. Therefore, “when” prices will rise and fall is what lumber market forecasting is all about.
For CMs, Framers, and Builders seeking profit expectations compared to 2019, the question for 2020 is: “will we see more or less disruption and price volatility this year?”
Expecting no gossip, no rumors, no chaos…no disruptions that will create more price volatility is naive given the current global economic, trade, and political environment. Indeed, 2020 will be more volatile than 2019. Therefore, I submit that trusting the lumber market to remain calm, serving up Better Profits is a risky bet.
When 40–50% of production cost is lumber, you ARE in the lumber buying business, just like your suppliers are in the lumber selling business. Rather, you BETTER BE in the lumber buying business.
Here is why:
Consider the stats below, which show 2019 was passive for lumber volatility. Average weekly price change was down from $13/mbft in 2018 to $6 in 2019. Looking closer, 47% of the weeks posted higher prices, 40% lower, and 13% unchanged. Average total annual price volatility for all species was down from $739/mbft to $327/mbft.
Note the net annual price changes compared to total annual volatility. Example: SYP: Net Annual $ Change -$30. Total annual volatility $365. That market moved $365 to only change $30. Canadian SPF moved a total of $675/mbft to only end up $70 from where it began.
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2018–2019 Net Annual $ Change
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2018–2019 Weekly Change +&-
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2018–2019 Total Annual Volatility
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SYP
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+$70 -$30
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$7 $7
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$630 $365
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SPF
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+$145 +$70
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$17 $13
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$865 $675
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Dry Fir
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+$145 +$80
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$13 $5
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$680 $280
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GDF
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+$210 +$185
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$15 $6
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$750 $320
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Lbr Composite
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+$143 +$76
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$13 $6
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$739 $327
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OSB
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+$105 +$20
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$11 $6
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$565 $300
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So, what does that mean? Let’s do some quick math. How many truckload quantities of lumber do you buy every week?
Over the year, each of those SPF truckloads is changing in value a total of $675 x 25/mbft = $16,875 in 2019, and we consider that not to be volatile.
If you buy 10 T/L’s per week, the lumber market offers $168,750 in money saving OPPORTUNITY over 12 months.
If SYP is your specie of choice, the same buying profile with 22.5 mbft per truckload presented a $82,125 opportunity.
Bottom line: Your suppliers are in the lumber selling business and their goal is to out-buy you. Why make it easy for them? You ARE in the lumber buying business. It’s up to you how you participate.
Sure, better profits are good, but why just settle for good? Why not take on the lumber market and strive for “best” profits.
Looking Forward...ML
A veteran lumberman, Matt Layman publishes Layman’s Lumber Guide, the weekly forecasts and buying advisories that help component manufacturers save money on lumber purchases every day. You can reach Matt at 336-516-6684 or Matt@laymansguide.info.