Are you feeling like we are in a great big room, pitch dark and no one can find the light switch? Well, let’s try to find one. First off, everyone knows how we got here, right? You know it’s not COVID, or the economy, or housing starts, or DIY, or interest rates, or the stock market. NO! None of those.
We act like the lumber market is a living entity that giveth and taketh away at will. Why in heavens name do we ask for the market to calm down and drop price? Every one of us together creates “the lumber market.” We are talking to ourselves.
Sawmills make lumber and everyone else just moves it around until it gets nailed down. Ideally, that would happen with normal disruptions like COVID, natural disasters, social unrest, recessions...yes, those are the normal events that occur in a functioning society.
Where we always get into trouble is GREED. We want more, bigger, better, prettier, faster, cheaper. I suppose that at some time in every civilization someone rose up to challenge the big dog on the porch. Eventually, the big dog goes down, but not necessarily away.
That brings us back around to the reason for $1000 2x4s...LACK OF CANADIAN LUMBER. The U.S. Lumber Coalition gnawed at Canadian producers for 30 years until they cried Uncle and shut down 25% of their production. The US proved again to the world, we are the big dog on every porch. Don’t punish Canadian mills for having a working relationship with their government. If Canadian production was at the same level as three years ago, lumber prices would easily be half of today’s.
If you think $1000/mbft is extravagant, think again. The next wave of COVID will be what we expected the first time...less lumber demand, but we have AT LEAST a recession coming, as soon as the stimulus money tree drops its last load. However, less demand does not guarantee over production. The problem today is, North America does not have a back up plan for lumber shortages and mills are tasting the financial benefits of limiting supply. Why give that back and risk over supply...again? Thank the U.S. Lumber Coalition.
Will We Get More Production? Why Would We?
If you were a lumber mill and had seen decades of price volatility, as production grew year after year, as though it had an obligation to remain in a defined price range that frequently flirted with losses...if you have had a career of that, this lumber market is a game changer.
Mills are realizing, less is more. We all know the cure to higher prices is more supply. But think about that for a second. In five months, just by not making any more lumber, the return to sawmills has tripled. These prices, since $300 in the US is all profit. ($450 Canada.) Who cares how long it lasts.
So far, the consuming side of the business is not saying no thank you. I challenge you to visit a big box store and just mill around the lumber aisles. See how many people leave because the price is too high. Zero. None. If they are there, they are buying.
As I see it, the industry’s plan on the buy side is to hope that home buyers and DIY-er’s will reject these prices. The only place we will see that in Q4, assuming builders pass all the increases along, is in the $300 and lower market where previous loan qualifications may require a higher mortgage and new proof of income.
Lots of families will lose as much as 1/3 to 1/2 of total family income until school gets worked out, and right now COVID has school on the ropes.
With all the cards on the table, it looks to me like the mills will keep control, pushing prices to the rejection point...which right now, does not exist.
Four weeks from now, the next FTP at week #38 is a long time away. Four weeks ago, prices were $300 lower. $1000 /fob mill is in the bag and the plan for remedy is just not buy it? That won’t work.
Top picking may sound reasonable, but being out of lumber sends willing buyers down the street. Unless we get some catastrophic, game changer to current fundamentals, the next four weeks will look just like the last four weeks. Much higher.
Looking Forward...ML
Are you fed up with being caught on the wrong side of the market...losing orders because your lumber prices make you uncompetitive. I can assure you the orders you lose are not because the other guy is selling at a loss. It’s not you or your buying style. It’s just timing. I forecast when the Lumber Market will rise and fall. No one else tells you months in advance when prices will reverse....no one! Call me 336.516.6684. www.laymansguide.info