In our lumber market, when presented with a disruptive opportunity that appears to create a supply shortage or demand surge, buyers increase inventory on the expectation of higher prices; then, once we realize our over-zealous preparation, we liquidate those excessive positions, crashing prices. 2018 was CN railroad shipment delays. 2019 almost skated by with no event. Then, last week President Trump played his impeachment “trump” card...trade agreements with Mexico, Canada, and China. In one week, the export duties on US lumber, and ultimately lessened import tariffs on Canadian lumber, at first glance is bullish for all North American softwood framing lumber.
I expect these trade agreements will add to the bullish winter rally we have been forecasting for the last few discussions. Last week, prior to the presidential decrees, I told you I was bullish ONLY through February based upon fragile economic conditions. The Fed’s data-based economic evaluation means we will have been 60–90 days in trouble before a confession. I’m prepping for spring trouble, despite improving housing data. Housing’s dependency on low interest rates and optimistic consumers makes it fragile.
The new year strategy is to buy the expectation of higher prices based upon under-bought conditions and positive trade resolutions. This is not a long-term play. It is only a strategy to employ until producers make appropriate supply adjustments.
Currently, buyers are in year-end inventory liquidation which only has two weeks remaining.
Therefore, our LLG strategy is to attack this market immediately and cover as much of your anticipated needs all the way through February. Expect an early year peak with prices falling in the spring.
Inventory management is going to be a bit tricky. Having adequate supply for spring jobsite demand in a falling market requires more frequent purchasing and timing your buys to take advantage of multi-week price cuts. We will want to take advantage of midweek and end-of-week downward price adjustments.
Therefore, the immediate strategy is to buy aggressively until covered through February, then plan to liquidate inventory in March.
Be very cautious about locking in prices over the next 10–12 weeks. Replacement costs will increase a minimum of $10 per week and several weeks will top $20 increases. Statistically, we should expect at least one $50/mbft jump before mid-February.
Be confidently bullish now. (Submitted December 17)
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