LLG Crystal Ball Says Speedy Recovery
I do not forecast the lumber market, rather how and when folks who buy, sell, and produce lumber will act or react. As for the economy and its recovery from this pandemic disruption, I only need to remember and expect one thing.
Economies are consumer driven. Being the largest economy in the world implies we Americans are the largest group of consumers on the planet. Just prior to this economic burp, Americans were spending like drunken sailors, unafraid of personal or economic debt, driving the stock market to unreasonable valuations. Unreasonable to who, you ask? Those not buying it. Certainly not those investing in it.
Ironically, the riots in the streets are not coming from lack of healthcare protection or service. NO, they are coming from people who want their paychecks back. It is folks that have not been impacted by the pandemic other than financially.
Certainly, office work will change, but for us in the lumber business, there will be little change and a speedy recovery. Why? The housing shortage has gotten worse. Banks need to lend money to make money and there are plenty of willing home buyers just waiting for the green light.
CEOs are overly cautious trying to reduce stock market volatility. They want a steady recovery not a euphoric instant spike, but it’s out of their control. Take airlines for example. When every other seat and every other row must be left vacant to allow for social distancing, what will happen to airline ticket prices? They will triple...shortage of availability.
Same with housing...shortage. By the end of summer, housing will be booming with all markets and jobsites open. What does that mean for lumber? Well, not necessarily bullish.
Lumber Only Short-Term Bullish
Lumber re-sellers prefer high prices because $/mbft profits are higher. Producers prefer volume at any price to keep production costs lower. Current production curtailments have nothing to do with profits, rather buyer reluctance due to uncertainty. Mills do not have a clue how much they need to make during stay-at-home time.
The state of Georgia will be the first state to peek out of the fallout shelter. The world will be watching to see if the virus monkey will jump on their backs or if it is safe to reengage. We will know the results in two weeks: the incubation period of the virus. If the infection curve turns up, we’ll have a new problem...it was too early. If the infection curve remains flat to lower, other states will pile on and reopen. There will be an instantly sharp economic improvement.
For lumber, production is at the lowest point of its pandemic disruption response. If we get favorable results from Georgia, demand will accelerate with lumber supply just a couple of weeks behind. That is short term bullish. Short term being 2–3 weeks, because if tattoo parlors and barber shops can open, no question, lumber mills will be open, making lumber and plenty of it...and Georgia is one of the largest lumber producing states in the U.S.
Resuming production will ultimately be bearish for lumber prices if housing starts are less than 1.5 mm. That is the measuring stick. Under 1.5 mm starts results in a weak lumber market (lower prices); over 1.5 mm will create a strong lumber market (higher prices).
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.