Discount the Most Recent Past
How should we process the cumulative life experiences that determine our next course of action? We might say, “That depends on the circumstance.” If I got mugged today for the first time in my life, it is likely I am going to be more aware of immediate surroundings tomorrow. However, I must not be so focused on the close by and ignore the oncoming traffic.
There is a balance that I must keep to avoid further undesired situations. The most recent events tend to impact the “next” decisions. As days pass and no more muggings happen, I would drift back more towards pre-mugging behaviors, but the experience would still be in my cumulative life experiences.
The takeaway for us all is to look beyond the emotional, physical, and psychological impact of a life event as quickly as is practicable. That does not mean avoid grief or caution. A life threatening, or terminal illness, or tragedy will no doubt influence one’s future, and create the need for behavioral deviations.
Put in lumber market perspective, misreading a unique situation that passes quickly (a weather disruption) will have less influence on a “next” decision than a long lasting condition will (supply chain disruption). The ultimate question to ask is, “Will this event, disruption, improvement have a lasting impact?” “Is it a slight curve in the road or 90 degree turn or possibly a U-turn?”
Reduction of Canadian supply appears to be a U-turn. But is it really, or is it a political pandering that could be reversed by a change of leadership?
I believe Canadian lumber producers saw this raw material and duty conflict coming decades ago. Instead of engaging in an ongoing fight with the Crown they invested where there was no conflict...the southern U.S., discounting recency and focusing on the bigger picture.
Same Picture, Different Frame?
We understand that our lumber market repeats with its most recent occurrences having the most influence on our next decisions. And we understand why we repeat those actions of recency. EGO! We seek to improve the previous outcome.
The problem with this strategy is that the next set of circumstances is never the same as the last. They could become even more disruptive or, as we see in our lumber market, we are confronted with a completely new set of circumstances.
Over the past 12 months lumber prices traded from a high of $1525 to a low of $409.
Conversely, U.S. housing starts ranged from a high of 1.883 mm to a low of 1.586 mm. Monthly production from the U.S. and Canada ranged approximately 14%.
Over the past 12 months the volatility factors were as follows:
- U.S. Softwood Lumber Supply 1.14
- Canadian Softwood Lumber Supply 1.17
- U.S. Housing Starts Demand 1.19
- LLG Composite Price Index 3.73
Price movement over the past 12 months has been three times greater than both supply and/or demand.
We experienced unprecedented price levels and volatility while both supply and demand, by comparison, were virtually unchanged. This is the result of taking an action to improve the outcome of a previous action. Specifically, in an attempt to not experience framing lumber supply shortages of 2020, builders, their suppliers, and large home centers over reacted, over prepared, over bought.
So here we are in the midst of a lingering other-than-lumber supply chain disruption, with builders making long term supply commitments and their suppliers buying those commitments.
Is this the same picture in a different frame?
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.com.