Mill Work: As Supply Kicks Up; Lumber Futures Go Down
Sawmills pick up their pace of output, rewarding those who can sit out immediate-term scrums for lumber supply, and wait to see where pricing settles in the medium-term.
If you can wait to buy lumber, it may pay handsomely to do so.
More sawmills, more output, and, eventually, more people to move the output through building's complex channels, from the source to the sites, mean the days of surreal prices are numbered.
Like everything now, in spotty, fits-and-starts manner, an equilibrium of sorts lies in some indefinite future time in some unknowable order for each market and submarket and vendor.
All that's certain is that the upward pressure-cooker on prices for homebuilding, remodeling, and renovation, most essential raw material, as well as engineered wood products, has now released some of its pressure.
Bloomberg's Marcy Nicholson reports in an updated version of her Friday, June 11th analysis:
Sawmills appear to be catching up with the rampant homebuilding demand in North America that fueled a months-long rally, bringing some relief to a market beset by supply shortages and price surges. Buyers are balking at still historically elevated prices and awaiting additional supplies, setting off a cascading sell-off, analysts said.
“Activity yesterday was brisk to start, turned lethargic and ended quite subdued,” William Giguere, who buys and sells eastern spruce with mills for Sherwood Lumber in Massachusetts, said in a note Friday. “There was plenty of lumber available from the mills and enough ambition to sell. Missing was the sense of urgency from buyers.”
Waiters can be winners, but as Bloomberg's Nicholson reports, lumber producers haven't, as yet, ceded total control of pricing, and will do their damnedest to establish "new normal" ranges at almost double their historically-anchored price ranges prior to the pandemic.
Nicholson quotes Weyerhaeuser ceo Devin Stockfish for perspective on the play by producers to level-set their pricing in light of expected longer-term demand:
“I don’t think $1,000 lumber prices are the new normal,” Stockfish said. “With that being said, when you think about the amount of housing we’re going to have to build in the U.S. over the next three, five, 10 years, that’s just a significant amount of demand for wood products.”
Stockfish and other producers, like homebuilders and their homebuying customers, may have to be patient while market dynamics take their time to resume more normalized supply-and-demand structures, including commodities pricing. Right now, it looks for all the world as though producers are in the driver's seat, and that the fundamental demand dashboard would clearly support the step-change increase in pricing.
The summer of 2022 and 2023 may either validate that position or relegate it to the ash heap of commodities pricing history, depending on factors too numerous to try to predict.
For now, though, if a builder managed to secure – i.e. hoard – ample supply of lumber to build through a several month backlog of homes on order, then, selectively, they may be able to sit out the near-term scrum for materials and save some spot market money in the bargain.