Since April, your Home Builders Association Wood Commodity Index (Index) dramatically increased to $293.66 per thousand, as supply became an issue for many buyers.  A huge explosion and fire, which destroyed the Sinclair Lumber Mill in British Columbia, was the second in Western Canada this year, and it has resulted in stepped-up inspections by the Canadian government.  This fire and subsequent stand down for safety inspections has created real supply concerns in many spruce products, especially studs.

The pine lumber markets are in turmoil trying to cipher the impact of the reduced structural values being imposed on June 1, 2012 by the American Lumber Standards Committee.  Some experts contend the new reduced standards for #2 pine lumber is almost 30%, and it will required designers of trusses and other structural pine components to either beef up sizes or go toward Machine Stress Rated material.  The switch of types and sizes of lumber is creating unknowns in a supply chain with minimal inventories on the ground and subdued supply.

In the last 30 days, the lumber portion of the Index increased a whopping 11.1% to $348.98, which is huge.  Stunningly, these increases are primarily driven by supply-side issues and not demand from events such as a huge increase in housing starts, bad weather, or a major natural disaster.  A real concern is if one of these events occurs in the next few months-how bad would it get?  Most believe due to expenses and, most importantly, the unsure future of the world’s economy that most mills will be extremely slow to increase capacity or open up closed production facilities.  Real risk on upside pricing exists.

The sheathing portion of the Index increased 1% to $281.15, primarily on a minor move upward in pricing on CDX pine plywood.  Most producers of sheathing are managing supply to current demand, and it appears they are very resistant to get ahead of the demand side to lower prices.  Sheathings are more apt to be affected by hurricane threats in the summer.  So, most manufacturers are going to hold on as long as they can.

Fuel prices have started to decline, and that should take some pressure off pricing.  There is probably a good prospect that the concerns over the mill fires and pine standards re-evaluations will subside.  So, pricing could ease down some in the short-term.  However, no one can deny the volatility in the market; therefore, builders must protect themselves on long-term projects.  Every day, manufacturers are announcing price increases, and there are still years of price increases that many of these producers must catch-up on.  Builders should keep up to date with the markets and re-price projects before signing contracts.

Don Magruder is the Chief Executive Officer of Ro-Mac Lumber & Supply, Inc. in Central Florida (www.romaclumber.com), and he is a former President of the Southeast Mississippi Home Builders Association, and past Associate Vice President of the Home Builders Association of Lake County.  To contact Magruder, email him at gmromac@earthlink.net.

The Ro-Mac Lumber & Supply, Inc. Whole House Commodity Index (Index) for May 2012 increased a staggering $565.49 or 2.1% in the last 30 days.  A surprising run-up in lumber pricing fueled the increase, and there appears to be core issues in regards to wood commodity supplies.

The Index for May tallied out at $27,698.49, which is its highest point since May 2006 when the Index was at $27,593.70.  Pricing today is at the highest level in six years, and since the midst of the housing boom.  Since last May, the Index has increased 11.7%; and, from the end of 2011 it has increased a whopping 10.3%.

Over the last 30 days, we have seen some disturbing signs that builders have not been paying attention to the markets closely enough, and I am afraid it will really hurt builders who have not been building much lately.  Over the last week, our company has seen a half of a dozen builders sign contracts for new homes utilizing pricing as much as a year old.  These builders are so eager to get work that they have abandoned good business principles of updating costs and installing a price protection clause in their contracts.  Builders, it is critical to update pricing before signing a contract.

The other side is the material dealers and suppliers who are not engaging in good business principles.  Suppliers who have locked prices for builders for long periods of time are really playing Russian roulette with their companies.  The fact is that even the large supply companies and builders do not control the commodity markets.  These markets are pushed by huge forces that go beyond any single company.  Suppliers and builders do not grow the trees; cut the timber; mill the lumber; or, transport the goods to market.  Hedging the lumber commodities is darn sure not the answer, because the volatility makes it about as reliable as a roulette wheel at a Bahamian casino.  For example, if the smartest people in the room at JP Morgan Chase could lose $2 billion dollars hedging, then it is far from a sure bet.

The drivers of heavy increases in lumber are really simple:

1. Business is improving some, and supply throughout the supply chain is dismal due to the lack of cash and credit lines.  This will only get worse.
2. A huge explosion, which destroyed a sawmill in British Columbia at the end of April, killing one and hurting 23 others, has forced the Canadian government to do an extensive safety review (considering this is the second such explosion this year).  Many blame these explosions on mills being forced to cut up dry, pine-beetle dead timber, and the saw dust is so fine it is explosive.  The pine-beetle has been devastating large tracks of Canadian timber for more than a decade.
3. China is now buying over 20% of all of Western Canada’s timber, and it appears this trend will only increase.  This is driving quality down and prices up for United States suppliers.
4. The June 1, 2012 change in pine grading values by the American Lumber Standards Committee is creating havoc in pine markets, as values have been significantly lowered for #2 pine lumber.  Machine Stressed rated lumber, or increased sizes in lumber, may be required for many structural components, including trusses.

Unfortunately, the United States is in the position of such low inventory that any glitch in supply or a sudden push-up in demand will drive prices much higher.

Here are the market movers for the month:

1. Wire mesh dropped 1.9% on a general settling down of metal pricing.
2. Masonry sand increased 11.4% on higher fuel costs.
3. Yellow pine 2×4 was up 10.6%, 2×6 pine up 13.9%, and 2×12 wide width pine up a whopping 20%.  There is no doubt about it-pine pricing is soaring on the new standards.
4. Truss pricing went up 2.9% on the initial pine price increases, and this trend will accelerate as inventories are replenished with higher priced goods and new standards implemented.
5. Spruce lumber products, rocked by the mill explosion in British Columbia, increased dramatically.  2×4 spruce was up 15.3%, 2×6 spruce up 9.6%, and studs jumped 19%.
6. Sheathings remained somewhat quiet as CDX pine plywood increased 1.9% while OSB sheathing was flat.
7. Vinyl siding gave up 1.6% while concrete siding edged slightly down.
8. Competitive issues created a monthly special in rolled insulation as prices dropped 14%.

Last week, I spoke to a builder who was struggling with updating current pricing on contracts that he signed earlier.  He told me that because I have been predicting pricing would be going up for so long, he had grown weary.  What has created the weariness is the volatility, which has created what I call “Ninja” pricing because it sneaks up on you.  One month the market might go up $30 per thousand, and 45 days later that same item may drop $20 per thousand; however, what really happened is the market increased a true $10.  This type of “up all the way” and “down no full give back” market is leading builders to be fooled by the overall general direction of the market.  The best example for most people of this type of market pricing is the price of gas.  Now, you see what I am saying.

In the short-term, I expect the hysteria of the mill explosion and pine lumber grading fallout to subside, which could lower the markets somewhat.  However, what happens if we have a huge tornado outbreak (like we had last May); or, in two months there is a large hurricane off the coast?  I strongly urge builders to monthly update pricing of their projects in the works; and, most importantly, put a price increase clause in their contracts.  If you would like a copy of the clause we have developed (which is tied to this Index) please email Rebecca Ballash at gmaromac@earthlink.net.

Finally, it is entirely possible the commodity markets could go down over the next six months. If this happens, it will be driven by a far different condition.  A potential collapse of the European economy could drag the United States back into a recession.  At that point, prices will go down as demand wanes.  In short, we are all still on one heck of a ride!

The Ro-Mac Lumber Whole House Commodity Index is based on wholesale costs of the base components to build a 2,200 square foot wood frame home with a concrete stem wall in Central Florida.  The Index includes foundation, metal, concrete, block, stucco, cement, wood framing, siding, sheathings, trusses, roofing, drywall, insulation, windows, doors, trim, garage doors, and most building hardware.  It does not include décor, electrical, plumbing, mechanical, landscaping, or labor.  Because the Index uses current wholesale costs, this should be a strong indicator of the direction of building prices for the next 30-45 days.

Don Magruder is the Chief Executive Officer of Ro-Mac Lumber & Supply, Inc. of Central Florida (www.romaclumber.com), and sign-up for this Index and other market reports are free.  To sign-up for this information via email, contact Rebecca Ballash at gmaromac@earthlink.net.

Ro-Mac Lumber sponsored the Leesburg Chamber of Commerce Sunrise Breakfast on April 26th at 7am at the Venetian Gardens. We were excited to announce that Grand Ole Opry and Country Hall of Fame Member Mel Tillis joined us as the featured speaker.

 The event was over 45min long, so below are the videos cut into 3 Parts of about 15 minutes each. The opening has Don Magruder, CEO of Ro-Mac Lumber & Supply introducing Mel Tillis. At the end of the speech he took questions, and then signed autographs for those who attended.

 Part 1

Part 2

Part 3

visit our YouTube page for more videos
http://www.youtube.com/user/RoMacLumber

To RSVP Look Below!

You can scan the Barcode above to automatically go to the event setup site and RSVP through your smartphone! Other wise visit http://genedeckerhoff-eorg.eventbrite.com  to RSVP Online.

You can also contact Rebecca Ballash at 352-314-3190 or 352-787-4545 ext 325 or via email at gmaromac@earthlink.net ]]> http://www.romaclumber.com/gene-deckerhoff-breakfast/feed 0