July 2014 Lumber and Commodity Report

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July 2014 Lumber and Commodity Report

The Home Builders Association Wood Commodity Index (Index) firmed up in mid-July, as spruce and sheathing products reversed losses from the prior month. The total Index increased 6.6% to $338.51, which is significant given the hot, steamy days of summer. Whether real momentum is beginning, no one knows. However, the market's firmness may be a weak indication of a strengthening housing market, or it could be another false positive.

The wood portion of the Index increased 8.0% to $404.66 per thousand with most of the heavy increases occurring in dimensional spruce. All dimensional spruce items, including studs, increased in price. Stud price increases ranged from 4.8% to 8.3% depending upon length. Dimensional 2x4 spruce averaged increases of nearly 12% while 2x6 spruce jumped 13.2% to 16.4%. Mills doing a better job balancing supply with demand seem to be the main impetus for the increases. Pine prices dragged as rainy weather in the south seems to be tapering demand. 2x4 pine dropped nearly 3% while wider width pines gave up just under 10%. If spruce continues to strengthen, expect the pine markets to wake up.

The sheathing portion of the Index increased 5.1% to $289.10 per thousand with both CDX pine and OSB sheathing moving up. CDX pine was the firmest with prices increasing 5%-8%; OSB added on average $6 per thousand or 3% on average. The OSB market declined too much over the last quarter, and this reversal is probably a welcome sign for the housing market.

Although many builders may not like it, an increasing market is actually the best barometer of the housing market, barring extraneous events like hurricanes or other national disasters. The two challenges over the next few months will be hurricane season and momentum. Another year without a hurricane will keep the markets trading in a narrower range, while momentum will indicate a more robust economy. Builders should be wary that July may be the lowest point of the market for the next quarter, and bid accordingly.

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 This email address is being protected from spambots. You need JavaScript enabled to view it. .

June 2014 Lumber and Commodity Report

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The Home Builders Association Lumber and Commodity Report is no doubt strapped in a seat on the roller coaster of housing uncertainty. Over the last 30 days, the Index dropped 7.0% to $317.56 per thousand; however, during the prior 30-day period it increased 9.5%. That is a 16.5% swing in pricing over a 45-60 day period. There is no wonder why dealers and suppliers are keeping inventories low, and this is all the more reason why builders should have some type of price escalation clause in all of their contracts.

The dimensional wood portion of the Index dropped 4.6% as most items, with exception of narrow and wide width pines, retreated. 2x4 pine was up 8.7% in some lengths while 2x12 pine held firmly on the previous month's gain. Spruce studs dropped 1.7%-4.0%, depending on size, while dimensional spruce retreated on average 9.0%. The housing industry remains mired in spotty, uncertain demand, and this is why momentum in the markets cannot take hold.

The sheathing portion of the Index did not do as well. Popular sizes in CDX pine drifted downward 2.7%-7.2% while OSB sheathing went into full retreat, giving back $28-$37 per thousand (or 11.3%-16.8%). Mills searched for buyers, and found the buyers had no appetite to purchase. Many who felt the prior month was the beginning of a summer run-up in pricing went ahead and bought; they are kicking themselves now. Dealers will have to work out these older, higher-priced items.

Steadiness and confidence are needed in housing. In my view, the commodity market is the best indicator of the health of the American housing market. There is no doubt if demand were strong, coupled with the shortage issue in trucking, the commodity market pricing would be much higher. A drop in pricing of this level indicates that housing remains spotty, market-by-market, and overall continues to be subdued.

Keep in mind, the market could swing back in the other direction this month. So, be careful in pricing--protect yourself.

Have a wonderful Independence Day and please be safe!

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 a past Associate Vice President of the Home Builders Association of Lake County.  To contact Magruder, email him at  This email address is being protected from spambots. You need JavaScript enabled to view it. .

 

May 2014 Lumber and Commodity Report

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It is amazing what a commodity market can do in 30 days.  The Ro-Mac Lumber & Supply, Inc. Wood Composite Index increased 9.5% to $341.40 per thousand with all items advancing.  Maybe the spring thaw is giving way to a summer run in building, which could bolster wood commodity pricing.  Momentum in late May appears to be waning for continued large increases; however, the trajectory appears upward.  The market’s ability to sustain these pricing levels is the best indicator as to the health of housing.

The dimensional lumber portion of the Index increased 4.8% to $392.64 per thousand.  Spruce studs were up 6.8% while dimensional 2x4-16 increased 2.0%.  Wider width pines were up 2.8% to 4.5% while 2x4-16 pine increased 8.3%.  Trucking continues to be a major problem in the lumber market, and this could help keep the market firm. 

Sheathing products in the Index were very strong as lower inventories and pent-up demand collided.  OSB sheathing added on average $33.00 per thousand or $1.06 per sheet.  Standard CDX pine plywood added $52 per thousand on 1/2” and $57 per thousand on 5/8”.  A price increase of $1.66 per sheet on 1/2" CDX in one month can put builders in negative territory.

Housing demand is the mover in the market.  Unless an unexpected weather event occurs, pricing will probably follow housing starts.  Interestingly, in many other areas of the building supply chain manufacturers are trying to hold onto pricing and put them upwards because of continued cost increases in manufacturing.  Builders should expect higher prices across the board over the next month or so. 

One cautionary warning for all builders in regards to pricing is that last week the Wall Street Journal reported the Obama administration is contemplating a dramatic change in course and policy in regard to mortgage rules and lending.  The ability to get credit by ordinary people is the reason why the housing recession persists and the economy of the country continues to flounder.  If Washington has seen the light and, indeed, loosens credit to allow ordinary qualified citizens to get mortgages then the flood gates of pent-up demand will open.  The supply chain would not be able to handle a sudden surge in business and prices would skyrocket.  Unfortunately, it would be very painful for those builders that bid a project in the long-term.  Now is a wonderful time to make sure you have a price escalation clause in your contract.  

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 a past Associate Vice President of the Home Builders Association of Lake County.  To contact Magruder, email him at This email address is being protected from spambots. You need JavaScript enabled to view it. .

 

 

April 2014 Lumber and Commodity Report

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Keep in mind, the lumber and commodity markets are usually the best indicator of the strength of housing, and this month’s report indicates a housing market that is struggling for buyers. The Home Builders Association Wood Commodity Index (Index) for April 2014 declined 6.4%, as declines were widespread in all sizes and species with the exception of wide width pines, which were flat.  Concern seems to be growing as to whether the housing season will gather any momentum after a long winter.

The lumber portion of the Index dropped 6.2% to $374.59 per thousand as western spruce retreated 6.3% to 8.4%.  What makes this even more difficult to figure out is the shortage in trucking and railcars.  If demand were strong, coupled with these transportation issues, pricing should have skyrocketed by now.

The sheathing portion of the Index fell 6.5% to $264.24 per thousand as mills searched for buyers and no one wanted to be stuck with overpriced panels.  CDX pine panels have been very resistant to lower pricing; however, mills finally had to capitulate to lower prices. Despite the decline, as of mid-April, buyers still remain with their hands in their pockets only buying what they need. 

Many concerns are raised by a commodity market during a time that is usually the heart of the housing season.  In the last few years, buyers retreated to the sidelines in mid-May, and this year the selling season has not kicked-off two weeks before May.  Will there be a late building season or no building season at all?  The lower prices may be good for those who have work, but prices are getting to a level in which mill curtailments will begin.  Frankly, if this occurs I am not sure if everyone will survive.

This is the one time when everyone should look to a firming market as an indicator housing is picking up.  At this point, uncertainty is fully in charge, which  does not bode well for builders.  Although there could be some downside risk to the market in pricing the upside is huge. 

If for some reason, the home selling and building season cranks up during the next few weeks, the prices of today will not be around long.  Protect yourself on projects bid for later in the spring and summer. 

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 This email address is being protected from spambots. You need JavaScript enabled to view it. .

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