August 2014 Lumber and Commodity Report

LumberandCommodityPic3v2

The Home Builders Association Wood Commodity Index (Index) for August increased 1.5% primarily on mills and manufacturers controlling supply and a fire that destroyed the Swanson Mill in Springfield, Oregon. Most would agree the tepid and disappointing housing numbers had little to do with the increase. It is probably fair to say that most people in the industry are getting weary of a constant upbeat housing forecast that never materializes. The excuse of blaming the weather earlier in the year has run its course.

The dimensional lumber portion of the Index increased 1.3% to $409.93 per thousand, as mill shutdowns and increased export activities fueled demand in spruce. The degree of price increases varied with demand on particular sizes. Wide width 2x12 pine had major drops in pricing as demand plunged. Retreats from $20 to $45 per thousand in pricing were common, as mills searched for buyers. Narrower width pines such as 2x4 and 2x6 increased almost 6%. This pinpoint in increases by size is a major indicator of just how thin lumber inventories are on the ground.

The wood sheathing segment of the Index was a complete mixed bag. The mill fire in Oregon pushed CDX pine pricing up 8% to 11% depending upon thickness. Keep in mind, that mill produced fir sheathing, not pine, for the west. This is the best example of the state of plywood manufacturing in America and how the shutdown of the plywood mill in Hawthorne, Florida is affecting the Florida market. OSB Sheathing dropped $10 plus per thousand (or 5.1%), as supply was too much for the demand. In my view, the drop in OSB pricing at the beginning of hurricane season best describes the state of this market.

Thin inventories and a supply chain, which is unable to withstand events across the country, are worrisome as hurricane season begins. Builders should be very mindful that a real hurricane threat or strike will immediately drive up pricing. Quotes in mid-August on OSB or CDX could be cheap in late September if a hurricane event occurs. It goes without saying--bid pricing should be price protected. The supply markets have proven, with this fire, there will be no forgiveness.

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. .

July 2014 Lumber and Commodity Report

LumberandCommodityPic1

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

 webSized lumber cut 02

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

LumberandCommodityPic2

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. .

 

 

Ro-Mac Newsletter Signup