Posted on 06/24/2021 4:43:24 PM PDT by blam
Lumber futures on Chicago Mercantile Exchange have been nearly halved in a matter of a month to $879 per thousand board feet from the all-time high in May of around $1,711. The reason for the latest downdraft is because sawmills are boosting output and domestic production is increasing, catching up with demand.
“High prevailing prices have already encouraged lumber mills to boost output, and we anticipate that domestic production will rise even further as labor shortages in the trucking and forestry sector dissipate,” Samuel Burman, assistant commodities economist at Capital Economics.
Lumber, which is typically transported on one of three types of cars — center beams, boxcars, and bulkhead flatcars, has increased above 7,000 railcars for the first time in two years in May. He said besides “slipping back so far in June, they remain relatively high by past standards.”
We wrote a note at the beginning of the month titled “Lumber Prices Slump As Historic Boom Hits A Wall,” pointing out how “sawmills could be catching up amid the flurry of demand from North American homebuilders.” At that time, lumber futures were trading around $1,300.
Shortly after that, about mid-month, lumber prices began to dive, experiencing one of the largest down weeks since 1986 and one year before the 1987 stock market crash.
At the end of last week, we noted that price action in lumber futures resembles a “classic commodity blowoff top.” We highlighted then, the curve for lumber futures is sloping downwards and suggests that “the market is looking for quite some weakness as we head into the autumn and winter months.”
With the term structure of the futures market indicating falling demand and supply ramping up – Capital Economics released their forecast that prices may drop to $600 by the end of 2021. This is a relief from $1,700 prices but still, more than double the prices from pre-COVID levels of around $300.
Bloomberg notes 3,000 sawmills in the US are “all running extremely hard,” and supplies are beginning to catch up with demand as summer begins.
As we’ve previously noted, homebuilders, stunned by skyrocketing costs of a new build, have halted new projects as they wait out the lumber price storm.
… and according got “Stinson,” Twitter’s lumber trading “expert,” lumber futures at $600 “is still something like 50% higher than the 20-year average.”
Stinson was recently on Bloomberg explaining the lumber shortage.
I spoke on this, briefly, on national TV 4 weeks ago. Somehow got it explained in 1:30 minutes.
This answer was spurred from a question about the #wrongtrees but if you focus on the right trees, lumber market action makes more sense. @tembalanco more Twitter, less YouTube https://t.co/ql9qG5syVc pic.twitter.com/NeuGIPr6zb
— Stinson 🌲🪓 🏠 (@LumberTrading) June 21, 2021
He added: “wait, is the 30 yr mortgage under 3% again? y’all, lumber will easily avg $1000 if that a thing 2nd half of the year.”
The big takeaway here is even as sawmills are ramping up supply, prices returning to pre-COVID levels aren’t in the playing cards this year. Enjoy higher lumbers, but oh wait, the Federal Reserve says this is all “transitory.”
Lumber may be predicting a recession.
One sheet 4 x 8 x 7/16 OSB at my Home Depot at $54.35 this afternoon.
Yeah this still needs to make its way to the current building supplies for sale.
I have been watching 2 x 4 at Home Depot and Lowes. Not any movement in studs.
Waiting for ammo to do the same.
Yup... Has not gone down one dime at Lowes either.
“Lumber may be predicting a recession.”
From overheated we’re all gonna die inflation to recession predictions in 3 weeks.
We’ve had tremendous disruption of our supply chain because of COVID. This is an example of the transitory nature of those distortions, everybody has been screaming about the price of lumber as if it would go up forever and never come down. It’s coming down and it has a ways to go, there is still a shortage of lumber at this time.
Supply and Demand, the relationship no one thinks about anymore. Lumber supply is starting to catch up with demand. This is going to happen in many markets.
The huge one that is fuzzy is energy because OPEC and Biden together (which they are) are huge players and while Biden and OPEC want to rig the market for high prices, some of the OPEC countries can’t help themselves and will probably start cheating soon. How much they cheat and for how long is important to the price action. But let’s remember that oil stayed between 80-$115 a barrel for four years not very long ago. Also think about the fact most oil companies are profitable at $55. We are at about $73, so they are quite happy.
“Lumber may be predicting a recession.”
***********************************
Lumber prices are showing that free enterprise, the market and supply & demand still work in the allocation or resources.
The rise in demand is continual and the rate of rise is increasing. It is harder for manufacturers to increase production than for sawmills. The government also buys up a lot that the government doesn’t need, at least for legitimate uses. Availability of the ammo I buy has been increasing a bit and prices of 8mm Mauser are about what they were 10 years ago. Not cheap.
Not true ... I'm moving around all of the time ...
at that price it is still double pre covid prices.
If you can find some 8mm Romanian spam cans from the ‘70’s, it’s good ammo. Corrosive,though.
They got to sell out of all the high priced crap they have on hand. I hope they choke on it.
Only half again that distance to go!
Call it good while it lasted to all the price gougers.
Lumber lumbers along
Yeah. As soon as the real estate market takes a dump.
Do you sell things for less than they are worth?
Never. This isn’t even in the same league as market pricing.
There is price gouging and this is it.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.