OT: Lumber Market Update

[Jeffreauxdawg]

So lumber futures are down 72% from the early May highs. OSB is now back down to $23 a sheet at the box stores for 7/16" vs $55+ in some areas in May. We are very close to a bottom on lumber and OSB. Buyers screwed up last fall/winter and let inventories run too low and created a short squeeze to cover Spring starts and most overbought since builders ran into delays after framing that slowed everything down.

View attachment 21324

Last month I projected a bottom somewhere near mid August and I think we are nearing that point. Buyers won't let this opportunity go much further before they start loading up again. It won't go as high, but it will go up from somewhere near here. Lumberyards don't want to get caught with their pants down again like they did earlier this year.

Mills out west are already facing curtailments due to heat, fire, and trucking. Add in any potential Delta variant outbreaks at a mill and you can see that risks outweigh to the underproduction side. Not to mention, mills may start having to take some extra maintenance since they have been going so hard for the last year.

I'm still of the mindset that the old ceiling is the new floor on pricing. If that happens, follow the yellow line for futures pricing.

View attachment 21325

In an interesting update. I pulled final 2020 production numbers on North American lumber and low and behold, it was an increase of 1% over 2019. The spike in lumber prices were demand side, with some serious planning problems. Lumber mills are highly automated and can really crank it up at times. It would appear all that was lost in April and May production was made up for in Oct-Dec.

View attachment 21326

Long story short, I don't think price are going to go very much lower than here, but I can see some jumps up in the next few months. 30-50% increases are possible, but I would be shocked to see the overreaction from the Spring happen again. As I said in July, if you have a project on the books, might as well get going. Even if you are few months out like I believe Ruckus is, I would consider getting my takeoff done and get some wood preordered. I lot of yards will work with you on 30-90 day price locks.

Still bullish housing. I think well located real estate is the best inflation hedge there is. Own a home. If your capable, own 2 and get someone else to pay the mortgage on one. You don't always have to worry about the income or cap rate, I think if you are in the right location, capital appreciation over the next 6-8 years will be wonderful in real estate and if you can just break even on the income front you are going to be in a wonderful position, but that's just my two cents.

 

[Grove Sh*tter]

Really appreciate these insights.

 

[FISHDAWG]

thanks and well done .... this info for down the road helps me today .... Steel on the other hand is still out of control with no end in sight

 

[maroonmadman]

Thanks for the info. I’m at the eye doctor and they just dialated my pupils so I’m having problems reading some of this so a quick question. Are on the stump timber prices going up any? Will my timber be worth anything in the near future?

 

[Jeffreauxdawg]

Probably not. Timber is not my particular area of expertise, but here's my 2 cents.

Southern yellow pine has fallen out of favor with a lot of builders. It has a tendency to warp more than western species. In 2013, Southern Yellow Pine (SYP) was hammered by the American Lumber Standards Committee lowering design values by 20-30% on most 2x products. This coincided with homes wanting larger spans for open floor plans. Engineered wood is a much better option these days. I remember when the last big builder in DFW switched from 2*12 to iJoists in 2013 for floor joists.

The reason all these things happened were because of the faster growth of SYP trees after generations of genetic engineering them to do just that. Faster growth leads to weaker wood that isn't as stable. Unfortunately if you have old growth longleaf pine, it's going to fall under the same guidelines as 35 year old Loblolly hybrids. (Unless you have a mill willing to pay more for machine stress lumber or something.) It's all lumped into the lowest common denominator. No board left behind if you will.

But the biggest issue is the fact that we have been under building homes since 2008. All those trees keep adding 5-8% volume every year and after 10+ years, we have lots of tree inventory, but no extra lumber/osb mill capacity. It will take 2-3 years to add mills if they started today. But that's 2-3 more years of growth while we wait. It's a viscous cycle. The only thing that will change the game is if when lands are clear cut, something else is planted. That will take decades.

I'm sure some foresters will know more than I do, but from the forest products side, there just isn't a lot I see that will cause a massive increase in demand of logs. The mills are running full tilt, but there is just way too much timber supply vs sawmill capacity. And all of the innovation is heading towards things that are not made from wood.

I hate sounding pessimistic, but when trading lumber, we used to have a saying... Don't nibble on a turd. If you have to eat ****, it's best to take big bites. If I were in your shoes, I might look at cashing out and putting the money to work somewhere else once the timber reaches maturity. Also, check out the previous thread on selling carbon credits for a little extra juice while you wait

But I would definitely get a second opinion from a consulting forester.

 

[maroonmadman]

Thanks for the info. My timber guy told me a few years back the SYP had basically 'fallen out of favor' with builders but didn't offer any reason why. I had clear cut a few years back and was contemplating re-planting but after much reading on the topic I have decided to forgo the cost of replanting and have decided to allow the land to naturally regenerate.

 

[WhiteShepherd07]

So lumber futures are down 72% from the early May highs. OSB is now back down to $23 a sheet at the box stores for 7/16" vs $55+ in some areas in May. We are very close to a bottom on lumber and OSB. Buyers screwed up last fall/winter and let inventories run too low and created a short squeeze to cover Spring starts and most overbought since builders ran into delays after framing that slowed everything down.

View attachment 21324

Last month I projected a bottom somewhere near mid August and I think we are nearing that point. Buyers won't let this opportunity go much further before they start loading up again. It won't go as high, but it will go up from somewhere near here. Lumberyards don't want to get caught with their pants down again like they did earlier this year.

Mills out west are already facing curtailments due to heat, fire, and trucking. Add in any potential Delta variant outbreaks at a mill and you can see that risks outweigh to the underproduction side. Not to mention, mills may start having to take some extra maintenance since they have been going so hard for the last year.

I'm still of the mindset that the old ceiling is the new floor on pricing. If that happens, follow the yellow line for futures pricing.

View attachment 21325

In an interesting update. I pulled final 2020 production numbers on North American lumber and low and behold, it was an increase of 1% over 2019. The spike in lumber prices were demand side, with some serious planning problems. Lumber mills are highly automated and can really crank it up at times. It would appear all that was lost in April and May production was made up for in Oct-Dec.

View attachment 21326

Long story short, I don't think price are going to go very much lower than here, but I can see some jumps up in the next few months. 30-50% increases are possible, but I would be shocked to see the overreaction from the Spring happen again. As I said in July, if you have a project on the books, might as well get going. Even if you are few months out like I believe Ruckus is, I would consider getting my takeoff done and get some wood preordered. I lot of yards will work with you on 30-90 day price locks.

Still bullish housing. I think well located real estate is the best inflation hedge there is. Own a home. If your capable, own 2 and get someone else to pay the mortgage on one. You don't always have to worry about the income or cap rate, I think if you are in the right location, capital appreciation over the next 6-8 years will be wonderful in real estate and if you can just break even on the income front you are going to be in a wonderful position, but that's just my two cents.

The other caveat to this though is finding workers to do the work. I’ve contacted 3 contractors now on building a large detached garage/shop area to get quotes. None of them have given me anything back after 4 weeks now. 1 of them told me he was 6 months behind because he can’t find workers to finish current projects they have.

So I’d love to get started on this now while the pricing is right, but I’m worried if I find someone and get put on a list then I’m subject to the fluctuations of materials when they can decide to start.

 

[dorndawg]

I agree with all this, and will only add that there are several more sawmills coming online in next 18 months in Alabama, Miss, and Louisiana. I really don't see stumpage increasing for landowners. I do think logging costs will trend upward a bit for a myriad of reasons - now THAT'S an industry in a labor crunch.

 

[BigWorm.sixpack]

I agree with all this, and will only add that there are several more sawmills coming online in next 18 months in Alabama, Miss, and Louisiana. I really don't see stumpage increasing for landowners. I do think logging costs will trend upward a bit for a myriad of reasons - now THAT'S an industry in a labor crunch.

You are correct. As someone in the lumber industry, we are seeing shortages in logs because of logging not because there aren't enough trees. Paper mills are paying a premium at the moment and with the new mills coming online soon, we will see loggers being strapped to service the demand to feed these mills.

 

[Cooterpoot]

Question for you construction guys- What would you wall in your garage with? I've had some issues in there and I'm going to put something else in it. I don't want to break the bank. It's a 25/25 garage.

 

[dorndawg]

You are correct. As someone in the lumber industry, we are seeing shortages in logs because of logging not because there aren't enough trees. Paper mills are paying a premium at the moment and with the new mills coming online soon, we will see loggers being strapped to service the demand to feed these mills.

This, and also equipment repair is a huge issue. Modern logging equipment is fairly high tech and you've gotta have somebody from the manufacturer come out just to diagnosis more and more stuff. Mechanics that can work on heavy equipment are in short supply, and all other things being equal, most would rather work in an air conditioned shop in the Jackson metro or whatever than drive a field truck to a logging deck in Wayne County

 

[Jeffreauxdawg]

Are you just talking about the interior walls that are already framed? Attached or detached. Does it share walls or ceiling with living areas? If so you are heading to gypsum land for fire rating.

If it's detached, I would stuff bat insulation between the studs and buy 1/4" paneling and a finish nailer and do it myself. You can paint right over the paneling and it will look good. Easy to cut holes for outlets etc.

Drywall is a 17ing art. And I am like Jackson Pollock. Fishdawg on the other will take that drywall to a level 5 finish with one arm behind his back.**

 

[Cooterpoot]

Already framed and it's attached. Currently has Sheetrock that's come untaped at the joints and is peeling. Damn mess. I considered 1/4" paneling and exterior paint but hell, I don't know.

 

[Slippery Pete]

Sounds like it could just be a bad mudding and taping job. I would peel all of the old tape off, scrape the joints, and have someone come in with new mud and tape. Sand it down, prime and paint.

 

[Cooterpoot]

Sounds like it could just be a bad mudding and taping job. I would peel all of the old tape off, scrape the joints, and have someone come in with new mud and tape. Sand it down, prime and paint.

It's peeling off the walls too. Not just the joints. I'd have to have it completely redone other than putting up the panels.Ceiling too.

 

[oxfordrebel22]

So lumber futures are down 72% from the early May highs. OSB is now back down to $23 a sheet at the box stores for 7/16" vs $55+ in some areas in May. We are very close to a bottom on lumber and OSB. Buyers screwed up last fall/winter and let inventories run too low and created a short squeeze to cover Spring starts and most overbought since builders ran into delays after framing that slowed everything down.

View attachment 21324

Last month I projected a bottom somewhere near mid August and I think we are nearing that point. Buyers won't let this opportunity go much further before they start loading up again. It won't go as high, but it will go up from somewhere near here. Lumberyards don't want to get caught with their pants down again like they did earlier this year.

Mills out west are already facing curtailments due to heat, fire, and trucking. Add in any potential Delta variant outbreaks at a mill and you can see that risks outweigh to the underproduction side. Not to mention, mills may start having to take some extra maintenance since they have been going so hard for the last year.

I'm still of the mindset that the old ceiling is the new floor on pricing. If that happens, follow the yellow line for futures pricing.

View attachment 21325

In an interesting update. I pulled final 2020 production numbers on North American lumber and low and behold, it was an increase of 1% over 2019. The spike in lumber prices were demand side, with some serious planning problems. Lumber mills are highly automated and can really crank it up at times. It would appear all that was lost in April and May production was made up for in Oct-Dec.

View attachment 21326

Long story short, I don't think price are going to go very much lower than here, but I can see some jumps up in the next few months. 30-50% increases are possible, but I would be shocked to see the overreaction from the Spring happen again. As I said in July, if you have a project on the books, might as well get going. Even if you are few months out like I believe Ruckus is, I would consider getting my takeoff done and get some wood preordered. I lot of yards will work with you on 30-90 day price locks.

Still bullish housing. I think well located real estate is the best inflation hedge there is. Own a home. If your capable, own 2 and get someone else to pay the mortgage on one. You don't always have to worry about the income or cap rate, I think if you are in the right location, capital appreciation over the next 6-8 years will be wonderful in real estate and if you can just break even on the income front you are going to be in a wonderful position, but that's just my two cents.

Pardon my ignorance (I mean, Ole Miss grad, right?) but are there any particular stocks that you would anticipate seeing a jump from this anticipated jump in lumber?

 

[oxfordrebel22]

Probably not. Timber is not my particular area of expertise, but here's my 2 cents.

Southern yellow pine has fallen out of favor with a lot of builders. It has a tendency to warp more than western species. In 2013, Southern Yellow Pine (SYP) was hammered by the American Lumber Standards Committee lowering design values by 20-30% on most 2x products. This coincided with homes wanting larger spans for open floor plans. Engineered wood is a much better option these days. I remember when the last big builder in DFW switched from 2*12 to iJoists in 2013 for floor joists.

The reason all these things happened were because of the faster growth of SYP trees after generations of genetic engineering them to do just that. Faster growth leads to weaker wood that isn't as stable. Unfortunately if you have old growth longleaf pine, it's going to fall under the same guidelines as 35 year old Loblolly hybrids. (Unless you have a mill willing to pay more for machine stress lumber or something.) It's all lumped into the lowest common denominator. No board left behind if you will.

But the biggest issue is the fact that we have been under building homes since 2008. All those trees keep adding 5-8% volume every year and after 10+ years, we have lots of tree inventory, but no extra lumber/osb mill capacity. It will take 2-3 years to add mills if they started today. But that's 2-3 more years of growth while we wait. It's a viscous cycle. The only thing that will change the game is if when lands are clear cut, something else is planted. That will take decades.

I'm sure some foresters will know more than I do, but from the forest products side, there just isn't a lot I see that will cause a massive increase in demand of logs. The mills are running full tilt, but there is just way too much timber supply vs sawmill capacity. And all of the innovation is heading towards things that are not made from wood.

I hate sounding pessimistic, but when trading lumber, we used to have a saying... Don't nibble on a turd. If you have to eat ****, it's best to take big bites. If I were in your shoes, I might look at cashing out and putting the money to work somewhere else once the timber reaches maturity. Also, check out the previous thread on selling carbon credits for a little extra juice while you wait

But I would definitely get a second opinion from a consulting forester.

I know I’ve said this before, but you’re a gigantic asset to this board. Thank you for taking the time to post this information. I owe you a beer (or 3) if we ever meet.

 

[Jeffreauxdawg]

Not really. Most of those stocks had a big run up earlier and are still frothy. Also, Q3 will be a blood bath for any distributors or wholesalers with high dollar inventory on the ground. I'm looking for an overreaction to the downside when Q3 earnings come out.

One to watch would be LPX. Louisiana Pacific. They don't do a whole lot of commodity stuff, just some OSB. But mostly they are into value added stuff like siding, trim, and engineered wood. Those prices continue to climb. My hope would be if some of their competitors start getting killed in q3 earnings before LPX reports, LPX will get drug down with them. I think they will have a blowout Q3.

 

[Crazy Cotton]

Wasn't there a bad introduciton of Chinese sheetrock about a decade ago that was doing this? Was thinking there was some kind of class action suit or something along those lines.

 

[Cooterpoot]

Wasn't there a bad introduciton of Chinese sheetrock about a decade ago that was doing this? Was thinking there was some kind of class action suit or something along those lines.

Early 2000s. But that was more complicated than just peeling Sheetrock. Pretty sure the SOBs that built it failed to cover with exterior paint and moisture/heat caused the issues here. I'll probably just put paneling over it and paint it.

 

[Jeffreauxdawg]

You are on it. Go for a flat or matte finish. I had it in my last garage and it worked out nicely. Flat/matte marks up, but it really hides rose perfections of the panelling. Who cares if the garage gets a little scuffed up