Notes from the Forest -12-7-18 Edition

Ladies and Gentlemen:

Maybe it’s the weather, or the time of year, or the losses in the stock markets, or the day of mourning set aside for former President George H.W. Bush, or comments from the CEO of Toll Bros., warning of a recession in housing, or a combination of any or all of them; but the lumber and panel markets really were unable to get into gear this week. Production schedules remain locked in the weeks of 12/10 – 12/17, which in many instances will get producers to previously announced maintenance and holiday shutdowns. Buyers continue to purchase hand-to-mouth and frequently are buying units from local 2-step distribution to help them just get by. The exception, this week, were the carload buyers on the East Coast, who are fairly certain anything they purchase today won’t arrive prior to the start of the new year – if anywhere close to that. Pricing remains relatively flat, with modest adjustments in either direction helping to pinpoint areas where producers have too much, or tight supply of a particular item.

The National Association of Realtors® (NAR) has provided one of the final pieces to the overall disappointing Octobre 2018, housing market reports. The NAR Pending Homes Sales Index (PHSI) reported that expectations for a stronger housing market in Octobre fell short. The PHSI is a measure of signed contracts to buy existing homes, not actual closings, fell <-2.6%> compared with Septembre. Sales were down a steeper <-6.7%> when compared with Octobre 2017. That makes the 10th straight month of annual declines. The U.S. Commerce Department has reported that U.S. construction spending fell for the third straight month in Octobre, as outlays on private projects declined. The Commerce Department said construction spending decreased <-0.1%> to $1.31 trillion.

Spruce & Stud Market -: The inquiry and sales pace of Eastern and Western Canadian SPF Std., & Btr., and No. 2 & Btr., remains on the quiet side. Buyers continue to purchase only their most pressing needs, often taking advantage of lower prices being offered by office wholesalers, or just purchasing units out of local 2-step distribution. Thanks to previously announced production curtailments, as well as maintenance and holiday shutdowns, most producers have filled their production schedules up to and in some cases through those shutdowns. This has given producers little incentive to chase buyers for orders. Producers held prices steady on 2x6 – 2x10 – 2x12, while offering modest discounts on 2x4 and 2x8 just to keep buyers engaged. Increased demand for low-grade stock has allowed mills to build small production order files and prices have moved modestly higher.   Demand for stud trims eased and mills immediately offered token discounts to get buyers to reengaged with the marketplace.  

CME Lumber Futures – The CME Lumber Futures January 2019 contract continues to see-saw back and forth. For the last 5-days (11/30 – 12/6) CME Futures were Up 1-day, and Down 3-Days. CME Futures have lost <-$10.20> and are trading at a deficit of <-$30.50> to cash. Another potential deterrent to buyers purchasing volume at this time.  

Hem\ White Fir -:  The inquiry and sales pace of Std. & Btr. No.2 & Btr., White and Hem \ Fir, remains unchanged from the past several weeks. Buyers continue to purchase hand-to-mouth, as they deal with year-end inventory goals, winter like weather and the holidays closing in on jobsites activity and pro dealers need to replenish. Supply and demand are just about in sync on all widths and overall pricing is flat to modestly higher. Late in the week producers noted an uptick in phone activity, as buyers started probing for early 2019 prices and availability.  However, while much was discussed, little was bought. What the phone traffic did do was give producers a glimpse into current inventory levels at retail and what action buyers might be taking – weather permitting – towards restocking in the new year. Sales of low-grade stock and stud trims both modestly improved, allowing mills to hold prices at recently reported levels. 

Green Doug Fir -: The inquiry and sales pace of Green Douglas Fir Std. & Btr., & No. 2 & Btr., slowed modestly, as already reduced mill production schedules pushed into the later weeks of Decembre. Small discounts appeared early in the week on narrow widths (2x4 & 2x6), while availability of wider widths (2x8 – 2x10 – 2x12) remains restrained, which allowed producers to hold price within a few dollars on either side of previously reported levels. Sales of both low-grade and stud trims remain in close proximity of production, allowing producers to sell at previously established levels.

Cedar Lumber -: The inquiry and sales pace for Western Red Cedar (WRC) boards, fencing, dimension, radius edge decking, bevel siding, timbers and pattern stock remains well below the levels seen, at this time, in the past two years. The grind towards the end of the year continues. With Decembre underway, buyers have turned their attention to their 1st & 2nd Qtr., 2019 needs. However, uncertain of their customers actual needs in the new year, has turned the inquiry process into more of a pricing expedition, rather than a real buying effort. Concerns about ongoing and future price corrections is also retarding sales. The exceptions remain the same difficult to source items such as timbers, wide STK boards and 1x4 pickets. Several producers are again trying to link the purchase of hard to source items, with the purchase of on ground inventory items, such as decking, siding, narrow width STK boards and 1x6 pickets. Buyers clearly do not care for the sales tactics from the mills and many opted to postpone purchasing the hard to source items, rather than capitulate to the mills buy X in order to get hard to find Y.

Shake & Shingles -: The inquiry and sales pace of Western Red Cedar (WRC) Shake and Shingles and Eastern White Shingles (EWS), remains underwhelming. Many seasoned traders are reporting that they have not seen a market quite as slow as this, since the days of the Great Recession. Others chimed in saying that they had never seen such wide spread apathy in the WRC Shake and Shingle markets. Producers, some concerned about cash flow for the remainder of the year, made another round of outbound calls this week, trying to re-engage with their full truckload customers by offering additional price discounts. Reminding them at the same time, that the winter shutdowns are just about to get underway, which could lead to tight supply in the 1st Qtr., of 2019. While buyers appreciated the heads up and acknowledged the lower prices; few if any actually took action on the offer. Mill winter shutdown announcements were more plentiful this week, as a lack of demand, sufficient on ground inventory and higher prices for natural gas for kiln drying and fire-retardant treatment made sustaining operations a losing proposition.

Southern Pine Lumber -: The inquiry and sales pace of Southern Pine No.1 & No.2-dimension lumber has modestly slowed, after 3 – 4 weeks of solid gains. However. sales continue to keep pace, and on selected items one step ahead of production schedules. This has resulted in pricing that is flat to modestly higher this week. Westside producers were the most aggressive with their pricing, but like last week, the other zones are really not that far behind. Recent rains, have restricted loggers’ access to the forests; creating a shortage of large diameter logs and placing upward pressure particularly on 2x12. The inquiry and sales pace of high-grade stock – D.S.S., S.S. and MSR, remains steady. Decent demand from truss manufacturers and now increased interest from modular home manufactures is helping to fuel the markets. Overall high-grade pricing is flat to modestly higher. Low-grade sales continue to run hot and cold. This week production and demand are a bit closer, which resulted in pricing that is flat to modestly lower. Stud trim sales are in sync with production and pricing continues to hold at levels established 3 weeks ago. Demand for small squares and timbers continues to hold steady. Producers are reporting that demand and production are finally back in lockstep. This has resulted in pricing that is flat and firm to a few dollars higher on selected small squares and timber items. Sales of 5/4 x 6 Radius Edge Decking remain elusive. Once again, producers in both the Eastside and Westside zones offered double-digit discounts on Standard grade decking. Westside zone producers even offered token discounts on 8’ – 14’ Premium grade decking, while both zones bumped 16’ decking higher.

Pressure Treated -: The inquiry and sales pace of pressure treated lumber, plywood and accessories are heavily dependent on the weather. Where the weather remains conducive to outdoor work, treaters are reporting steady to sneaky strong sales. A result of, pro dealers and their builder customers racing to get as many projects buttoned up prior to the end of the year. Elsewhere, treated sales remain seasonally slow and another bout of winter like weather over the course of the week did little to brighten the prospects of additional purchases, beyond winter buys, prior to the spring 2019 thaw. On a whole, treaters are reporting that their Novembre sales, are close to being on par with Novembre 2017 sales. Pricing on brite stock continues to firm and move higher, which is resulting in higher prices for treated products.

OSB & Veneer Panels Overview –: The OSB and plywood markets continue to lack a sense of energy or urgency. Mill production schedules ranged from prompt, to as far out as the week of 12/17. Truckload buyers seem content to continue purchasing hand-to-mouth. Often turning to local 2-step distribution to provide them quick response on an out of stock item. Carload volume buyers on the East Coast did return to the marketplace this week. They are feeling confident that anything they purchase today will not and cannot reach their facilities prior to the start of the new year… if that soon. OSB and Western Fir Rated Sheathing producers offered discounts in varying amounts to keep buyers engaged. Southern Pine mills held prices firm.

OSB -: The inquiry and sales pace of OSB continues to lack any sense of energy or urgency. Producers and office wholesalers started the week, once again, searching for the elusive price, which will bring buyers back into the marketplace and help to establish a firm bottom\floor. With order files ranging from prompt, to as far out as the week of 12/17, producers started the week offering discounts in the range of $ 5 - $ 10 MSF. Office wholesalers with contract ownership and pressure from mills to provide them with bonafide destinations dipped below mill replacement levels to get that ownership sold. Buyers remain content purchasing must have fill-ins and letting the mills, office wholesalers and local 2-step distributors battle it out for volume as small as a partial to highly mixed truckload.  

Southern Pine Panels -: The inquiry and sales pace of Southern Pine Rated Sheathing is being reported as slow to steady. Buyers continue to only purchase near-terms needs and are unable, or unwilling, to purchase speculatively until there is a need and absolutely no chance what they are buying will arrive prior to the start of the new year. Producers remain laser focused on filling out their production schedule for the remainder of the year. As a result, prices continue to be quoted at previously established levels. Mill production schedules remain locked in the week of 12/10, but late in the week a handful of producers opened up the week of 12/17, which in most instances will be the final week of production in 2018. Sales of underlayment, sanded, siding, concrete form and other specialty panels also continue to be slow and steady. Producers continue to report having a 7 – 10-day production schedule and that has resulted in prices that are flat but firm.

Western Fir Panels -:  The inquiry and sales pace of Western Fir Rated Sheathing remains subdued. With a plethora of prompt shipping panels available from mills, office wholesalers and local 2-step distributors, it continues to be a buyers’ market. Producers offered modest\token discounts only on items which they are overstocked. The remainder is being offered at previously established price levels. Since not every mill had the same overstocked items, it gives the markets a very uneven, almost choppy feeling. West Coast buyers continue to purchase only their most pressing needs, and due to the time of the year, often turning to local 2-step distribution for units out of warehouse to fill a specific void. Carload buyers have returned to the marketplace and are taking advantage of pricing reserved for volume purchases, fairly confident that anything bought today and shipped next week will not arrive at their destination prior to the start of the new year. Mill production schedules are still in the weeks of 12/10 – 12/17, which has them just about at announced year-end maintenance and holiday shutdowns.  Sales of value-added panels, underlayment, sanded, siding, concrete form and other specialty panels are in step with production. Resulting in pricing that is both flat and firm and shipments scheduled for 2-weeks or sooner.  

Food for Thought -: -:  It’s the most wonderful time of the year. OK, yes, I guess the Holiday’s count too. I was thinking more about the prognostications that are starting to pour in from all of the gurus who are involved in new home and multifamily construction, remodeling, as well as the buying and selling of real estate.

The beauty of these predictions is that no one can really predict the future and it will be interesting to see just how accurate any, or all of these, will turn out to be. From what I can tell you pick the one that best fits your mood and outlook and hitch your wagon to that star.

As an example, Realtor.com is projecting that the 2019 housing market will see modest inventory gains, but with mortgage rates expected to hit 5.5% by the end of the year, monthly mortgage payments will rise 8% putting home ownership more out of reach, especially for younger Gen-Z, Millennial, and other first-time home buyers. Upscale homes in high-growth markets, however, will provide more opportunities for buyers. Realtor.com does not anticipate a buyer’s market on the horizon within the next 5-years. Additions predictions: Existing home median price appreciation up 2.2%. Existing home sales down <-2%>. Single-family home housing starts up 8%. The home ownership rate at 64.6%

Another example is Zillow’s 2019 predictions: “Worsening Affordability, Commutes and Natural Disaster Losses”. Rising mortgage rates will set the scene for the housing market in 2019. They will affect everyone, driving up costs for home buyers and creating more demand for rentals. Even current homeowners could start to feel locked into their mortgage rates. Honing in on natural disasters, this prediction for 2019 is a logical extension of what’s already been happening: About 15,000 homes were destroyed by wildfires in California alone in 2018 – including at least one entire town in what used to be the “off” season – and many others by storms along the gulf coast, have created growing flood losses and with rising sea levels and storm surges over the courses of a typical 30-year mortgage begun in 2020 are not encouraging. 

Lord willing . . . Let’s plan on comparing notes at the end of next year.