The Ro-Mac Lumber & Supply, Inc. Wood Commodity Index (Index) for July 2016 took back its decrease from June by adding 3.3 percent or $10.80 per thousand. The increases in cost were not across the board, which indicates a weakness is possibly permeating the commodity markets. It remains to be seen if the markets can withstand the dog days of summer.
The dimensional lumber portion of the Index increased 0.4 percent as modest increases in spruce dimensional lumber were offset by larger drops in pine. Spruce stud pricing increased $8 to $13 per thousand, depending on the size, while dimensional 2x4 spruce added on average $5 per thousand. 2x6 spruce was down from $3 to $9 per thousand. The spread in 2x4 and 2x6 spruce indicates a market struggling to hold onto pricing.
The sheathing portion of the Index is split. CDX pine plywood increased $30 per thousand for 5/8” and 1/2” sizes while OSB sheathing was flat. This appears to be more of an individual species demand market instead of an overall housing demand increase market. Over the next 30-45 days, hurricane season could really dictate the direction of the sheathing market.
The biggest factor facing all businesses, especially those in the construction industry, is the proposed huge increase in workers’ compensation insurance now scheduled to possibly happen on October 1, 2016. The National Council on Compensation Insurance (NCCI) has recommended a 19.6% increase effective immediately for all policy holders to offset increased costs, which is a result of two Florida Supreme Court decisions and a new Senate bill of healthcare changes. These increases must still be approved by the state, but workers’ compensation insurance is priced from experience models. It appears that unless the laws are modified, the real cost of insurance is about to soar.
This huge increase in insurance will affect every person and company in the construction supply chain. Builders should start bidding projects based on higher labor costs. A land-falling United States hurricane could play havoc on the supply chain. This along with increases in insurance costs could cost builders a lot of money if they do not prepare properly. A price escalation clause is a must right now as builders should be very cautious heading into the fall—there are simply too many uncertainties.
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