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
Keep in mind, the lumber and commodity markets are usually the best indicator of the strength of housing, and this month’s report indicates a housing market that is struggling for buyers. The Home Builders Association Wood Commodity Index (Index) for April 2014 declined 6.4%, as declines were widespread in all sizes and species with the exception of wide width pines, which were flat. Concern seems to be growing as to whether the housing season will gather any momentum after a long winter.
The lumber portion of the Index dropped 6.2% to $374.59 per thousand as western spruce retreated 6.3% to 8.4%. What makes this even more difficult to figure out is the shortage in trucking and railcars. If demand were strong, coupled with these transportation issues, pricing should have skyrocketed by now.
The sheathing portion of the Index fell 6.5% to $264.24 per thousand as mills searched for buyers and no one wanted to be stuck with overpriced panels. CDX pine panels have been very resistant to lower pricing; however, mills finally had to capitulate to lower prices. Despite the decline, as of mid-April, buyers still remain with their hands in their pockets only buying what they need.
Many concerns are raised by a commodity market during a time that is usually the heart of the housing season. In the last few years, buyers retreated to the sidelines in mid-May, and this year the selling season has not kicked-off two weeks before May. Will there be a late building season or no building season at all? The lower prices may be good for those who have work, but prices are getting to a level in which mill curtailments will begin. Frankly, if this occurs I am not sure if everyone will survive.
This is the one time when everyone should look to a firming market as an indicator housing is picking up. At this point, uncertainty is fully in charge, which does not bode well for builders. Although there could be some downside risk to the market in pricing the upside is huge.
If for some reason, the home selling and building season cranks up during the next few weeks, the prices of today will not be around long. Protect yourself on projects bid for later in the spring and summer.
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
The Home Builders Association Wood Commodity Index (Index) for mid-March 2014 increased 3.3% to $332.88 per thousand as volatility entered the market. Manufacturers and mills desperately want bad weather to be the reason for sluggish housing numbers, and many are preemptively raising prices expecting a strong spring selling season. Over the next 30 to 45 days, the housing market should have clarity--either it is the bad weather or economic conditions.
The dimensional lumber portion of the Index increased 2.1% to $399.34 per thousand with single digit increases in spruce and increases of 4.5% to 7.0% in wide width pine. Much of the movement in the market was driven by specific availability of one species and size over another.
The sheathing portion of the Index was pushed 4.7% higher to $283.24 per thousand as strong price runs in CDX pine plywood led the way. 1/2" CDX added $17 per thousand while harder to find 3/4” T&G jumped $30. OSB sheathing was uneven in its increases with thicker panels jumping less due to demand. The overall view of the market is firm; however, the direction is not certain as mills wait on an improving housing market.
One important factor to keep in mind and probably a good indication of the housing market’s strength is that last March this Index was $450.46 per thousand. This year’s Index price is down a whopping 26.2%, which could mean one of two things: housing is that weak or there is a lot of upside to this market. Builders should remain very diligent in pricing current projects and realize prices could go significantly up in two months. Now is the time to have a price escalation clause in your contract.
The Home Builders Association Wood Commodity Index (Index) dropped 1.8% to $322.19 per thousand from mid-January to February. Most of the blame for the decrease is pinned to bad weather. For the first time in nearly a decade, the Northern and Southern areas of America are having a very harsh winter, which appears to have broken a long running pattern of early spring building spurts.
The lumber portion of the Index dropped 1.0% to $391.25, as heavily weighted items gave up pricing. Most spruce items (with the exception of 2x4-16) traded in a very narrow, flat range. Pine pricing fluctuated with length demand.
The direction of the sheathing portion of the Index was unmistakably down, as average sheathing prices dropped 2.5%. CDX pine, on average, gave back nearly $10 per thousand while OSB sheathing fluctuated downward $5 to $10 per thousand based on thickness. Most decreases were blamed on slower demand linked to the weather.
From January to February, the weather was indeed a factor; however, there are two different ways to view this market. First, the drop in pricing should have been more given the nasty nature of the weather. Second, should it all be blamed on the weather or have the headwinds of new mortgage rules and this economy slowed down the market? How much longer can the weather be blamed?
Some analysts suggest the lumber market is poised for a huge run-up in prices; however, thus far many dealers are keeping their hands in their pockets. This year could be a typical selling cycle when winters were bad. Back then, prices cratered in January and February and then made huge runs late March through early June. That remains to be seen.
One thing is for sure, builders should be cautious bidding April and May projects with today’s numbers. My suggestion is you put a price protection clause in your bids and bid these items with a good pad. Remember, you can always go down but never go up. The market is in uncertain times and the smart people will be very cautious.
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