January 2014 Lumber and Commodity Report

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The Home Builders Association Wood Commodity Index (Index) for January increased 3.5% to $328.10 per thousand as manufacturers and mills constrained supply to overcome the snow, ice, and freezing weather from a deepening winter. Compared to last January, the Index is down 23.1%, which may indicate a more traditional spring run in business or an overall softening.  A real winter is affecting the northern regions; there is no aftermath of Hurricane Sandy; and, all of the hope and promise from a second term Obama administration has evaporated. 

For the month, only two items declined in price and increases seemed to be driven by size and species--nothing across the board.  Stud spruce products were mixed to flat in pricing while dimensional spruce price increases fluctuated from 4.1% to 8.1%.  2x4 treated gave back 2.7% as manufacturers searched for buyers. Wide-width pine increased 1.1% to 5.2%, but a floor and general direction for pine was being established. 

Sheathing products recouped some recent losses in price; however, pricing still remained lower than most expected. CDX pine plywood was flat to up 2.6% while increases in OSB sheathing enjoyed very modest $13-$14 per thousand increases.  

It appears most mills are desperately trying to hold onto previous increases, but harsh winter weather could create cracks in pricing. The National Home Builders Association is forecasting a very optimistic 1.1 million in housing starts for 2014 with most projecting lower numbers.  Actual annual starts have not reached one million and those numbers have only trended for a couple of months.  If strong housing starts do not begin the year trending a million plus starts, expect lumber prices to remain in the doldrums.  Changes in mortgage rules and higher interest rates could provide enough headwinds to limit housing starts. 

The next month or so will dictate whether 2014 is for real in housing starts or just another false blip. Builders should be cautious in long-term bidding, just in case the starts materialize. Everyone should incorporate some form of price protection clause in their contracts.  My personal belief is that without some impetus from heavy spring storms in the south, cheap interest rates, and more flexible mortgage rules, pricing will stay flat to down as will housing starts.  

Many other scopes in the building supply industry have pushed and announced price increases after the first of the year. Windows and doors are up 3%-5%; drywall is up $30 per thousand; and, fuel charges have increased across the board. Spring demand will decide if these increases will stick. 

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 This email address is being protected from spambots. You need JavaScript enabled to view it. .

 

December 2013 Lumber and Commodity Report

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The Home Builders Association Wood Commodity Index (Index) for December lost 4.0% as wintery weather took hold in many areas of the country forcing mills and manufacturers to scurry for buyers.  As the holidays approach there appears little momentum for price increases and this could lead to a lackluster beginning to the New Year.

In the wood portion of the Index, prices dropped 5.7% as spruce dimensional was in full retreat.  The amount of the decline was directly related to the popularity and availability of the size.   Studs were down 6.3% while 2x4-16 SPF gave back 5.7%.  Pine dimensional lumber did not follow the direction of spruce. Narrow width pine was flat with wider widths trading up in the 3%-6% range. 

The sheathing portion of the Index was mixed, with CDX Plywood trading in a narrow range at par and OSB sheathing dropping $6-$10 per thousand.  After the price gyrations in sheathing, the Index dropped 2.2% predominately on the weakness of OSB.  If demand gets tangled up in bad winter weather, expect pricing to drift lower.

Drywall, roofing, insulation, windows, doors and molding are just a few segments in which companies have announced price increases after the first of the year.  While many of these companies will contend price increases are needed to remain profitable, how many are willing to increase these prices in a market with subdued sales.  There could be some first of the year deal making which takes some of the wind out of the price increases announced for next year.

As a builder you can’t bid a project for next year without taking in account all price increases, but when you issue purchase orders ask for current market pricing.  Pricing realities change in the midst of a dark, cold winter.

Have a wonderful holiday season and prosperous New Year.

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 This email address is being protected from spambots. You need JavaScript enabled to view it. .

 

November 2013 Lumber and Commodity Report

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The Ro-Mac Lumber & Supply, Inc. Wood Commodity Index (Index) for November increased 0.2% to $330.21 per thousand from October primarily on the strength of dimensional lumber, which rose 3.9% to $408.49 per thousand.  Mills and manufacturers are resisting the lower price levels, as most are still struggling to produce profits.  Their fight will grow more difficult as the cold days of winter and the holidays engulf the country.

The dimensional portion of the Index was driven by healthy increases in spruce, which ranged from 3.5% to 9.1%.  Narrow-width pine gave back a couple of single digits but the wider pines averaged a 3.0% increase.  It appears there is little in the market to push prices in either direction, so expect manufacturers to manage supply to demand.

In the sheathing portion of the Index, manufacturers were unable to hold prices in the first half of the period; however, many have since rebounded.  I am not sure if this is a reversal or just a fight back.  No doubt--sheathing producers need buyers.  CDX pine was down from 2.4% to 5.2% while OSB sheathing dropped 5.9% for thinner panels to 2.1% for thicker panels.  Mid-November’s direction will probably determine the general direction for most of the winter.

Mills and manufacturers of wood commodities are going to dig-in their claws in an effort to hang onto pricing levels while manufacturers of other building supplies are making no bones about implementing increases at the first of the year.  Unless the economy drastically weakens further, builders should expect higher prices the first quarter of 2014.  

Here is my best piece of advice:  Do not bid projects in November and December at those months’ current pricing.  Pricing could be 3% to 6% higher in March, which makes a price escalation clause a wise part of any contract. 

Until next month--wishing you and your family a blessed and Happy Thanksgiving!

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 This email address is being protected from spambots. You need JavaScript enabled to view it.

 

October 2013 Lumber and Commodity Report

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Your Home Builders Association Wood Commodity Index (Index) increased 4.4% to $329.42 per thousand, as slim supply throughout the supply chain kept mills and manufacturers busy.  Housing demand is suspect, given the government shutdown problems; the 36,000-decline in building permits in August; and, the lackluster housing start data, which suggests housing starts remain doggedly below one million.  Add interest rate concerns, and you have a market that is engulfed in uncertainty. 

The only reason why the commodity markets are not down further is due to a supply chain that refuses, or cannot load the wagon because cash is king.  Inventories in the supply chain are “hand-to-mouth” at best, and market volatility is not encouraging risk-taking.

The dimensional lumber composite of the Index increased 4.7% to $391.63 per thousand, as most items experienced double digit increases.  Items lesser in demand, such as 8’ and 10’ lengths, were flat-to-down; however, popular sizes were up $15-$25.  Wide width pines were up $25-$30 while 2x4 treated added almost 11%.

All items in the sheathing portion of the Index, but one, increased.  CDX plywood was up 4.5% plus while OSB sheathings hovered around the 4.0% increase.  It appears mills have done a good job matching production with demand, and limited on-ground inventory by many dealers will keep pricing firm.

In other commodities, drywall companies have begun announcing potential 10%-20% increases for 2014 and cement manufacturers are projecting 6%-9% increases with environmental charges on top.  Window manufacturers are still in charge as demand is overwhelming supply.  So, expect those prices to continue to increase.

The new Department of Transportation rules are limiting drivers’ hours, and trucking has become a real issue.  Expect logistics to get tougher in both pricing and delivery times.  I predict that in 2014 getting special order and custom merchandise on time will probably be one of the biggest problems for most builders.

For the next few months, expect pricing to remain firm-to-down depending on the weather and the folks in Washington, D.C.  If uncertainty remains in the nation’s capital you can expect to see it in the commodity markets.

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 This email address is being protected from spambots. You need JavaScript enabled to view it. .

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