February 2014 Lumber and Commodity Report

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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.  

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. .

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.

 

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