March 2013 Lumber and Commodity Report

For March, the Home Builders Association Wood Commodity Index (Index) increased 2.4% to $450.46 per thousand with most items edging up. For the second month in row the National Home Builders Association/Wells Fargo Builder Confidence Index dropped, and one reason cited was the inability to secure financing and acceptable appraisals. The huge run-up in prices has started killing deals in the market, and this appears to be opening the door for softness in the market. A couple of key items in this month’s Index dropped in price.

The lumber portion of the Index increased a whopping 5.4% to $442.39 per thousand, pushed on strength in wide width pine and 2x4 shorter length dimensional spruces. 2x12 pine increased 11.1% to 12.9% (depending on length), while dimensional spruce increased 2.4% for longer lengths to 13.2% for more popular shorter lengths. 2x6 spruce was flat-to-down as the enthusiasm for it did not match the 2x4. The lumber markets are very high now, which has most dealers in a holding pattern on purchasing, as many believe the cliff could be around the corner. Until there is real concern over supply availability, expect most dealers to purchase “hand-to-mouth”.

The sheathing component in the Wood Index is showing signs of price fatigue, as it only gained $1.52 per thousand or a measly 0.3%. CDX pine plywood increased from 3.4% to 5.2% (depending on thickness) while OSB sheathing gave back $7 per thousand or 1.5% across the board. To see OSB sheathing mills give back money confirms there is a general softness manifesting in the market.

There are two warring factions in the wood commodity markets. First, the manufacturers and mills are pushing the notion that supply is very limited and shortages could be imminent. Second, there are the dealers who have seen this movie many times during this Great Recession--prices jump up quickly to only fall quickly. No dealer wants to get hung with huge amounts of overpriced inventories, especially when builders are beating them down for every nickel. This “just in time” inventory philosophy in itself puts pressure on supply and delivery.

My thoughts remain the same. Prices are too high and with appraisals tough to secure for financing, the market is probably eating its future demand. The Builder Confidence number indicates builders are seeing these prices with higher cost on the ground. Like some of our local builders have told me that in the last week, they have lost business to high costs; this is beginning to be a problem. Builders should be very careful on long-term bids and always ask for a closer look when the project time grows closer. Now is the time to have a price protection clause in your contract.

In other areas, roofing companies have announced price increases and metal stud companies are putting in place an increase in April. Fuel surcharges are being implemented by everyone, so there appears to be a big effort by manufacturers to firm pricing. I just don’t know if it is going to work in a market that is already too high.

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 2012 Lumber and Commodity Report

Usually, just before Christmas, a hush falls over the wood commodity markets as dealers and traders focus more on Santa Claus and cookies than sticks of lumber. This year, on the contrary, there is no Christmas rest as the wood commodity markets remain extremely active. The Home Builders Association Wood Commodity Index (Index) for December has risen 2.2% to $379.24 per thousand, primarily on the strength of spruce dimensional. Lumber futures point to continued price increases in products throughout 2013.

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February 2013 Lumber and Commodity Report

Your Home Builders Association Wood Commodity Index (Index) increased 4.5% to $439.98 per thousand driven primarily by strength in the sheathing market. What makes the February increase significant is that it follows-up a whopping 11% increase in January, and this price weathered a brief ten day market correction during the beginning of February. Heavy overseas buying, improved domestic demand, and a fire at a Canadian OSB manufacturing facility are being blamed for the increase.

The 15.5% increase in the Index since mid-December is scary in itself, but the numbers become horrifying when compared to last February. Since last February, the Index has increased a mind-boggling 63.0% with lumber increasing 42.3% and sheathings up an unimaginable 81.3%. Based on our Index, an average piece of OSB or CDX sheathing has increased $203.79 per thousand or $6.52 per sheet. These numbers are very spooky considering the difficulty many builders are having in getting appraisals to qualify their homeowners for financing.  

Over the last 30 days, the lumber portion of the Index only increased by 0.8% to $419.92, and this may suggest that buyers are growing weary with the pricing. A 42.3% increase in pricing since last year is hard to digest despite the overseas buying and increased demand.

The sheathing portion of the Index remains very strong on short supply, and the emotion from the Canadian OSB fire is still fresh in the minds of buyers. The sheathing portion increased 7.3% to $454.96 with OSB sheathings adding $34 per thousand and CDX pines pushing up $15-$25 per thousand. The cost numbers for sheathings are extremely high--approaching record levels, and there is a real concern as to how much farther this market can increase until it begins to kill its own demand.

Increased fuel costs are creating a bevy of price increases and added fuel charges across the supply chain. Door companies have announced 5%-6% increases, mouldings are going up with some outages being reported, and shingle manufacturers have announced two price increases that will be implemented in the next three months. Special order items are becoming harder to get and stock orders are running much longer lead times as the supply chain is very lean.

Cash remains king and squeezed-down credit lines are creating tight inventories at all levels. Then there is the common sense factor--you don’t load the wagon when the market is at record high pricing. This is creating tight supply. In my view, the market is still overpriced and there exists a real downside risk; however, when and how remains to be seen. The brief market correction in early February looked as if prices were going to drop significantly, but the mills were not able to turn it around. My concern is these prices could be pricing many customers out of the market.

Those who hold long-term pricing are really getting hurt now, and this could mean the loss of more companies in the supply chain. Builders, you should have a price escalation clause in every contract, and it is in your best interest to monitor pricing extremely close. There are a lot of low bidders who were awarded projects a couple of months ago, and who may not survive these huge increases. Right now, the smartest people in the room may be those who lost bids in November and December because they were too high.

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 2012- Lumber and Commodity Report

Over the last 30 days, the Home Builders Association Wood Commodity Index has decreased 14.4% to $317.39, primarily on a downward move of OSB sheathing and CDX plywood. Dealers are reporting a softening in demand as a result of uncertainty that seems to be gripping the market just prior the presidential elections. One dealer told us they have been extremely busy with quoting projects but people seem to be frozen to act until after the election.

The lumber portion of the Index dropped 7.7% to $321.58 per thousand as wide width pine posted about 15% drops in pricing. Dimensional spruce price reductions held mainly in the lower single digits while studs pricing fluctuated downward from 4.9% to 12.9%. It appears the market is close to giving back all it will, and the manufacturers will soon have full control of the supply end of the equation.

The sheathing portion of the index went almost in full free fall over the last four weeks as demand did not improve to the degree of supply. The sheathing portion of the Index plunged 18.9% to $314.25 as all species returned, plus $50 back to buyers. On average OSB was down $80 per thousand while standard CDX sheathing dropped on average $55. It does appear the levels in pricing are steadying and the drops, if any, will be minimal.

One thing to keep in mind, the Index after these drops over the last 30 days is still 21.8% more than a year ago and 16.9% higher since the first of the year. This is your best clue that inflation has infiltrated the sector. It appears the mills and manufacturers got a little greedy and oversold the market. The current market levels will probably move in a much narrower range as the election, winter and the holidays sidetrack potential buyers. The biggest trap for builders is using today’s pricing for next March’s projects- you could get in pricing trouble.

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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