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. .