Timber prices fall rapidly, turning hoarders into sellers


The price of wood falls back to Earth.

Futures for delivery in July ended Tuesday at $ 1,009.90 per thousand board feet, down 41% from the record high of $ 1,711.20 reached in early May. Futures have fallen 14 of the past 16 trading days.

Spot lumber prices are also plummeting. Pricing service Random Lengths said on Friday that its composite scoping index, which tracks on-site sales, fell from $ 122 to $ 1,324, its largest weekly decline on record. The pullback came just six weeks after the index rose $ 124 in the first week of May, its highest ever. Random Lengths described a chaotic rout in which sawmill managers struggled to provide customers with quotes. He said Tuesday night that his index had fallen another $ 114, to $ 1,210.

Economists and investors have questioned whether exorbitant prices for wood products would doom the booming real estate market. Builders have raised house prices and many have stopped selling houses before the posts were installed, lest they misunderstand the costs and over-sell. Lumber has become a central part of the inflation debate: whether a period of runaway inflation looms or high prices are temporary shocks that would subside as the economy moves away from the economy. locking.

The rapid decline suggests a bubble has burst and the question is how low lumber prices will come down. Even after the fall, lumber futures remain nearly three times higher than typical for this time of year. Lumber producers and traders expect prices to remain relatively high due to the strength of the housing market, but the supply bottlenecks and frenzied buying that has characterized the reopening of the economy and sending prices to multiples of old historical highs are shrinking.

During the preparatory period, lumber was piled up by builders, retailers and others worried about running out of material during a construction season overstretched by low mortgage rates and federal stimulus payments.

“Everyone was buying more than they needed,” said Mike Wisnefski, former lumber trader and managing director of online marketplace MaterialsXchange. “There was this fear of the lack of availability.

Now the market is flooded with what Mr. Wisnefski calls ghost stocks, as companies that are normally big buyers, such as home builders and companies that prefab the trusses that support roofs and floors, sell to from their own stocks.

Demand for lumber has skyrocketed during the pandemic, pushing prices up to record highs. This video explains what is driving the timber boom, who is benefiting from it, and why those who grow trees are not reaping the benefits. Illustration: Liz Ornitz / WSJ

Lumber producers say prices are expected to stay relatively high as home builders try to close the nation’s housing deficit. Mortgage finance company Freddie Mac estimated in April that the United States was about 3.8 million homes less to meet demand, largely due to lack of construction following the 2008 real estate crash. .

“I don’t think $ 1,000 lumber prices are the new normal,” Devin Stockfish, general manager of lumber producer Weyerhaeuser Co.

Wyoming 0.41%

, told investors at a conference last week. “But that being said, when you think about how much housing we’re going to have to build in the United States over the next three, five, or ten years, that’s just a lot of demand for wood products. . “

At the same conference, the executives of the timber producer PotlatchDeltic Corp.

PCH 0.06%

said they expect the lumber to trade in the $ 700- $ 800 range until next year. This is even more than the pre-pandemic record of $ 639 and is based on their estimate of the price BC sawmills need to break even by sawing the most expensive logs in North America. . Prices below that could cause factories in Canada to cut production or shut down, which would eventually force prices to rise to meet demand, they said.

The stock market assumes even lower timber prices in the future. BMO Capital Markets analysts recently calculated that the stock prices of three Canadian companies that have become the biggest sawyers in southern pinewoods were expecting lumber at $ 447 next year. It would be a little more expensive than normal, but more in line with historical prices.

These companies— Interfor Corp.

IF P 1.82%

, Canfor Corp.

and West Fraser Timber Co.

WFG -1.12%

– with US rivals Weyerhaeuser and PotlatchDeltic, have recorded record profits since factories ramped up to meet unexpected demand last summer.

Sawmill owners had some of the best-performing stocks in the pandemic, although all five lumber producers were down at least 9.5% over the past month.

A wave of stock sales by forest products executives in the last quarter suggests those at the top of these companies believe the lumber peak is in the rearview mirror, said Ben Silverman, research director at InsiderScore, which tracks sales and purchases of executive stocks.

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Executives at Weyerhaeuser sold $ 14.6 million in company stock in the last quarter, the most since the third quarter of 2016, according to InsiderScore. PotlatchDeltic executives sold $ 12.1 million during that time, the most since InsiderScore started tracking in 2003. Timberland owner Rayonier Inc.

RYN -1.65%

also revealed the biggest insider sale in over a decade. Rayonier does not own any sawmills but owns lumber land in New Zealand and the Pacific Northwest, where prices for logs have risen along with those for lumber. Spokesmen for Weyerhaeuser and Rayonier declined to comment. Representatives for PotlatchDeltic did not respond to requests for comment.

“This level of sales is just unusual and having this type of peer alignment like this is unusual,” said Mr. Silverman. “It shows a consensus within the group on how they view their stock price.”

Write to Ryan Dezember at [email protected]

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