The Expert Podcast

Why so far the lumber prices have fallen, and this is turning into a scenario where some mills are doing curtailments. They’re either shutting down or reducing supply because at the current rate, you know, right now in the $500 per thousand board feet rate, it may not be viable to produce lumber at that price. They may be losing money by the time you pay all the expenses along with production costs, labor costs, payroll, insurance rates, and it may not be worth selling that much lumber. So they’re doing curtailments on production.

You may be seeing this at your lumber yard, but it may not be kicking in yet. Some of these curtailments just started happening in the last month or two, and there’s a supply chain, so you may not see the shortage of inventory for a while. What it is doing is getting some people to what they call "jump off the fence," meaning that some buyers of lumber are starting to book their lumber packages now, committing to lumber from some of the lumber yards and some of the large retailers so that they have inventory to sell. That itself may boost the price back up.

You can see this orange price point, which is the rates for 2022. You can see that it was up to $1400, and then it went down, almost as low as it is now, the lowest it's been in the last couple of years. At one point, it was up over $1600 in 2021. Most of 2020, it was under $1000 per thousand board feet. It had a little bit of a bump up, and then it went crazy, as we know. Now, it’s back down into that range of right around $600 for most of the middle of the year. Now, it’s down to around $500.

We expect that lumber prices, at some point, will stabilize in the $600 to $700 range per thousand board feet. Right now, it’s going to be artificially low because demand is low, but as the mills and the producers start to acclimate their volume to what the demand is, it’ll go back into a range where it’ll be productive and profitable for them to produce lumber. Because at this level, the mills may not be able to make money by cranking out that much.

So what they’re saying is that the producers are seeing high log costs and lower lumber prices, so they’re going to have downtime. They’re going to shut down the mills or reduce the volume, so the payroll is lower, their energy costs are lower, and they’re buying less lumber. So their expenses are lower. When the mills slow down, the traders—here’s one example of a trader—reported diminishing sawmill offerings at the end of October, and it boosts the price up a little bit. But demand is in high demand. Six-inch dimension was in comparatively high demand and depleted field inventories were another incentive to get deals done.

These traders are seeing that their retailers or lumber yards, their distributors, have lower inventories in the pipeline. So they’re trying to get some deals done to buy inventory, to buy materials so that they can keep their customers fed with materials. Part of it is the lead time is shortening. Demand for Western SPF studs wrote a continued undercurrent of strength. If it lagged behind that of dimension, buyers remained hesitant to cover more than their immediate needs with hand-to-mouth purchasing. So people aren’t buying ahead to fund their inventory. A lot of it is cash flow. Sometimes they’re a little hesitant to buy high and maybe the price is going to go down, but a lot of it is cash flow. They don’t want to have materials sitting there that aren’t going to be producing net profit if the demand is low.

Let us know what you’re seeing in your neck of the woods with lumber prices and how it’s affecting your operations as a contractor.