Columnists, Darren Satsky, Lumber Market Report, V2I6

True Story of the Market — Lumber Prices

It’s a normal Tuesday in the lumber market.

Well, not quite. It’s a presidential election in the United States.

I am answering customer emails and speaking with customers on the phone as usual, but what is also not normal is that many of you are not looking for lumber to buy today. That tells me that you have sufficient inventory, your business is quiet, or both. My hunch is that you are busy and waiting for cheaper lumber prices.

Actually, many of you have told me that this has been a very strong year for shed sales.

Quite a few of my emails and calls are from mills looking to move their inventory with subject matter “specials” and “I need a home for these.” Some emails are from stocking distributors stating that today’s prices are “some of the best values we will see for some time.”

The point is that sellers already believe lumber is cheap, (and not going much lower), and buyers already believe that lumber is fairly expensive (and will probably go lower). Some on the lumber sell side are pessimistic about the fourth quarter business prospects.

The reality is that lumber prices always tell the true story of how the market is doing. So, here is what I see and know.

Retail and wholesale expectations are bearish. As a result, inventories are at medium to low levels. Cash prices have weakened, but not below recent trends. High-grade lumber is in demand, and now commands a higher premium relative to common grades. October and November are normally good times to buy cheaper priced lumber.

The cost of buying Canadian SPF lumber will be higher next year compared to last year as a result of the termination of the Softwood Lumber Agreement. Who will pay the higher cost is yet to be determined. My guess is it will be a combination of U.S. buyers and Canadian sellers.

The stated goal of the current negotiation is to cap the amount of lumber exported to the United States. In the past this has resulted in either a tax on imported Canadian lumber, some type of quota system, or both. It does not appear that a deal will get done this year.

Furthermore, the United States will move to protect its own lumber mills. If a negotiated settlement is not reached, I expect to see some heavy penalties enforced under U.S. trade laws.

The best outcome will be for a negotiated settlement as this will give us all some amount of certainty going forward with our lumber buying plans. My guess is that Canada will probably be fine with approximately 30 percent market share. We are waiting for the most recent trade data, to reveal just how much market share Canada has taken.

Let’s remember that we in the United States need their valuable products to fill our lumber requirements. Too high a tax, and mills will shutter operations. A negotiated deal that allows for ample supplies is the best outcome.


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