Lumber futures are contracts that allow you to buy and sell a specific amount of wood that has been cut into beams and planks in the future. A futures contract is a legally binding agreement between two parties to trade a commodity for a fixed price at a future date.
What is the price of lumber futures?
One tick costs $0.10 per MBF in timber (one thousand board feet). The high and low prices during the first 30 seconds of trade are included in the opening price range for a contract month. The average of the high and low prices during the last 30 seconds of trade is the closing or settlement price for a contract month.
How do lumber futures contracts work?
If the contract month is equal to or between the current bid and the current ask, it settles to the last trade/prior settle. Tier 3: The contract settles to the prior-day price if there is no trade activity or bid/ask in the expiring contract month during the current trading day.
Will the cost of lumber fall in 2021?
Lumber prices have risen again in the United States over the previous month. Since the start of the COVID-19 pandemic, the price of lumber has been volatile, sharply plunging and unexpectedly soaring during the last two years.
Despite a brief drop in pricing in the new year, lumber prices have risen steadily throughout February, reaching $1,272 per thousand board feet, the highest level since summer 2021.
According to the Labor Department’s most recent producer price index report, softwood lumber prices increased by a stunning 25.4 percent in the month of January alone.
Will the price of lumber fall in 2021?
- By 2022 or 2023, lumber prices are likely to return to their previous levels. This does not, however, imply that the lower prices are simply transitory.
- Once lumber prices stabilize, the price reduction will pave the path for new technologies and construction techniques. This could result in a number of positive developments for American households.
- Even if timber costs rise again in the future, homebuilders should expect to see a considerable increase in the affordability of housing and other construction projects for years after 2021.
- Outside of the property sector, the price decline has created new business prospects. Lumber prices have decreased to the point that they are now cheaper for industrial usage than some forms of paper and plastic. This means that switching from old methods will save firms a large amount of money on raw materials.
- Many experts across the country have dubbed 2021 “The Year of Timber,” predicting that the lumber trade will be the most critical element in determining the housing market’s future.
- Lumber prices are projected to climb once more, but only slightly. This indicates that if homebuilders and real estate developers take advantage of their cheap rates now, 2021 might be a terrific year for them.
- This decrease in lumber costs is good news for the housing market, and it does not portend negative news for the rest of 2021.
- Lumber prices are likely to recover to former levels by 2022 at the earliest, giving homebuilders and real estate developers plenty of time to take advantage of the current low pricing before they skyrocket.
Will the price of lumber fall in 2022?
The United States is the primary driver of softwood lumber demand in North America. Softwood lumber consumption in the United States increased to 50.93 BBF in 2020, and we expect it to rise to 52.76 BBF in 2021, the highest level since 2006, and 53.87 BBF in 2022. Residential-improvement sectors, which will benefit from years of robust home sales, drove growth in Canadian lumber consumption. However, as the Canadian currency strengthens, the manufacturing sector will be harmed, thus we predict consumption to decline year over year from the fourth quarter of 2021 to the second quarter of 2022, before rebounding throughout the balance of the forecast period.
North American offshore exports fell by about 24% year over year between the second quarter of 2019 and the second quarter of 2021. As the global economy strengthened last year, we expect offshore lumber exports from North America to fall slightly less in 2021, perhaps 9.8% less than in 2020. (compared with a 25.7 per cent decline the previous year). Because of robust domestic demand, high prices, and competition from Europe, we estimate export growth to continue poor, decreasing another 1.6 percent in 2022.
The supply of lumber is made up of domestic capacity as well as imports. Early in 2020Q2, lumber demand and prices plummeted. Mills cut capex as a result of this, as well as the uncertainty surrounding the COVID-19-induced slump. As a result, capacity fell marginally in 2020. Pricing rose unexpectedly, and mills began investing to take advantage of the higher prices. This will result in a 1% increase in capacity in 2021-22. Over the next two years, significant additional capacity and expansions at existing facilities have been announced. Due to constraints on machinery manufacturers and mill labor, this capacity will ramp up slowly.
Offshore imports into the United States climbed nearly 40% in 2020, and with demand and prices soaring in early 2021, offshore imports are predicted to rise another 13% in 2021. In 2022, we anticipate a 9% increase in growth.
The predicted surge in imports is due to multiple factors, including strong North American consumption and high pricing; capacity constraints in Canada; ample, low-cost fiber supplies in central Europe; and the strong US currency. For a thorough description of the fiber supply problem in central Europe, see the FEA research Central European Beetle and Windstorm Timber Disaster.
Due to a combination of declining residential-improvement markets and the regular seasonal reduction in end-use market activity, demand for U.S. mills (consumption plus exports minus imports) has fallen off its seasonal peak, and we estimate demand for U.S. mills to continue weak through February. Putting it all together, we predict total demand at North American mills to rebound by 3.3 percent last year after being unchanged the previous year, and to grow by another 1.1 percent this year.
In the first half of 2020, capital expenditures came to a halt. Capacity growth has stalled until 2021 as a result of this. Meanwhile, demand was strong in the first half of 2021, and it expanded rapidly. Operating rates rose to 87 percent for the year as a result of this. In 2022, demand will continue to rise, but capacity expansions following the price spike of 2020-21 will start to come online. As a result, the demand/capacity ratio will stay unchanged in 2022, at 87 percent.
We may now turn our attention to lumber prices after putting all of this together. Prices rose at the conclusion of the year. Part of this was due to severe supply delays caused by British Columbia’s unusually wet weather. However, part of the rise in costs was due to strong demand as warm weather across the country extended the building season, and dealers rushed to replace inventory, fearful of another price spike similar to the spring of 2021. The weather’s impacts will be transient. However, we expect prices to remain high through February for a variety of reasons.
Inventories are still low across the supply chain, and dealers will want to start replenishing them before the construction season begins in March-April across much of North America. Mills took a break over the holidays as well. Finally, the all-too-fresh memories of $1,000-plus pricing will keep purchasers in the market while output is hampered by log- and labor-supply shortages.
Supply restrictions in the United States’ South will boost lumber prices in early 2022. Mill closures in British Columbia were primarily compensated for by capacity expansions in the United States South. Wet weather and labor shortages, on the other hand, have hampered log availability and mill output. We anticipate a reduction in soil moisture content over the winter, with a La Nia year in 2021-22. This will make getting into the woods a little easier. Labor shortages are expected to last longer this year, since many people who left the industry at the start of the COVID-19 pandemic have yet to return, and we expect labor concerns to continue to stymie production.
While we expect prices to stay high into early 2022, we do not expect them to return to the levels seen in 2021. Capacity additions in the United States’ South, somewhat higher inventory levels heading into the year, and weaker residential-improvement activity will likely preclude a run like the one we experienced in 2021. Furthermore, we estimate prices to fall in the second quarter as dealers work through their stockpiles built in late 2021 and early 2022. We foresee another round of buying in the third quarter as residential-construction markets remain strong seasonally and cyclically; however, as more low-cost southern pine production comes online, prices in the second half of 2022 will average lower than in the first half of the year. In 2022, we predict the RLFLCI will average 645 for the year.
In the end, we predict lumber prices to remain erratic in 2022. There are several causes for this, the most important of which is COVID-19’s residual effects. Following the first outbreak of COVID-19 in the United States, a lack of buying and production drove dealer stocks to new lows. As demand climbed, there was insufficient inventory in the system to meet the growing demand. As a result, prices skyrocketed to new highs. Dealers stopped buying lumber at such high prices, causing their stocks to fall again. Low stockpiles will almost certainly force dealers to buy wood at higher prices than they wish, and those higher costs will encourage dealers to cease buying as soon as their immediate needs are met, causing prices to fall significantly. Over the next year, this cycle will repeat itself, resulting in extremely volatile prices.
Forest Economic Advisors (FEA) LLC, the main source for North American wood products analysis and information, has Paul Jannke as a principal. North American lumber markets are Paul’s main area of expertise. Paul is the industry’s top economic analyst, having spent nearly 30 years evaluating lumber markets and giving dependable, intelligent forecasts. He wrote the FEA publications Lumber Advisor and Lumber Quarterly Forecasting Service.
Why are lumber costs in 2021 so high?
Lumber prices have been extremely erratic this year. Lumber prices jumped to an all-time high in May, spurred by historic levels of demand and escalating supply chain concerns, after steadily climbing through the end of 2020 and the beginning of 2021.
The cost of wood gradually began to revert to historically average levels throughout the summer, providing relief. That appeared to be the end of the roller coaster journey that lumber had been on. However, lumber prices are beginning to rise again, causing further alarm.
From the beginning of September to the middle of October, lumber prices climbed by more than 60%, from less than $500 to more than $700 per thousand board feet. This rise caused the National Association of Home Builders (NAHB) to write to the White House, requesting that the federal government take further steps to address specific supply-chain limitations.
In an Oct. 6 letter to President Biden, NAHB board chairman John C. Fowke said, “We applaud your decision to study the building supply chain issues affecting the United States and greatly appreciate your efforts to improve transportation and logistics by easing the hours for transportation workers involved in delivering goods.”
What is causing the rise in lumber prices?
The Canadian forestry company West Fraser Timber Co. Ltd stated in November that weekly exports in Western Canada had dropped by as much as 30%. Because Canadian woods and lumber mills supplied more than a quarter of the lumber to the American market, these interruptions had a significant impact in the United States.
Another environmental concern is the beetle infestation that has plagued Canada since the 1990s. Mountain pine beetles bury their eggs beneath the bark of softwood trees by females. Their larvae eat away at the tree until it dies over time. Mountain pine beetle outbreaks resulted in the loss of more than 750 million cubic tons of pine wood, according to the Canadian Forest Service.
Increased tariffs
An increase in tariffs on Canadian timber imports into the United States is one of the most major economic factors driving higher lumber prices. The US Commerce Department boosted taxes on Canadian softwood imports to 17.99 percent on November 24th, more than doubling the previous amount. The construction industry in the United States was outraged by this.
Why is OSB so costly?
This method is repeated until enough layers have been added to achieve the required thickness.
After that, the makers cut the board to the suppliers’ specifications.
The engineering process for OSB can be costly because it requires a lot of resources and time.
Because the engineering process requires a lot of time and effort, the product is more expensive to produce.
Thickness
Interior walls use the thinner OSB planks, whereas exterior walls, floors, and even roofing use the thicker planks.
Some builders would use 15/32″ thickness for improved endurance in areas where there is a lot of snowfall or storms.
If you require a large number of thicker OSB planks, the cost of your project may rise dramatically.
Labor Shortages
Labor shortages in a variety of industries are undoubtedly adding to the price of OSB.
There are various reasons for labor shortages, including the COVID-19 pandemic and a desire to find better work.
In the lumber sector, some people chop wood and send it to a mill to be processed.
There were fewer individuals available to cut down trees and distribute them due to a labor shortage.
Another area where labor shortages have influenced the pricing of OSB is the factory itself.
Workers must process the lumber’s wood chips and begin the production process after it arrives at the mill.
Many of these factories were also shut down by COVID-19 because they were deemed non-essential.
Those that were able to keep their doors open had to do it with fewer personnel.
There were fewer boards processed each day since there were fewer staff in the factory.
Many industrial workers chose to leave their positions for a variety of reasons, including better salary, better benefits, or just to alter their career path.
Any time there is a labor shortage, it means less things are produced, from lumber workers to delivery drivers.
Because of diverse labor shortages across the country and around the world, OSB is pricey.
High Demand
Because of its widespread application in construction, OSB has always had a high demand.
With more people working from home, they were able to focus on long-overdue household projects.
Others wanted to finally fix things around their house that they hadn’t had time to fix before.
Because OSB is used for both structural support and framework, it was necessary to employ it.
More people were buying OSB as more DIYers attempted to renovate and repair their homes.
Suppliers are still battling to fill the hole that bulk shopping created, despite the fact that demand for it has dwindled as workers return to in-office employment.
Builders are always in need of OSB, therefore suppliers don’t have the time to fill the void created by everyone else buying OSB at the same time.
The price of OSB will remain high until they can create more and meet demand.
Because of the high demand for OSB during the pandemic, it is costly.
Wildfires
As if the pandemic wasn’t bad enough, wildfires have been on the rise in recent years.
Trees used for lumber are burning in California, Canada, and the Amazon, among other places.
When there is less rain in a given location, the wood and debris become exceedingly dry.
Thousands of trees that would have been utilised in the lumber sector are destroyed by the wildfire.
Lumber firms can only chop trees on a certain amount of land, therefore if that land becomes unavailable for a period of time, they are unable to cut trees anywhere else.
Instead, they must either wait for firefighters to arrive or for the fire to extinguish themselves.
Meanwhile, they are unable to cut any more trees or bring in any factory supplies.
Because timber firms are unable to process wood during that time, there is a scarcity.
OSB is more expensive as a result of recent wildfires, which have caused delays and reduced the number of usable trees to cut.
Seasonal Shopping
The most expensive times of the year to acquire OSB are in the spring and summer.
Everyone is outside and using OSB, whether it’s DIYers, government workers, or private builders.
Because demand for OSB rises in the warmer months, the price of the boards rises as well.
Because snow and cold temperatures are common in many parts of the country, construction projects are either halted or completed before the season begins.
The price of OSB drops slightly in the winter since there is less demand for it.
OSB is more expensive in the spring and summer because to increased demand.
Home Building Increased
One of the effects of the epidemic was a temporary drop in mortgage rates.
The government ordered banks to lower their rates and halt evictions in an effort to keep people in their homes.
For people who had always wanted to buy a home but were put off by the high mortgage rates, a chance presented.
More families were able to relocate outside of the city as a result of the change to working from home.
They were looking for houses with a good yard and a fair distance from their neighbors.
As a result of the lower rates, more families are looking to buy new homes, which has increased demand for OSB.
The price of OSB soared as suppliers were unable to supply the growing demand.
Slow Mill Expansion
The time it takes to build a mill and get it up and running is estimated to be two years.
They don’t want to take the chance of building a new mill and hiring additional employees only to have to close it down because they can no longer afford it.
Because OSB is so tightly related to the housing market, it’s difficult to predict what demand will be at that time.
Because it takes a long time to expand lumber mills and boost supply output, OSB is expensive.