Length at Random Lumber futures contracts (LB) are traded in 2 x 4s of various lengths ranging from 8 to 20 feet. The Chicago Mercantile Market (CME), the first exchange to offer price protection to the forest products industry, trades lumber futures. Western Spruce-Pine-Fir is the primary deliverable species, and mills must be located in Oregon, Washington, Idaho, Wyoming, Montana, Nevada, or California, or in the Canadian provinces of British Columbia or Alberta.
Lumber prices have fluctuated dramatically in recent years as a result of supply and demand imbalances. Due to mill closures, the spotted owl debate, and other environmental concerns, domestic lumber supply have been limited. Lumber supplies in Canada have been constrained as provinces strive for sustainable yields, in which just enough trees are removed to replace them in 40 or 50 years. Housing starts have varied from record highs to 36-year lows in the last decade, owing in part to economic conditions and interest rate policy.
Is it likely that lumber prices will fall in 2022?
When COVID-19 first hit in early 2020, most timber suppliers cut production, assuming that the broader economic environment caused by widespread lockdowns and uncertainty would delay building activity and, as a result, diminish demand for housesand, as a result, wood.
Instead, home purchases and remodeling increased as a result of the development of remote work, which coincided with the entry of millennials into their peak home-buying years, creating a perfect storm that the lumber sector had not anticipated. Construction didn’t slow down though, since the industry was immediately designated “vital” by regulators.
In 2020, prices for the critical home-building commodity skyrocketed as a result of this. However, by mid-2021, the price of lumber had plummeted as the industry’s output had stabilized.
The recent timber price increase, according to David Logan, senior economist at the National Association of Home Builders (NAHB), is due to many factors:
- Supply chain constraints for framing kits are causing more builders to postpone their projects.
- In November 2021, severe flooding took away some infrastructure in southern British Columbia and Washington (two major lumber production areas).
High lumber tariffs, together with growing home demand, are also causing the spike in timber prices, according to Zach Fritz, an economist with Associated Builders and Contractors.
The US Department of Commerce said in November 2021 that tariffs on softwood timber imported from Canada would rise from roughly 9% to 17.9% in 2022. Fritz pointed out that this is a little reduction from the previous administration’s 20 percent lumber tariffs, which were reduced to 9% in December 2020 in the face of historically high lumber prices.
Demand for new housing
Housing starts also hit their highest level since September 2006 in November 2021. “Several factors, including the influx of millennials into the housing market, retirees downsizing, Americans migrating in large numbers from the Northeast to the South and Southwest, and pandemic-induced shifts from urban to suburban living, have boosted demand for new housing to levels not seen since the mid-2000s,” Fritz said. “Because lumber is a key component of residential building, accounting for roughly one-sixth of the total cost of a home, demand has skyrocketed.”
The trends that are driving up lumber prices aren’t going away anytime soon. The lumber tariff issue between the US and Canada stretches back to the early 1980s. Permits for new residential building have remained near their highest level since 2006, despite historically low housing inventories.
“With tariffs in place and home demand expected to outstrip supply for some time,” Fritz added, “expect lumber prices to remain high for the foreseeable future.”
The United States uses lumber to construct more than 90% of its single-family homes, a much larger percentage than the rest of the globe. In the United Kingdom, for example, only approximately 20% of single-family homes are constructed with lumber. This trend will not reverse very soon, according to Fritz, because the two main substitutessteel and concretehave also suffered rapid price hikes in recent months.
Board feet prices 254% higher than pre-COVID price levels
Logan noted at the time of writing, “Futures markets anticipate that lumber will remain above $1,000 per thousand board feet until September 2022.” Logan and other industry observers can only point to futures pricing because NAHB does not publicly forecast commodities prices.
The huge increase in the cost of building materials has resulted in project delays and cancellations across the country. According to Logan, the data shows that the number of single-family units sanctioned but not started is at its highest level since April 2007. Furthermore, single-family starts have climbed by 31% since January 2018, while the number of units permitted but not started has increased by 70%.
Logan went on to say that interest rates, which have already begun to climb this year, are anticipated to rise further through 2022, creating a headwind for the construction industry, which has benefited from supportive monetary policy since the outbreak began.
What factors influence the price of lumber?
Our lumber prices are calculated by board feet (BF). A BF is a measurement unit that measures 1 inch by 12 inches by 1 foot. Calculate BF the same way you would a regular board, then divide by 12. For example, to find out how many BF are in a 4 x 6 x 10, multiply the numbers together: 4 x 6 x 10 = 240, then divide by 12 to get 20 BF. To calculate the price, multiply the BF by the price/BF, which in this case is $.80/BF, resulting in a price per piece of $16.00.
Some of our standard sizes and costs in Pine and Poplar lumber have already been computed for you in the chart below.
The price per BF is listed in the first column.
The size of lumber is the following subgroup. The BF is the next column, and the price per piece is the last column. If there isn’t a standard size on the chart, you can calculate your BF and then estimate where it would fall in the price range.
Our price per BF for Mixed or Red Oak is $1.50 for 4, 6, and 8 and $2.00 for 10 and 12. (the wider stock is more expensive per BF).
Is it likely that lumber prices will 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.
What does the future hold for random length lumber?
CME Random Length Trading Mills, wholesalers, homebuilders, and retail dealers can use lumber futures to control price risk and take advantage of price opportunities. Softwood 2 4s, the type used for repairing and building, are specified in the contract. Individual investors prefer lumber because of its price volatility and ability to watch the economy.
A futures contract binds two parties – the seller (the short) and the buyer (the long) to supply a standardized commodity within a specified futures contract month. For each contract traded, the quantity, quality, and location of the delivery point(s) are the same. Only the price is still to be determined until the buyer and seller have signed the contract.
Lumber Investing
That cash appeals to investors. Lumber prices are frequently erratic and unpredictable. Mill closures, environmental policies, and other factors might cause supply fluctuations. Demand fluctuates a lot, depending on interest rates and other economic factors that influence home starts. As a result, lumber prices fluctuate dramatically in response to supply and demand imbalances.
Lumber Futures Prices/Rates
Lumber trade contracts are made up of 110,000 bd. ft. of 2x4s of varying lengths (8 to 20).
1 point equals $.10 per 1,000 bd. ft., or $11 per contract, according to the pricing point definitions.
Lumber Futures Contract Trading
With the introduction of CME Random Length Lumber futures contracts in 1969, CME became the first exchange to offer price protection to the forest products industry. By establishing an equal and opposite position in CME Random Length Lumber futures, companies involved in the production, processing, marketing, or use of lumber and lumber products have been able to hedge their risk exposure and lower the risk of keeping or acquiring inventories.
Lumber Trading Strategy
Due to its great volume, big lumber moves. Almost every company in the distribution chain bets on the cash price of lumber. Because of the time gap between purchase and final sale, economic trends may generate unfavorable pricing fluctuations between each stage forest, mill, processor, wholesaler, retailer, builder, or end-user. The hazards are considerable, even if the lag is only a few days or weeks. According to the North American Wholesale Lumber Association’s data, its member companies have around a half-billion dollars in distribution inventories. A 2% reduction in the price of lumber may cost that sector of the industry more than $10 million.
Lumber Trading Major Indicators and indices
The months for which lumber delivery contracts are available are January, March, May, July, September, and November. The last day of trade is the business day before the contract month’s 16th calendar day. The last day of lumber trade is the business day before the contract month’s sixteenth calendar day.
Lumber Trading News
In North America, there are a variety of periodicals and sources for lumber trading information. To improve their trading profits, a lumber trader may be able to better comprehend the market by looking to different sources of information.
Lumber Trading Advice
Trading lumber for business expansion can be done without putting the firm at risk. Business growth hedges resemble price protection hedges in appearance, but they extend beyond the 30- or 60-day time frames in which such business deals are typically executed.
Following the development of a foundation of knowledge of the cultivation and processing cycles of lumber, lumber traders must comprehend how that information must be linked with an understanding of the economic variables that effect each phase of transporting the lumber from the forest to the jobsite. Traders must investigate the link between global economic conditions and lumber pricing and trends.
What is the distinction between lumber and boards?
The height and girth of the tree from which dimensional timber is milled determine the length of a unit. The maximum length is often 24 feet (7.32 m). Engineered wood products, which are made by fusing wood strands, particles, fibers, or veneers with adhesives to create composite materials, have more flexibility and structural strength than traditional wood building materials.
Because pre-cut studs are pre-cut by the manufacturer for use in 8-, 9-, and 10-foot ceiling applications, they save a framer a lot of time. This means the manufacturer has removed a few inches or centimetres of the piece to allow for the sill plate and the double top plate with no additional sizing required.
Two-bys (24s, 26s, 28s, 30s, and 32s), as well as the 44 (89 mm 89 mm), are standard lumber sizes used in modern construction in the Americas. They are called for traditional board thickness in inches. They serve as the foundation for constructions like balloon-frame and platform-frame houses. Softwood dimensional lumber is generally utilized for building, although hardwood boards are more commonly used for cabinets and furnishings.
The notional dimensions of lumber are bigger than the completed lumber’s standard specifications.
Historically, nominal dimensions were the size of green (not dried), rough (unfinished) boards that were subsequently dried and planed into smaller finished lumber (to smooth the wood).
Today, the mill cuts the logs to whatever size it requires to obtain the final specifications specified by the standards.
Because contemporary technology allows for more efficient use of the logs, the rough cut is usually less than the nominal size.
A “24” board, for example, began life as a green, rough board measuring 2 by 4 inches (51 mm 102 mm).
It would be smaller by an unusual amount after drying and planing.
Today, a “24” board starts out as something smaller than 2 inches by 4 inches and not specified by standards, and after drying and planing is minimally dimensionally dimensionally dimensionally dimensionally dimensionally dimensionally dimensionally dimensionally dimensionally dimensionally dimensionally dimensionally dimensionally dimensionally
Why is lumber so expensive?
Because of supply and demand, as well as the myriad factors that drive both, lumber is expensive.
Suppliers have struggled to cover the gap in lumber demand as well as meet existing demand for wood because to the COVID-19 outbreak and inflation.
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.