December 10, 2018
Wood products prices have been declining relentlessly over the last couple of months, regardless of the product. While lumber led the way initially, panel prices declined to price lows that have not been seen for three years. For example, ½” 4-ply CDX, the benchmark for our production, printed at $354/msft, down from a summer high of $550, a decline of 36%. The magnitude of price adjustments is brutal for companies like ours that purchase our contract timber at current market prices but hold the contracts for longer term durations, typically three to five years. Open market log sellers are also reluctant to give on pricing until it is obvious that markets will not support additional price increases. Lumber prices have begun to improve, which is hopefully an omen of good fortune for panel markets.
Panel Production Slows to Adjust to Price Declines
Panel sales are still somewhat lethargic, but showing signs of life. Price generally brings buyers in at some point and these prices are no exception. Producers are beginning to bow their backs against additional price declines by taking production off the market. Some panel producers have moved to four-day production schedules quietly while others have announced or planned long term downtimes during the holiday season. All are trying to reconcile the cost of a leisurely declining log price to the more rapid product price declines in the market.
Veneer Markets Begin Price Corrections
Veneer soon followed suit in price declines, although delayed in relation to panel prices. Veneer has corrected from a historical high Random Lengths print price of $78.50 to $68.50 currently, a 16% correction. While there may be more price corrections in the near future, we are experiencing a gradual improvement in our markets for veneer. Volumes of our products are increasing as we approach the end of the year. LVL grade materials typically pick up toward the end of the year as export products are ordered and producers begin building volumes for the new year. We have a bit more flexibility than other veneer producers considering we can produce 9’ and 10’ veneer, which seems to have remained strong in finished product markets.
Foreign Producers Take a Bite Out of the US Panel Market
Imports, specifically from South America, typically decline a bit during the first quarter of the year as Brazilian and Chilean producers target Europe with open quotas and slow US markets. So far this year, foreign panel imports have hit a historically high volume of 2.150 billion feet. This is a 75% increase over last year and represents over 20% of the entire US panel market consumption!
Housing Market Begins to Shift
The Federal Reserve’s gradual rate increases are starting to impact housing affordability and leading to decreased home sales. The housing supply available for sale has increased to 7.2 months at the current sales rate, which is the highest inventory since 2011.
End of Year Updates at Freres Lumber Company
The end of 2018 is as unpredictable as ever. Our plywood plant has previously scheduled downtime, anticipated to be down from December 22nd to resume production January 7th. Our veneer and drying operations will produce market dependent, but we have projects at each facility that will reduce operating schedules regardless. Please discuss operating schedules with your supervisor as we get closer to the Christmas holidays.
On behalf of all of the Freres family, thank you for everything you do. We wish you all the best and plenty of family fun during the holiday season.