Your Survival Guy’s been watching lumber prices. I reported here and here that much of the increase was due to a bottleneck at sawmills. (There’s plenty of trees, just no excess capacity at the mills creating finished lumber.) Lumber futures reached a high of $1,711.20 per thousand board feet in May. On Tuesday, July futures were down to $1,009.90, off 41% from the record high.
Ryan Dezember reports in the WSJ:
The rapid decline suggests a bubble that has burst and the question is how low lumber prices will fall. Even after tumbling, lumber futures remain nearly three times what is typical for this time of year. Lumber producers and traders expect that prices will remain relatively high due to the strong housing market, but that the supply bottlenecks and frenzied buying that characterized the economy’s reopening and sent prices to multiples of the old all-time highs are winding down.
If you want to know the real story behind the price drop, then simply follow the money as executives, in other words, insiders, sold stock suggesting peak lumber prices are in the rearview mirror, notes Ben Silverman of InsiderScore as reported by Dezember.
One reason for the selling is something we can all relate to from the last year of Covid: HOARDING. The big players who need lumber to build houses hoarded plenty of it. Now, as any rational operator does, they’re selling at the top, as those big buyers turn into SELLERS.
What does this mean for housing and the real estate market? Dezember continues:
“I don’t think $1,000 lumber prices are the new normal,” Devin Stockfish, chief executive of lumber producer Weyerhaeuser Co., told investors at a conference last week. “But that being said, when you think about the amount of housing that we’re going to have to build in the U.S. over the next three, five, 10 years, that’s just a significant amount of demand for wood products.”
At the same conference, executives from lumber producer PotlatchDeltic Corp. said they expect lumber to trade in a range of $700 to $800 through next year. That is still more than the pre-pandemic record of $639 and is based on their estimation of the price that mills in British Columbia need to break even sawing North America’s most-expensive logs. Prices below that could prompt mills in Canada to dial back output or shut down, which would eventually force prices higher to meet demand, they said.
Action Line: Markets are emotionally charged beasts, absolutely impacted by the madness of crowds. Prices don’t need to be rational. Only a year ago we witnessed the run-on toilet paper, an exodus from cities, and a new normal of hybrid work from home as FEAR set in and Americans looked for SAFE places to live and work. Stick with me as these trends unfold you’ll have a front-row seat. Sign up here.
P.S. Fire! Run for the exits! Another big bank has entered the carbon credit markets. I bet this is more about EGO than saving trees. It’s a perfect Wall Street creation: offer a way for the elite to offset their private jet wash by scrubbing it clean with carbon credits. Read more here.
P.P.S. Your Survival Guy’s on the pulp, I mean pulse. You know about the bubble that’s popped in lumber prices. That’s old news. It’s the same old story that goes like this: Government creates an incentive to grow trees on depleted farms in the south and boom, trees everywhere. The financial crisis hits, demand plummets, sawmills are shuttered. Then Covid, boom again, but not enough finished lumber. Prices go up, big owners of finished wood sell into the market, bubble deflates. Rinse and repeat. Read more here.
E.J. Smith - Your Survival Guy
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