Lumber prices were stable earlier this year before COVID-19 entered the economic picture. As you already know, the pandemic shut down a lot of industries and sectors of our economy. Among those shutdowns were new residential construction, which happens to be the largest consumer of southern yellow pine (SYP) in the United States.
The nature of the shutdowns created a lot of uncertainty. That uncertainty significantly disrupted the perception of the demand and consumption of lumber in the future. In other words, the uncertainty caused by COVID had a lot of really smart people believing that the demand for lumber in the near future would be very low. As a result, lumber production immediately stopped to meet that collapse in demand.
In short, the residential construction industry shut down and no one knew what things would look like on the other side of COVID. We didn’t know how long we’d be shut down or how devastating the virus might be on the population. No one knew if there would be a bounce back, and that meant that the logging and milling of lumber shut down with no idea of when it would open back up.
In the meantime, other industries, like the industrial lumber and packaging industry, were all depending on surplus SYP and hardwood inventories to get through the crisis. New wood wasn’t being produced. Logging and milling came to a complete standstill, and lumber prices remained stable because demand was very low.
Fast Forward to Q2 Lumber Prices
In the second quarter of this year, lumber prices made a big comeback, jumping nearly 60% as new home construction began to rebound. The demand for SYP was back up, in addition to a large backlog of existing business on the books from before the pandemic.
A lumber comeback is great, but the problem is that you can’t just flip a switch to restart production. It can take weeks to bring sawmills back online after a complete and total shutdown. Workers must be rehired, equipment retooled, and the wood supply chains must be rebuilt. SYP logging must restart, transportation to bring those logs into the sawmills must be newly acquired, and the lumber treaters must get their plants up to full operation again.
It all takes time to flip the production switch back on.
By May, new residential construction grew 4.3% and new home sales climbed 17%. The demand for SYP continued to grow through the second quarter, as Canadian lumber shipments to the U.S. were also down by almost 19%.
All of this led to increased demand, but a limited supply – which of course means that SYP lumber prices were continuing to rise.
The DIY Wrinkle No One Saw Coming
We were already poised to see higher SYP lumber prices throughout the next quarter, as we wait for sawmills throughout the country to get back to full production. But then we saw something unexpected that added significantly to the demand momentum.
Quarantined homeowners had been flocking to the big box stores and lumberyards in droves to purchase supplies for new projects during the pandemic. In most areas of the country, these types of businesses remained open throughout the shutdowns, and many of the people stuck at home decided to productively use their quarantine time.
Pandemic DIY projects took a huge chunk out of the lumber inventory available during the shutdowns.
That increased the demand for lumber and made the shortage worse, which in turn pushed lumber prices even higher. If you’ve been into one of your local big box stores lately, you may have noticed that a lot of the dimensional lumber shelves are bare. To make matters worse, restaurants and bars are racing to install outdoor seating areas so that they can increase their seating capacity, while maintaining social distancing policies.
Lumber retailers have seen some items increased 25% to 50% since April. Other items, like 2×4’s and plywood, are almost impossible to get right now – and that’s not just in the big box stores. Nation-wide, lumber supply is scarce and lumber prices are soaring. According to the Wall Street Journal, “Lumber for July delivery settled Thursday at $499 per thousand board feet while the more heavily traded September futures ended at $481.90. Both are above the pre-pandemic high of $463.00, set during the hottest home-building market since 2006. Lumber futures seldom trade above $450.”
According to the Southern Illinoisan, lumber for July delivery nearly doubled the price from April 1st, hitting $525 per thousand board feet on July 10th.
What To Expect The Next Few Months
Lumber futures are up over 85% since April 1, and lumber prices continue to trend up. Until we see signs of slowing demand and production can catch up with existing demand, prices won’t level off. Some experts expect high prices to remain throughout 2020, while others expect a correction heading into the November election.
So where does that leave the industrial wood and packaging industry?
As you know, the industrial wood industry uses the lower grade that’s left over after all of the higher grade lumber is taken out of a log. Unfortunately, the fact that we use a lower grade of industrial wood doesn’t really help us during this type of shortage. The increased demand and supply shortages hit our industry pretty much the same way it hits construction and other lumber dependent industries.
And that means that supply is very tight and prices are high. In fact, there are some cuts of wood, like 2×4’s that we’re having problems sourcing in the short term. Fortunately, we have the ability to rip other sizes of dimensional lumber in our plants to create 2×4’s and meet customer needs. It’s also difficult to get your hands on plywood right now. New construction uses it extensively, and DIY projects hit it pretty hard too.
The one thing that gives Conner a leg up over a lot of other packaging businesses is that we have very good relationships with sawmills all over the country. We also have contracts in place with many different sawmills and wood production plants. We’ve been doing this for nearly 40 years, and some of our relationships are that old too. This kind of unprecedented situation is when those kinds of business relationships really pay off, and we’re seeing our lumber partners really working hard to help us get ahold of the lumber we need.
If lumber is available out there, we can usually get it for our customers, so don’t hesitate to reach out to us.
Lumber shortages – just add that to the list of things that has made 2020 a very interesting year. Fortunately, these unprecedented shortages, and the high demand that has caused them, will eventually pass. You can expect lumber prices to be high, across the board (pun intended), but most experts believe we’ll see the market level back out by the end of the year.
In the meantime, hang in there. We’ll do everything we can to get you through this unprecedented time and help you get the lumber you need.