Stick Trade Blog

Lumber Prices for Hardwoods and Sof...

Posted August 10th, 2011

Future lumber prices for Jan 2012 were down 4% today (CME 8/10/11) and listed at $245.90. In looking the lumber news from 2010 & many experts were predicting 2012 to be the breakout year for lumber supply and demand. So what will 2012 bring? The data now appears to say that 2012 will not be a breakout year for hardwood lumber or softwood lumber demand. So what do the Ti Leaves say? The biggest leaf on the tree is housing starts and these are still and will will probably remain low for 2012. The annualized figure for June 2011 is 624,000 and 2012 we be maybe slightly higher. So what is a healthy housing start number for the lumber industry? Well, from 1995 through 2005 the average figure was about 1.66 million annual housing starts and to get back to semi-normal this figure should be a above 1 million. While hardwood lumber including red oak and white oak, maple, hickory and cherry are more resistant to fluctuations in housing starts than softwood lumber, new housing still stimulates demand for hardwoods via cabinets, flooring and other millwork products. The factors limiting housing starts continue to hinder the economy. These include a high unemployment, high foreclosures and low consumer confidence. According to RealtyTrac foreclosures were 222,747 for June 2011 and this number is still high. Unemployment is another thorn in the side of the housing market. Generally, it is good to have a job to buy a house and, even if a person has a job, the consumer needs the confidence that that job will last. Yesterday (8/9), a very wise man on economic matters, Fed Chairman Ben Bernanke, announced he would keep interest rates at the lowest possible level until mid-2013. In plain English the guy is saying he expects things to be bad for awhile. The decline in housing starts has led to a decline in lumber production. U.S. lumber production has declined from 51 billion board feet in 2005 to 29 billion board feet in 2010. The 2011 figure may should be similar to 2010. So where is the sunshine in this storm? As we have said before, it is in global markets. The value of lumber exports through May 2011 are up 30 percent over the same period of 2010. The leading export markets in order are China, Canada, Mexico, Japan, Italy, and Vietnam. Mills and dealers that are exporting are thriving from a weak US Dollar, which makes U.S. lumber cheaper abroad. The sawmill and forest products industry is now in a totally different dimension than it was 10 years ago. Exporting should no longer be considered a choice, but an essential business strategy. If a mill or lumber related company does not want to export directly that is fine. But find a company to partner up with that has expertise in global markets. A good place to start is by joining the Softwood Export Council or the American Hardwood Export Council. These entities can help sawmills and lumber traders started with exporting. Remember, above every cloud is a sunny day.

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