Mmm. What is going on? On May 17 lumber futures fell the most allowed by the CME. What I believe is that the markets are now realizing that, with the expiration of the housing tax credit, the pool of potential homebuyers has dried up. The Random Lengths composite index dropped to a five week low on May 14. Add to that the bleak economic news from Europe. According to Bloomberg, on May 18 the Standard & Poor’s 500 Index of equities dropped as much as 1.8 percent today on concern that Europe’s debt. According to Bloomberg, “lumber futures for July delivery fell by the CME’s one-day limit of $10, or 3.8 percent, to $251.30 per 1,000 board feet in Chicago, the lowest level since Jan. 29. The price has plunged 25 percent since reaching a nearly four-year high of $337 on April 21.”
However, the recent price drops do not take away from the fact that forest products companies, generally, had a stallar first quarter. Prices WERE up and 1st quarter 2010 forest products company announcements were overall positive. As an example, according to random lengths, the composite price for framing lumber is rose to $367 per thousand bf in the 1st quarter, which is 75 percent higher than the 210 level of one year ago. This rise in prices is benefiting larger forest products firms that can ramp up large production volumes to reap the benefits of higher prices. This is seen in the first quarter earnings results of forest products firms. We offer a few examples below taken from conference calls announcing 1st quarter financial results.
Weyerhaeuser Company
Weyerhaeuser reported a net loss of $20 million for the first quarter, or 10 cents per share, on net sales of $1.4 billion. This compares with a net loss of $264 million, or $1.25 per share, on net sales from continuing operations of $1.3 billion for the same period last year. Weyerhaeuser reported that, ‘Wood Products earnings were $60 million higher than in the fourth quarter. This improvement was due to
higher lumber, OSB and hardwood price realization and lower unit manufacturing costs, offsetting some of the improvement were higher logs costs’.
Plum Creek
Plum Creek reported in an investor conference call that
‘We are pleased with our first quarter results. Sawlog and pulpwood prices were better than
expected,particularly in the U.S. South.We increased our Southern pulpwood harvest above our initial plans to take advantage of very attractive spot market
pulpwood prices. Real estate segment sales were $4 million above the top of our guidance for this segment. Manufacturing posted better than expected results.
Our business has continued to do a very good job managing costs. Our customers have experienced some significant improvement in end-product prices.
For example, first quarter structural panel index prices were up 22% from the first quarter of 2009.
Framing lumber prices rebounded 51% over the past year. These gains have extended into the second quarter.
Structural panel prices are now 51% higher than the first quarter of 2010 average and premium lumber prices are 23% higher.
Pulp and paper product prices are on the rise as well.These improved prices have increased our customers’ ability to pay for logs and that has translated into higher prices for both sawlogs and pulpwood. We appear to be in the early stages of an economic recovery but risks remain. We believe a portion of the lumber and structural panel price rally we are experiencing is a fairly classic inventory cycle as the inventory shifted its stance from inventory liquidation in late 2008 and 2009 to inventory restocking over the past several months. However, the efforts to rebuild inventories have been hampered by constrained log supplies in the U.S. South due to wet winter weather.
Mohawk Industries
Mohak Industries reported in their 1st qtr earnings conference call that, ‘Our first quarter earnings per share were $0.30, which exceeded our expectations. Earnings per share were $0.35, excluding restructuring charges of
$4 million from activities we initiated in 2009. Our earnings were higher than expected as the economic cycle has bottomed and we had more favorable cost reductions in foreign exchange. First quarter sales were $1.3 billion, which was a 2% increase from 2009 adjusted sales or a 1% increase with a constant exchange rate. As discussed in the quarter, we have four more shipping days or about a 6% impact. Residential vacancy rates have peaked, home prices have stabilized and housing starts continue to improve. In addition, the forecasted U.S. population growth indicates long-term housing demand will continue to increase. Our first quarter sales were flat, compared to the fourth quarter due to an improving residential business.’
Pope Resources
David L. Nunes, President and CEO of Pope Resources reported that, “Despite continued weak domestic housing starts, we were encouraged by improving market dynamics in both domestic and export log markets,”
said . “Domestic sawlog prices improved by 3% to $459 per thousand board feet (MBF), or $13 per MBF, relative
to the first quarter of 2009 and by 14%, or $58 per MBF, relative to the fourth quarter of 2009. This improvement is a function of inventory restocking throughout the lumber distribution channel as well as increasing demand from Chinese and Korean log buyers. We responded to these
improved market conditions by moving more of our planned harvest volume into the first quarter. Given the improvement in log markets, we intend to continue harvesting more than planned, as we did in the first quarter to take advantage of higher prices, and will do so the rest of the year if market conditions stay constant or improve.”
In conclusion, previously I quote myself as saying “higher lumber prices should continue to benefit the industry”. But I think I need to adjust this. Lumber prices are going up down and around like a roller coaster. Long term the question remains, can people without jobs or that are constantly under the fear of losing jobs buy houses? It may be awhile before jobs and just as important confidence returns to the market. People may opt to rent until their income generating confidence returns and they feel housing prices will appreciate. Afterall, why make the biggest investment of your life if you see further depreciation in housing prices. Confidence is the key. Confidence in the general economy, the housing market. the global market, the job market, etc, etc.
