December 2017 Lumber and Commodity Report
LUMBER AND COMMODITY REPORT – December 2017
by Don Magruder, CEO of RoMac Building Supply
The Ro-Mac Lumber & Supply, Inc. Wood Commodity Index (Index) for mid-December dropped 10.4 percent over the last 30 days, and this is on top of a 9.2 percent decline from the previous month. The decision by the United States Trade Commission in the continuing United States and Canadian Softwood Trade dispute favored the United States and reduced duties a little, but it also added some degree of pricing uncertainty. This issue is not resolved, but it did weigh down the spruce markets. Winter weather and the seasonal slowdown is also having a negative effect on the markets.
If you are wondering why your profit margins on projects you built this year have declined, consider this. Since January 2017, the Index is up 36.8 percent with lumber increasing an ungodly 50.8 percent while sheathings added 25.7 percent. To make matters worse, these prices in December are off the highs of September and October.
As builders and suppliers, many of us did not do a good job getting ahead of these prices and, in many cases, tried to not accept them. This may be trite but something everyone in the supply chain must realize. Unless you are a mill or timber owner, you don’t own the timber and you don’t cut the lumber. Spend your energy managing and anticipating your cost increases instead of being in denial. These types of increases must be passed to the end user.
I expect pricing to be higher in 2018 for two big reasons—labor and trucking, which are expected to continue to escalate. Trucking is especially tough in Florida as carriers have limited access to hauling goods out of the state given the collapse of the citrus industry. In addition, there is an extra push of post-hurricane rebuilding in South Florida and the islands. Wood commodity prices could easily see $5-$10 upcharges on trucking.
The dimensional lumber portion of the Index dropped to $451.79 per thousand (or 6.1 percent) as spruce gave back increases across the board. 2×4-16 #2 western spruce dropped 7.0 percent while 2×6-16 spruce gave back 5.6 percent. 2×4-16 #2 treated pine jumped 9.9 percent as truss plants and treaters continue to feel the hangover from Hurricane Irma demands. Wide width pine was flat.
The sheathing portion of the Index dropped a whopping 14.2 percent as OSB sheathing continued its downward spiral from the hurricane highs of September. Over the last 30 days, OSB dropped $70 per thousand (or $2.24 per sheet) while CDX pine gave back $30 per thousand (or $0.96 per sheet). Oddly, the only price increase was 3/4” CDX, which added $45 and that is probably due to the mix and supply issue from the mills.
If the winter weather continues to ice the north as it is doing now, expect prices to stay down for the next few weeks. In late January to mid-February, builders should probably expect the higher cost of freight to begin pushing numbers back up as well as the suppliers getting prepared for the spring selling season.
This forecast is contingent upon no huge national event or political upheaval taking place, which could quickly change the fortunes of housing.
My best advice to builders is simple—do not use December’s pricing to bid projects in the spring. Other building material suppliers, such as window and door manufacturers, drywall products and shingle companies are already announcing spring price increases. Your local suppliers will not be able to hold prices because the price increases will be so across the board. Builders should have price escalation clauses in their contracts.
I would like to thank the builders, remodelers and subcontractors for supporting Ro-Mac Lumber & Supply. On behalf of our staff, I would like to wish you a very Merry Christmas and a prosperous New Year. Enjoy your holidays—you deserve a break.
Don Magruder is the Chief Executive Officer of Ro-Mac Lumber & Supply, Inc. in Central Florida (romacfl.com), and he is a former President of the Southeast Mississippi Home Builders Association, and past Associate Vice President of the Home Builders Association of Lake County. To contact Magruder, email him at email@example.com.