January 2014 Lumber and Commodity Report



by Don Magruder, CEO of RoMac Building Supply

The Home Builders Association Wood Commodity Index (Index) for January increased 3.5% to $328.10 per thousand as manufacturers and mills constrained supply to overcome the snow, ice, and freezing weather from a deepening winter. Compared to last January, the Index is down 23.1%, which may indicate a more traditional spring run in business or an overall softening.  A real winter is affecting the northern regions; there is no aftermath of Hurricane Sandy; and, all of the hope and promise from a second term Obama administration has evaporated.

For the month, only two items declined in price and increases seemed to be driven by size and species–nothing across the board.  Stud spruce products were mixed to flat in pricing while dimensional spruce price increases fluctuated from 4.1% to 8.1%.  2×4 treated gave back 2.7% as manufacturers searched for buyers. Wide-width pine increased 1.1% to 5.2%, but a floor and general direction for pine was being established. 

Sheathing products recouped some recent losses in price; however, pricing still remained lower than most expected. CDX pine plywood was flat to up 2.6% while increases in OSB sheathing enjoyed very modest $13-$14 per thousand increases.

It appears most mills are desperately trying to hold onto previous increases, but harsh winter weather could create cracks in pricing. The National Home Builders Association is forecasting a very optimistic 1.1 million in housing starts for 2014 with most projecting lower numbers.  Actual annual starts have not reached one million and those numbers have only trended for a couple of months.  If strong housing starts do not begin the year trending a million plus starts, expect lumber prices to remain in the doldrums.  Changes in mortgage rules and higher interest rates could provide enough headwinds to limit housing starts.

The next month or so will dictate whether 2014 is for real in housing starts or just another false blip. Builders should be cautious in long-term bidding, just in case the starts materialize. Everyone should incorporate some form of price protection clause in their contracts.  My personal belief is that without some impetus from heavy spring storms in the south, cheap interest rates, and more flexible mortgage rules, pricing will stay flat to down as will housing starts.  

Many other scopes in the building supply industry have pushed and announced price increases after the first of the year. Windows and doors are up 3%-5%; drywall is up $30 per thousand; and, fuel charges have increased across the board. Spring demand will decide if these increases will stick.

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 don.magruder@romaclumber.com.