October 2012- Lumber and Commodity Report

Over the last 30 days, the Home Builders Association Wood Commodity Index has decreased 14.4% to $317.39, primarily on a downward move of OSB sheathing and CDX plywood. Dealers are reporting a softening in demand as a result of uncertainty that seems to be gripping the market just prior the presidential elections. One dealer told us they have been extremely busy with quoting projects but people seem to be frozen to act until after the election.

The lumber portion of the Index dropped 7.7% to $321.58 per thousand as wide width pine posted about 15% drops in pricing. Dimensional spruce price reductions held mainly in the lower single digits while studs pricing fluctuated downward from 4.9% to 12.9%. It appears the market is close to giving back all it will, and the manufacturers will soon have full control of the supply end of the equation.

The sheathing portion of the index went almost in full free fall over the last four weeks as demand did not improve to the degree of supply. The sheathing portion of the Index plunged 18.9% to $314.25 as all species returned, plus $50 back to buyers. On average OSB was down $80 per thousand while standard CDX sheathing dropped on average $55. It does appear the levels in pricing are steadying and the drops, if any, will be minimal.

One thing to keep in mind, the Index after these drops over the last 30 days is still 21.8% more than a year ago and 16.9% higher since the first of the year. This is your best clue that inflation has infiltrated the sector. It appears the mills and manufacturers got a little greedy and oversold the market. The current market levels will probably move in a much narrower range as the election, winter and the holidays sidetrack potential buyers. The biggest trap for builders is using today’s pricing for next March’s projects- you could get in pricing trouble.

Don Magruder is the Chief Executive Officer of Ro-Mac Lumber & Supply, Inc. in Central Florida (www.romaclumber.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.