October 2015 Lumber & Commodity Report

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by Don Magruder, CEO of RoMac Building Supply

The Ro-Mac Lumber & Supply, Inc. Wood Commodity Index (Index) for Central Florida in October increased 2.3%, as the dimensional and sheathing portions of the Index marginally increased.  The expiration of the Softwood Lumber Agreement between the United States and Canada is producing a short-term spike in lumber.  However, it could have long-term downward implications, as a collapsing worldwide commodity market could create an overabundance of lumber into the U.S. market.

With a volatile stock market, unsettled housing demand, deflated commodity market and approaching winter, I see little impetus for a rising trend in wood commodity pricing.  A rash of mill shutdowns and closures could bolster pricing, but those actions are typically taken after the demand equation has been established.  Pricing will probably be volatile for the next 30 days, as all of these factors sort out.

The dimensional lumber portion of Index increased 0.5% with dimensional spruce pricing falling or rising, depending on its availability.  Wide width pines made the surest retreat with most giving up more than $50 per thousand.  Narrow width 2×4 pine added almost $45 per thousand, as supply tightened on fall purchases.

The sheathing portion of the Index increased 3.7% (or $10 per thousand) primarily on the rebound of OSB sheathing.  CDX pine plywood dropped from $25-$40 per thousand, based on thickness, while OSB added on average $25 per thousand.  It appears to be a rebalancing of demand as CDX buyers could no longer resist the much lower cost of OSB.  This looks more like a market correction than a trend.

There are a lot of headwinds for the markets, and unless housing demand surprisingly spikes just before winter, I see little to drive prices up.  As compared to last year, the Index is 28.1% down in dimensional lumber and 5.9% down in sheathings.  These are huge declines in just one year, and that tells me further downside movement is minimal.  At some point, the mills will begin to shutter production.

What everyone needs is a good boost in housing starts for the next three months.  Most builders would rather sell more houses at higher building material costs, if given the option.

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