May 2022 Lumber & Commodity Report
By Don Magruder
After a steep one-month decline in April, the RoMac Building Supply Wood Commodity Index (Index) clawed back half of its decline in May by increasing 6.6 percent to $948.19 per thousand. Pricing was mixed as mills and wholesalers struggled with the new realities of transportation issues, the Ukraine-Russian War, and solid housing demand across the country. It appears this market is far from a freefall and with low field inventories volatility persists. It appears accelerated demand in multi-family and commercial sectors may be offsetting the softness being experienced in the retail sector.
The dimensional lumber portion of the composite increased 2.6 percent to $1077.06 primarily on increased prices for Canadian #2 spruce. Most prices were up 3.5 to 7.9 percent depending on widths and lengths with a few specialty studs retreating less than 4.0 percent. A drop in wide width 2×12 pine kept the Index from going up further, and the drops in 2×12 were basically the exuberance being let out of the market. 2×12 pine remains at very high levels while builders switch to 2×12 for headers as LVLs remain hard to find and expensive.
The sheathing portion of the Index increased 10.7 percent to $851.93 per thousand which is about 25 percent of the previous month’s decline. There is little doubt CDX pine and OSB sheathing producers are trying to cement a floor in pricing. OSB sheathing added $70 per thousand over the last 30 days or about 10 percent in price while CDX plywood jumped $110 to $150 per thousand in the plus 12 percent range. With indications there could be an early, more intense hurricane season in the United States, these numbers do not bode well for future supply and pricing.
The wage and transportation inflation coupled with increased pricing for raw materials exacerbated by the war are pressing manufacturers and mills to resist huge drops in pricing. For these markets to really tank, the demand equation in housing will have to significantly ease and with builder backlogs remaining heavy for most of 2022, there is little indication of a letup in demand despite higher interest rates. Newly announced plans by the Biden Administration for affordable housing as well as investors fleeing to real estate from the other investment markets could fuel more activity in construction.
With all the dynamics in the markets, there is little chance volatility is going to end soon, and both dealers and builders should stay keenly focused on supply. At some point, having the products in stock may be the biggest driver.
The RoMac Wood Commodity Index is a weighted lumber and sheathing composite based on usage in Central Florida. By using wholesale pricing, the Index is a good indicator of the pricing direction for the next 30 days.
Don Magruder is the Chief Executive Officer of RoMac Building Supply in Central Florida, he is a former president of the Southeast Mississippi Home Builders Association and a past Associate Vice President of the Home Builders Association of Lake County.