By Don Magruder
After several months of resiliency, the RoMac Building Supply Wood Commodity Index (Index) is finally capitulating to higher interest rates, uncertainty, and the calendar which indicates the holidays are just around the corner. The October Index in the last 30 days dropped 16.4 percent to $429.32 or down $84.51 per thousand. Inventories and demand moved in favor of the buyers and these lower prices will only motivate dealers to tighten inventories as they seek to move out higher-priced products. Wars, interest rates, fuel costs, continuing labor issues, and uncertainty are just too much to prop up these markets.
The dimensional lumber portion of the Index dropped to $420.49 or 9.0 percent with a solid change in mood. Only 2x4 pine remained firm as price dropped in spruce studs from 8.5 to 13.5 percent depending on size while dimensional WSPF 2x4 gave back 3.3 to 18.7 percent depending on length and 2x6 was down 10.4 to 23.9 percent. As the holidays approach and both builders and dealers work to skinny down lumber inventories, expect pricing to remain volatile on the downside. One caveat to keep in mind is that pricing at these levels will prompt lumber producers to close mills or curtail production which could adversely affect pricing.
The sheathing portion of the Index was mixed even though the pricing was down $116.38 per thousand or 21.1 percent. CDX pine plywood was up 1.2 to 1.8 percent while OSB sheathing was down 31.4 to 35.1 percent or a solid $165 per thousand. You should expect OSB manufacturers to start curtailments to firm up pricing as numbers are at levels not seen in more than a year.
Lower commodity prices do make this a good time to build and can help offset some of the sting in higher interest rates, but the profit equation has changed for many mills and manufacturing with soaring labor, fuel, and fixed costs. Most wood commodity manufacturers have the will to produce products at a loss, and as year-end approaches, I expect a wave of mill closures and curtailments to boost the market’s pricing. This, along with low ground inventories by dealers could make the next several months more volatile even with the macro-economic issues. Hold on, the ride could get a little bumpy.
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.