September 2020 Lumber & Commodity Report

Although the wood commodity markets continued to rise over the last 30 days, it was at a slower pace.

While the last 30 days did not produce the record 47 percent increase seen in August, the RoMac Building Supply Wood Commodity Index (Index) for September jumped 13 percent, or $95.72 per thousand, which is steep by any measure. Mid-September is starting to test these markets to see if these price levels can be sustained going into October—it will be tough. With projects being delayed or canceled due to high pricing as well as the worry of a second wave of COVID-19 in the fall, prices may finally be hitting the reality of an overall unsure market. There is no one who can argue these markets are on a sweet high that at some point will lead to a sharp correction.

The dimensional lumber portion of the Index increased 18.9 percent, or $153.12 per thousand, as all items but one printed up. 2×4 dimensional spruce increased in the high teen double-digits or $145 to $180 per thousand. 2×6 spruce added on average 17.5 percent while most studs were up on average 20 percent. Wide-width pine was up $95 to $155 per thousand, or an average of 18 percent, depending on length. 2×4 pine continued to be red hot with 30 percent increases and premiums upward to $250 per thousand above last month.

The sheathing portion of the Index increased 7.8 percent, or $52.85 per thousand, as the rate of increase settled back into some kind of normalcy despite multiple hurricane threats. While the threat of a hurricane kept pricing firm, it did not lead to additional spikes. This tells me the numbers are too high and poised for corrections. OSB sheathing added 9.1 percent, or $55 per thousand, while 5/8 CDX added 4.8 percent or $40 per thousand. The 3/4 T&G plywood added 13.4 percent, or $125 per thousand, which outpaced all other sheathing products.

Based on this week’s trends and the overall pace of the market, there is little doubt the top has probably been hit. Unless demand powers up quickly or a weather emergency occurs, lumber pricing will start heading downward. Some believe the trend downward will be hard and fast. It may be for some products; however, other items that are in shorter supply could be slower to react. Little doubt, the mills, and manufacturers will be looking for any reason to keep from dropping prices.

If demand continues to weaken, mills improve production, imported wood products start flowing better, and no widespread hurricane damage occurs, the fourth quarter could be a tough time for high priced lumber and sheathing commodities. Remember, the course of COVID-19 and the overall economy will have a major impact on the demand equation in housing and commercial construction. This seems to have been forgotten over the last couple of months.

Builders should price jobs at current pricing levels in hopes of making a little extra by way of a market correction while protecting themselves if the correction does not materialize. Keep an eye on the Coronavirus—that will determine a lot more than most suspect.

Don Magruder is the Chief Executive Officer of RoMac Building Supply in Central Florida 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, visit our Contact Us page.