Our mission to make business better is fueled by readers like you. To enjoy unlimited access to our journalism, subscribe today.
Lumberyards and homebuilders alike have delayed buying lumber from sawmills in hopes the price of the sky-high commodity would finally come back down to earth. It hasn’t budged, and now the buying rush is on ahead of spring and summer projects.
“Clearly mills won the standoff,” Stinson Dean, CEO of Deacon Lumber, told Coins2Day.
This influx of buyers is only further driving up the price. On Friday, the price of lumber per thousand board feet jumped to $1,048, according to Random Lengths. That’s an all-time high, and up 193% from a year ago.
That price jump is unlikely to be the last. On Monday, the May futures contract price per thousand board feet of two-by-fours jumped $32 to $1,158. That uptick would have been higher had circuit breakers not been halted 20 minutes into trading—something that occurs when the commodity is up more than $32 during a single trading day.
“It’s clearly a short squeeze. In futures and spot markets. Lumberyards are overcommitted on their sales, and there isn’t enough wood to cover,” Dean told Coins2Day. This is a clear signal, he says, that prices will go up more in the short term.
From the onset, the pandemic was a perfect storm for surging lumber prices. At the same time that sawmills were limiting production during the early months of the crisis, the pandemic was spurring a do-it-yourself boom among Americans stuck at home. That supply and demand mismatch was made worse by record low interest rates and a historically tight existing housing inventory which caused buyers to rush to new construction. The backlog is so big that prices aren’t falling despite wood production hitting a 13-year high in February.
Don’t expect demand to drop anytime soon.
“The pipeline for lumber and other wood products demand remains quite deep in 2021…Builders have plenty of ongoing projects to keep working through, which is keeping lumber and panel demand high, and making it very difficult for mills to ramp production up fast enough to rebalance the market,” says Dustin Jalbert, senior economist at Fastmarkets RISI, where he specializes in wood prices.
Jalbert foresees an eventual lumber correction, but there’s no guarantee it will return to the April 2020 price of $358 per thousand board feet. If a correction does occur, it will likely be the result of the cost of lumber overwhelming builders at the same time as rising interest rates tamp down homebuying. That hasn’t happened yet, despite current lumber prices adding at least $24,000 to the price tag of a typical new single-family home, according to the National Association of Home Builders.
