Another lumber run? Futures spike 19% as wildfires engulf British Columbia

Over the past two days, the September futures contract price is up $105, or 19%, to $647 per thousand board feet of two-by-fours. On Wednesday and Thursday, trading was halted as futures hit their daily increase limits.

The reason? Wildfires are spreading across British Columbia, the North American mecca of lumber. Already, the Canadian province has declared a state of emergency. Among the six largest North American lumber producers, three are located in British Columbia: West Fraser Timber (No. 1), Canfor (No. 2), and Interfor (No. 6). On Tuesday, British Columbia forestry titan Canfor became the first to announce it’ll curtail production at its sawmills as a result of the fires. Any disruption of lumber supply from British Columbia—which exports 90% of its output—is bound to send prices higher.

While lumber futures are trading upwards, industry insiders tell Coins2Day they aren’t sure if this is simply an uptick or the start of another run on lumber prices.

This hike in lumber futures is happening at a terrible time for DIYers and homebuilders, who’ve been eagerly watching lumber prices fall. On Tuesday, the cash market price of lumber fell to $512 per thousand board feet, according to data provided to Coins2Day by Fastmarkets’s Random Lengths. That’s the lowest price it’s hit this year, and 66% off its all-time high of $1,515 set on May 28. That wholesale price usually lags behind the futures market—which is the leading indicator of where prices are headed.

A perfect storm on both the supply and demand sides spurred the historic run on lumber prices this spring. During the early weeks of the pandemic, sawmill output crashed as state shutdowns kept workers at home. At the same time, bored, stuck-at-home Americans set off a DIY boom, while low interest rates triggered a homebuilding boom. That supply-and-demand mismatch is what drove the lumber run. While another spring 2021-type run isn’t likely, the supply chain is still vulnerable. Record lumber prices this spring caused homebuilding and home remodeling to cool a bit; however, both segments remain elevated above pre-pandemic levels. That’s why current buyers have reason to worry about British Columbia sawmill stoppages causing another big run on prices.

As Coins2Day has previously reported, Canadian softwood lumber—not the plentiful Southern Yellow Pine that dots the U.S. South—is the clear favorite among U.S. Homebuilders. Even before the pandemic, softwood production in Western Canada was limited by a combination of past fires, beetle infestations, and the slow growth rate of spruce trees. Ongoing wildfires are just the latest obstacle lumber producers face in their struggle to meet enormous demand.