By Don Magruder
The RoMac Building Supply Wood Commodity Index (Index) remains volatile as last month’s increases were reversed with a capitulation in all areas. The Index over the last 30 days plunged 35.3 percent to $613.56 as weakness in the housing market and rising interest rates begin to bite the housing market. The Federal Reserve’s ¾ point interest rate increase and caution of other possible increases is spooking homebuyers across the country and builder sentiment is falling. These levels are well below this time last year, and some manufacturers are indicating curtailments in production are a real possibility as levels fall to a price that questions profitability.
The dimensional wood portion of the Index dropped 42.9 percent as spruce products collapsed 29.4 percent to 56.9 percent. There are indications this week that a bottom floor in pricing has been hit or has come close, and with the curtailments in production and ongoing trucking problems, many expect a gradual firming. The one concern, despite the recent demand challenges in the market, is that lumber inventories on the ground are low by all accounts. Low inventories in the field invited volatility, plus no one sees any letup in escalating trucking costs.
The sheathing portion of the Index dropped 28.1 percent to $612.30 per thousand. CDX plywood gave back 11.8 to 18.0 percent, but the court ruling nullifying the certification of Brazilian plywood is creating some angst which slowed the decline in this product dramatically. OSB sheathing retreated on average 36 percent or 280 per thousand and the levels are nearing a more seasonal normal area. Despite the drops in pricing, the supply chain remains somewhat slow, and oddly, the price decreases seemingly do not match an overabundance of materials. Trucking is a huge issue for all sheathings, and with very low ground-level inventories heading into a hurricane season, which is forecasted to be active, pricing could go anywhere.
Builders should be mindful that pricing is far from stable, and volatility will continue as the markets adjust to the new interest rate environment. Fundamentally, there is still a housing shortage, a demand equation, and a trucking problem that will sort itself out. While demand will cool it will not collapse. Curtailments in production and the hurricane season could be huge drivers in price over the next few months due to the low inventory levels.
Builders should watch the markets closely, adjust bids closer to actual construction time, and realize that in 2 months that today’s reality could be totally changed.
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.
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