I’ve been following these prices closely for most of the year and what’s striking to me is just how wrong nearly all the industry experts were throughout the year. I don’t recall reading a single opinion that was anything other than “prices will remain very high for the foreseeable future.”
100% of the analysts that I read, and, if I'm not mistaken, close to 100% of the mill owners recognized that this was a temporary blip, and that lumber would fall back into the $500sh range (There is a natural floor - that's the price at which BC mills no longer make money and start shutting down/curtailing capacity.)
None of the mills started expanding or engaging in capital programs to try and take advantage of the increased prices.
> None of the mills started expanding or engaging in capital programs to try and take advantage of the increased prices.
Oh, nice call out. I wish there was a way for me to get information on stuff like this in general. That is the proxies for the future like you say.
Doesn’t have to be profitable. It could be stuff everyone trading lumber futures already knows. Just for curiosity and so I can validate my news sources.
This was predictable and extremely profitable trade. I made a lot of money this year from this alone.
The price increase was a result of a usual 90 day delivery for new contracted lumber and nobody anticipating people would actually try to build houses in winter time (which they did). A lot of production was wound down and supply contracted out in the future was pulled to earlier dates leaving future contracted lumber demand unfilled leading to price spike and then a crash after extra supply was brought online.
All the information is available but you have to pay for this. There are companies specializing in getting this info for you daily by calling lumber mills.
Fwiw, timber itself is only up about 10% (comparable with 2010 prices)
> This is false, the mills were expanding and the increased throughout increased supply and prices crashed (along with construction work backing out)
Yeah and that was obviously the entire idea about the trump tariffs. Saw mills in the USA are insufficient, that's the point of the tariffs, those jobs are supposed to come back when capacity is being increased.
Those jobs never left. The largest lumber producer in the world, from Canada, operates saw mills in the USA. They don’t pay tariffs on product made in the USA. Side note, the tariffs are always paid on import by the importer. Not by the exporter. Imposing tariffs on foreign goods usually raises prices for the end buyer.
Here is more information including a 7% job growth for loggers
""Low mortgage rates, low volumes of homes available for resale, favorable demographics, increasing acceptance of remote working and the underlying housing construction deficit due to several years of underbuilding appear to be positively influencing the demand for new housing in North America," the company wrote in an earnings report. "Economists are forecasting U.S. housing starts for 2021 to be approximately 1.5 million units, an increase of nearly 9% over 2020. An aging housing stock and increased repair and renovation spending should also continue to drive strong lumber, plywood and OSB demand.""
The price increase was not relevant to their expansion, but long term trends in which the price increase was irrelevant.
Oh, very interesting. Honestly, I have no problem receiving the information after all its trade value is exhausted. Not looking to trade in this area. Is expired info available for free somewhere?
> None of the mills started expanding or engaging in capital programs to try and take advantage of the increased prices.
I'm a bit doubtful about this because I know that even German mills started to produce lumber with US dimensions, causing shortages for metric lumber locally.
Definitely overseas suppliers of lumber immediately pivoted their existing capacity and started running extra shifts. I have a friend who works for a lumber wholesaler, and close to 100% of their additional sales came from lumber in Asia.
But, if there was an expectation that these price levels were going to be sustained, the mills would have started engaging in capital programs to increase their capacity - because, and this is critical - there was no supply of raw-timber issue, indeed - the price of raw timber didn't increase.
That those capital programs did not take place, is the strongest representation I can think of of Mill owners true assessment of the long term prices.
Part of the issue was caused by issues getting Canadian supplies of lumber into the USA due to a trade dispute. It's possible that these German mills are just taking advantage of being in a temporarily good trading position, with the understanding that cheap Canadian imports will retake their market position shortly.
If they thought this was permanent, they would have expanded to supply the USA, rather than doing so at the expense of domestic production.
That's interesting. The things I was reading before the prices started coming down in earnest were all noting what you're saying here--that mills weren't expanding capacity. But they were using that fact as justification for their belief that prices would remain high since there was no reason to expect supply pressure to ease.
This is what I saw too. News networks that want to sell doom and gloom (most specifically a certain network we all know we're talking about) have "economists" sell doom and gloom in ways that don't really make sense. Like never in the history of ever has something skyrocketed and then just stayed there while the American currency inflates to account for that commodity (or even groups of commodities). But that was a serious position that I've heard those "economists" say. While the mainstream economists were like "just wait it out and buy some shorts. This bubble will pop but hard to say when." Logically we should expect the latter happen because it follows historical trends too. But maybe I'm wrong. I'm not an economist. Just someone who listens to them.
The only people I saw saying this were the people on mainstream news like CNN or Fox (more Fox). But outside that I didn't hear anyone. Lumber has been falling since May and lumber futures have been going down as well.
Really the only people that were saying that prices would remain high had a vested interest in keeping it high. It is such an insane position to even take considering that a pandemic is a temporary thing. Prices don't just pump like that and stay up. I know that there are a lot of people that say those kinds of things, but they are fear mongering and trying to cause inflation through self fulfilling prophesies.
I really can't tell if this is sarcasm or not but I'll act in good faith that it isn't.
Fox has been selling out of control inflation since Obama and once Trump came in the story magically disappeared (even before Trump took office and could make policy decisions) and then after he was gone it reappeared. In fact, the stories appeared even before Biden took office. Similarly stories about the DOW being all time high appeared before Trump took office. As if the DOW or S&P500 being at an all time high isn't a normal occurrence and the index operating like they should but rather that this was because of the market "being excited" about a "more business friendly president."
Fox wants to sell you that the world is shit when the democrats are in office. CNN wants to sell you that the world is shit when the republicans are in office. News does move markets. Same with presidential tweets.
>I don’t recall reading a single opinion that was anything other than “prices will remain very high for the foreseeable future.”
Are we talking about heads on CNBC or the guys who were actually able to put eyes on the mills, rail yards and whatnot? Because this crash is spot on with what the latter was predicting. Everyone was over-producing to get in on high prices and the demand just wasn't there.
Seems like everyone suffers from recency bias - "what has been happening for the past few months is how it will be in the future".
I remember when gas prices peaked back around 2006 everyone said "gas prices will never come down, peak oil, blah, blah". 6 months later gas prices crashed by 75%.
Keep that in mind when people talk about housing prices or the stock market. "It's different this time" is rarely true.
Gasoline is a little different because 2006 was the tail end of the Peak Oil era. There was a real fear that production of gasoline was going to peak around that time and never recover.
Imagine being criticized in 2035 for believing in 2020 that climate change was going to permanently change the world.
So that is a fear that I wouldn't call baseless. I don't think lay people expected the kind of technical innovation that happened in the petroleum industry in the past 15 years.
I was also in that camp. I figured it would go the way of gasoline where they'd conjure up constant excuses to keep the price high almost indefinitely. "A missile landed in the middle of a farm in Uzbekistan, we better increase gas price $0.50/gallon due to global instability concerns".
It doesn't really work that way with commodities the scale of lumber. The amount of money one would to have to corner the lumber market is insane, even a cartel probably couldn't pull it off.
Timber is abundant and lumber mills are pretty easy to get going. If you live anywhere near where timber is grown, there's almost certainly a handful of mom-and-pop mills around you. The moment prices elevate for an extended period of time, these operations will start looking to expand.
I heard an economist once say that "The best cure for high prices is high prices." i.e. - when prices get that high, new people enter the market and the price drops. Or people lower their prices to try and capture market share.
Of all branches of mathematics, science, and engineering, the only people on Earth stupid enough to believe in perpetual exponential growth are economists.
Fires are threatening an important swath of the U.S.’s wood supply, pinching output that has been under pressure since the pandemic touched off homebuying and remodeling booms and sent lumber prices soaring.
COMMODITIES
Lumber Prices Are Falling Fast, Turning Hoarders Into Sellers
June 15, 2021 08:29 pm ET
Prices have dropped from record highs spurred by the economic reopening, potentially pointing to an eventual return to normalcy.
COMMODITIES
Despite Lumber Boom, Few New Sawmills Coming
May 17, 2021 04:49 pm ET
Executives in the cyclical business of sawing logs into lumber say they are content to rake in cash while lumber prices are sky-high and aren’t racing out to build new sawmills.
MARKETS
Lumber Prices Break New Records
May 3, 2021 04:49 pm ET
Home buyers and renters are bearing the brunt of rising wood costs, while sawmills are poised for another quarter of big profits.
MARKETS
Lumber Prices Notch Records on Building, Remodeling Boom
February 16, 2021 05:17 pm ET
Lumber prices have shot to fresh records, defying the normal winter slowdown in wood-product sales in a sign that the pandemic building boom is bowling into 2021.
COMMODITIES
Lumber Prices Rise Again
November 20, 2020 04:42 pm ET
Lumber prices are making an unusual late-season climb, thanks to builder-friendly autumn weather and suppliers stocking up for what they expect to be another big year for home construction.
Prices will remain high for some goods, but the lumber issue was a supply chain collusion problem.
I believe that the initial shock of high prices was very good for some businesses, and they systematically colluded to sit on inventory. You could physically see it in some places.
But those forces are not as strong as supply and demand so it came back to something approaching reality.
For electronics parts, the pandemic introduced large numbers of speculators who buy and hold parts for gain, those actors create an odd dynamic in the system that would do something like create higher prices, then crash as prices fall and they are forced to sell and the market gets flooded a bit.
This was the biggest lesson I learned during my first pre-IPO quiet period. Seemed like everything I read that was inferring things from the S-1 or forecasting the future were immediately wrong or turned out to be wrong in the end. I suspect there's a lot of the Gell-Mann amnesia effect going on in the economy.
I don't think Crichton intended to imply a cause. But I guess it's just a bias toward believing the media and forgetting the isolated experience. I suppose there's an opposite effect at play regarding the media's treatment of COVID and recent politics, etc.
Some of the forecasts about high prices forever were just sour grapes that their preferred candidate lost an election. You always have to take predictions with a grain of salt.
Why would they tell the truth? Their job is to sell lumbar... Telling people that prices will settle down in 3-6 months is literally the opposite of what their job is.
Well.. You kinda can. Demand and supply, they basically say :until 2030 demand will be higher than supply. Germany is building way to slow and not enough.
Most of these people are "experts" on paper only. They are authoritative voices hired by big actors who have a stake into making people believe that the prices will not go down. The same thing is happening for housing, crypto and meme stocks.
