Friday , May 14 2021

Timber prices are breaking new records, adding heat to home prices



The timber price frenzy is making huge profits for sawmill owners. Home buyers, tenants and do-it-yourselfers fill the bill.

Wood prices went further to record last week, a sign that Weyerhaeuser ΣΙΑ

YOU 0.93%

, Canfor Species

CFPZF 3.06%

Other sawmill owners are in line for even more fat profits than the record profits they have reported for the first three months of 2021.

These companies have emerged as the biggest beneficiaries of the wood explosion. They celebrate with a range of cheap pines in the US, while their finished products, such as wood and plywood, fly off the shelves of hardware stores and are offered by home builders.

Timber contracts for May delivery expired on Friday at $ 1,500.50 per thousand feet, an all-time high and about four times the standard price this year. Contracts rose to the daily high allowed by the Chicago Mercantile Exchange during nine of the last 17 trading sessions.

On-the-spot prices for two-by-four and other wood products have also risen to new levels, according to the Random Lengths pricing service. Traders were worried about being left empty-handed, and the company’s composite timber frame price recorded its highest weekly gain, at a record $ 1,290.

“The nervousness of many traders was palpable, as they thought what the downside of the route might look like,” Random Lengths said in its weekly report.

Waiting for wood may not help. Mill owners say they have been backed up by orders until June. Delivery boards in July, the futures contract with the most trades, ended on Friday at $ 1,376.50. September timber cost $ 1,235.

“Without a significant increase in mortgage rates or a revival of Covid, it is difficult to imagine what could lead to a reduction in timber demand and keep prices in the near future,” said Eric Cremers, CEO of PotlatchDeltic Species

PCH 1.03%

, which owns woodlands and olive groves in Idaho, Arkansas, Michigan and Minnesota.

A sawmill covered timber ready for transport to the Canfor Southern Pine sawmill in Moultrie, Ga, in February.


Photo:

Charlotte Kesl for The Wall Street Journal

The Spokane, Wash., Division of the wood products company earned $ 125.5 million in the first quarter, the best ever. Timber contracts are up about two-thirds of the average $ 890 price Potlatch earned in the first quarter.

“Builders are reporting record home sales and will need this wood to build these homes,” Cremers told investors and analysts last week.

To highlight how narrowly they were stocked with many wood products, the CEO told them about his own fence, which broke out in a storm, and the scenery he had to drive 100 miles out of town to find cedar seats to get it. correct.

When the economy closed last year to slow the spread of the coronavirus, sawmills sent workers home and reduced production. By April, about 40 percent of North America’s sawmill capacity was closed.

US timber production returned to pre-pandemic levels in December, according to the Federal Reserve. However, production remains about 16% lower than the peak of 2006, which is the last time many homes have been built.

The Fed last week reiterated the near-zero interest rates that fueled the housing market. Rising house prices and low interest rates have also helped existing homeowners refinance mortgages to put in cash without adding much to the payments. Home equity firm Freddie Mac estimates that Americans withdrew nearly $ 153 billion in redemption refinancing from their homes last year. Vacation options were reduced by the pandemic and reorganization followed.

Demand has not been reduced by rising prices, say mill executives.

“Prices seem to be passing,” Canfor CEO Don Kayne told investors on Friday. Canfor, which has oil mills in northwestern Canada and across the southern United States, set a quarterly record for sales and profits. “So far we have not seen the resistance one would expect.”

Manufacturers including PulteGroup Inc.

and Howard Hugh Species

Let’s say they have offset higher prices for timber as well as other building materials by raising house prices without slowing sales. NexPoint Residential Trust Inc.

Investment chief Matthew McGranner assured shareholders that high timber prices are not eating away at the apartment builder’s margins. “Any additional costs, we were able to transfer to the tenants,” he said.

At a recent investor conference, Lowe’s chief financial officer, David Denton, said the home improvement chain and its rivals were not expecting to see if the rise in timber prices would be short-lived before the rise.

“This is largely transmitted in real time to the market and you see it across the industry,” he said.

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Write to Ryan Dezember at [email protected]

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