Updated: May 5
Last July, Russ Taylor wrote a column asking if W-SPF 2x4 #2 lumber could hit $1,000 per thousand board feet. As of May 4 it's near $1,500, so Taylor now asks: Could that price hit $2,000? "Anything seems to be possible this year," the veteran lumber analyst says in his latest newsletter.
But even if he won't give a prediction, Taylor does identify 15 factors that, like the stones in a kaleidoscope, will combine in myriad ways to produce one spot price today and a much different one tomorrow. Watching them mix can help you get a sense of whether the resulting colors will be hot or cool.
Taylor divides his factors into three groups: Factors that boost price pressure, ease price pressure, or cause both demand and prices to stall. Here is his list, supplemented by additional information.
Price-Boosting Supply Issues:
* Sawmills already are operating flat-out. In a presentation last month, Taylor noted that plants with the capacity to produce roughly 3.2 billion board feet of lumber have been cranking up since 2018, and another 2.4 billion board feet of capacity is expected to come on through 2023, But the trouble is the consumption rate is growing even faster. He predicts U.S. demand for sawn softwood will rise by 4.5% in 2021, by 4% in 2022 and will "remain favorable" into 2023.
* Trucking and container shortages. American Shipper says a lack of containers will last well into 2022. And while the paucity of truck drivers is well-established, the latest fear is that a lack of tanker-truck drivers will cause gasoline shortages and higher prices.
* Shortages of skilled labor. Keep an eye on how people respond to the gradual drop in COVID cases, as well as whether their attitude toward getting beefed-up unemployment checks changes.
* The number and extent of forest fires this summer. In California, "fire season has already started," Gov. Gavin Newsom said in early April.
* Production in British Columbia. Government initiatives, issues involving First Nations, export restrictions on logs, and the aftermath of the beetle infestation all could affect how much wood comes out of the province.
* Southern lumber production. It's the only part of North America where output could grow in the near future, Taylor says. But western SPF remains much more popular than Southern yellow pine and thus commands a premium. Anecdotes from the Midwest indicate dealers are seeing more SYP in their areas, so a shift may be taking place in some markets.
Potential Price-Easing Issues
* Reduced lumber exports. That shortage of containers might figure in here.
* More imports from Europe, Southern Hemisphere, and Canada. Again, watch the container shortage, as well as demand levels in those parts of the world.
* Easing of COVID restrictions at mills. Canada's comparatively slower vaccination rate compared with the U.S. could limit progress here.
* More use of substitute products. Don't expect a revolution. An NAHB survey found the No. 1 way builders were responding to price hikes and product shortages was to ask dealers to hold their prices for a longer time (the current average is 28 days). Response No. 2 was to buy more lumber earlier--a practice that no doubt aggravates demand and keeps prices higher than they might otherwise be.
Potential Demand- and Price-Stalling Issues
* Halts in construction. Of the builders cited in the NAHB survey, 19% said they already have delayed starts or sales.
* Labor shortages on the job site. This is possible, but the Biden's administration's easier immigration policies could help increase the job pool.
* Affordability issues limit demand. Fears persist that the Federal Reserve will be forced to damp an overheated economy by raising interest rates. That would push up mortgage rates.
* The lag between current lumber and panel prices and actual building material costs is about two months, Taylor believes. Once those increases cycle through, the pressure to stop building would be overwhelming.
* A hot summer could slow construction's pace. On May 4, the National Oceanic and Atmospheric Administration updated the average climates for the continental United States, using numbers from 1991 to 2020. In most places, a normal temperature will now be a half to a full degree Fahrenheit higher than it was using the 1981-2010 averages.