The spike was thought to have been buried and relegated to history. Turns out, it was an undead spike that’s now roaming the land again, wreaking havoc.
By Wolf Richter for WOLF STREET.
In this crazy environment of shortages and ridiculous prices even without shortages, when consumers and businesses pay whatever because price resistance has totally collapsed in 2021, and because businesses are confident that they can pass on those higher prices that they’re paying, well, in this environment, lumber stands out as a shining example because the price of Chicago lumber futures had more than quadrupled in the 11 months between June 2020 and May 2021. Last May, I said, “these WTF price spikes cannot last.” And then the price collapsed 73% in three months – end of crazy-inflation story. Even the Fed cited this collapse as an example of why inflation would be transitory.
But wait… Lumber started spiking again almost as soon as it bounced off the bottom, nearly tripling in five months from the post-collapse August 2021.
Today, the price of Chicago lumber futures rose to $1,234 per thousand board feet, up by 175% from the August 2021 low. And that August low wasn’t low either, it was still up by 28% from August 2019 (chart via Trading Economics):
There are lots of reasons for this spike, the primary reason being that enough people and their businesses paid these crazy prices, confident that they can pass them on as price resistance has collapsed.
There are also labor shortages at lumber mills. There were massive wildfires in the West last year. There is hoarding among homebuilders that have gotten burned by shortages. There is a lot of demand from homebuilders for lumber because they see a lot of demand for houses from homebuyers, and homebuyers are now paying no matter what. There were supply disruptions due to heavy rains and extensive flooding that damaged transportation networks in British Columbia. There is also, as is always the case everywhere in this era of financialization of everything, the drive to speculate and wring the last dollar out of everything, and when the right meme comes along, it creates bubbles that then burst.
You get the idea: A market that has gone crazy, like other markets have gone crazy, each with its own dynamics, such as the used vehicle market, or the new vehicle market, or well, the housing market.
The interesting thing with lumber is that this crazy spike that was thought to have been buried and relegated to history turns out to have been an undead spike that is now roaming the land again, wreaking havoc.
This kind of craziness will be visible in other product categories. The totally insane used vehicle prices will come down, and there might even be a quickie plunge in the wholesale price, only to re-spike again. We’ve got a veritable inflation-sh*tshow going on here whose crazy ups-and-downs are going to prove everyone wrong eventually.
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Just remember nearly all residential construction is debt fueled with the twin tools of Zirp and QE.
If you watched Brainard’s hearings today you can see the Fed and the Senate is very concerned about housing affordability and some ideas about fixing the problem.
Those ‘ideas’ will center around creating more debt.
Watch.
50 year, zero down, interest only for the first 20… just like college tuition.
See? Affordable!
If they were truly concerned, wouldn’t they have acted years ago?
Election year.
censor me wolf
I DON”T CARE
Political vitriol is not appropriate here. And you know that.
“some ideas about fixing the problem”
There is no REAL “fix” for the problem or any of the others without extreme economic pain and pols won’t choose that so any “fix,” if that is even possible at this point, will just kick the can down the road as always.
At some point something will finally trigger the release of the immense potential destructive energy of the coiled spring of stupid choices and there will be a crash that makes the GFC look like nothing.
Once again have to agree with u, W:
Other times not so much in spite of your clear ”reckoning(s)”…
While ALL,,, or almost ALL of our ”elected leaders” have made the transition(s) to making sure only their clutch of investments are OK and better,,, WE the PEONS have paid for each and every increase of ALL of the leaders and their owners,,, owners in every sense, to be sure…
Sure it’s hard to recognize,,, [[”doh”]] and while many, if not most on here, Wolf’s wonder,,, recognize the works of the over all owners of our world,,, it is very very clear that the vast majority of folks in all nations/countries/ethnic groups don’t have any idea how their daily challenges are at least exacerbated, if not totally increased by the vast vast and vastly increasing financial manipulations that add exactly nothing,,, while subtracting tons and tons..
The Fed created the condition.
In 2006, the Fed owned ZERO MBSs.
Now, they own 24% of outstanding residential MBSs.
In 1999 and 2006, with less inflation, 30yr mortgages were 6%.
Now, with 7% inflation (as reported), 30 yrs just coming up off of 3.2%.
To have the 30yr mortgage rates that far under inflation is unheard of.
The soaring housing is part and parcel to the lumber prices. Thus the connection of Fed policy, to mortgage rates, housing prices, lumber prices.
The Fed skews all it touches.
Now, who would sell their home for less than replacement cost? Consider lumber and labor, for starters. So the housing market becomes locked up as well. Nice job Fed./s
And Fannie Maw own something like 60% of ALL mortgages.
That’s freaking CRAZY!
Wolf’s chart makes me think of “Elliott Waves”.
But everyone here wants to blame the Fed.
We just re-did the mother-in-law’s wood picket fence. Not even a fraction of the whole thing and it was still stupid expensive.
Politics always drives Economics. At least in the short run. But dangerous Money/Credit creation has been going on now for decades.
And how Money to major companies feeds into the lumber markets is also the reason supply can be controlled.
Canadian Lumber Companies, West Fraser (sitting on $3 billion in cash), Canfor ($1.5 billion), Interfor ($1 billion), plus many others, have been buying up U.S. sawmills for the past 10 years. They control supply and the lumber market on both sides of the border. And with all the cash they are sitting on, they have no pressing need to increase supply.
Jimmy Pattison controls Canfor and is the largest shareholder in West Fraser.
Government fees (stumpage) aside, today’s scaled-up mills can manufacture lumber from logs arriving in the log yard to dried, planed and loaded rail cars for around C$100/thousand board feet. They all think they’ve died and gone to Heaven.
Very appreciated comment kam!
After working in the construction industry from age single digits, and estimating/analyzing millions of $$, BBs the last few years,,,
I will say this situation reported by Wolf is the worst ever…
Really and truly don’t think it can last very long,,, but, with the very real potential for mills to hang out and wait, and ”lay off” most if not all workers,,, who the ”heck” can tell/say anything these days???
I trade WY (Wyser lumbar mill) calls also WOOD & CUT ETFs sparingly. The winds can change suddenly.
Same with several commodity ETFs out there! When does the inflation slowly becomes dis-inflation leading to you know what. The time frame is hard to pin.
But we are long due for recession and corrective remedies needed for the all the EXCESS created since ’09! Money and DEBT is perceived as the same, thanks to Fed’s policies. The Country and the Economy will pay dearly for their short vision policies. Of Course, blame it on Covid and claim ‘ NO ONE SAW THIS COMING” just like 2008!
I have just bought timber for a little shed. Three times the price of a Chinese sheet metal stamped out shed the same size. Luckily, it is seven times as satisfying having it, and it will add value instead of detract from the property value!
God forbid we ever revisit these things when markets are “working.”
Thanks, Wolf.
The great RESET is coming, this just a taste.
Live better with less.
Do you really mean live with less?
If one is a confirmed ‘minimalist’ it is not a problem. one can also adopt ‘voluntary’ DOWNSHIFT life style, without giving up creature comforts!
One should ask one’s self how much ‘unneeded’ stuff we keep buying, EVERY year?
We will never have ‘green’ economy unless our consumption business model is replaced with ‘sustainable and recycle’ economy. It will be thrust upon us eventually.
Top 10-20% will keep their merriways, jetting across the globe in private (top 1%) jets and and giving periodic sermons on climate change!
We have rebuilt part of our house using other people’s discards, scrounged for free over the last decade. Except for the longest dimensional lumber, most of what you need is sitting in a dumpster or a basement nearby, or can be traded with people using certain techniques, such as an IOU In Kind, which are all legal. No cost except for gasoline to get it home.
From a non-commercial, no ads site.
“There have been Supreme Court decisions about the right of police to seize, search, take things out of people’s garbage without a warrant. Their reasoning was that once something is placed on a public street in a garbage container, or in an area accessible to the public, the owner has “no right of the expectations of privacy” and has “abandoned ownership.”
So this applies to boards and other building material in dumpsters as well as drug evidence.”
A guy on youtube “Uneducated Economist” who works at a lumber yard has been regularly discussing lumber prices and the supply chain issues throughout the pandemic.
The lumber futures are another one of the crazy commodities that are never really settled in product. Given the tiny approx 300 contract daily volume compared to 3K for feeder cattle which is also never settled, the ability to drive price in such a large industry with little cash is stunning.
I disregard the lumber futures. Boise Cascade stock price is real.
I don’t understand. When a contract reaches expiry, it has to be fulfilled in physical, no? If not, why would anyone who actually needs the physical commodity trade it?
The commodity is traded to make capital gains.
Depending on the exchange and the commodity the contracts does not have to be fulfilled in physical. The US based gold exchange is a prime example. Most of the contracts are settled in cash.
Witch lead to the interesting pattern where gold price often go down when the US exchange open and rise when the Shanghai exchange open and the US exchange closes for the day. The Shanghai exchange deals in gold that is actually to be delivered.
Another example from a few years back. Aluminium prices were on the commodity exchanges in the USA at low level. The local producer of aluminium on the other side made money as the price difference between exchange (paper quality) aluminium and aluminium to be delivered physical with a useable quality to the customer to actually make something of had never been larger.
Is this not the ‘futures markets?’ Congress should mandate that contracts, once again, require acceptance of the product.
If the contracts aren’t settled in physical, they need not bear any relation to the underlying asset. There *absolutely must* be some mechanism to force settlement in physical, at least for some parties, be they preferred partners or what have you. Otherwise no one would use the exchange. Hopefully that made sense…
Do you know anything about who can demand physical from the US gold exchange (COMEX?), or aluminum, etc?
from interactivebrokers dot com:
“Interactive Brokers offers trading on various COMEX precious metal futures and eligible clients can take physical delivery of COMEX silver or gold futures.”
fxnewsgroups dot com:
“Online trading major Interactive Brokers has added support for physical delivery of the following precious metals futures on COMEX: Gold (GC), Micro-Gold (MGC), Silver (SI) and Micro-Silver. […] To accept physical delivery, you must declare your intent prior to the Delivery Window, which is generally one month prior to the last trading day of the futures contract”
ivan,
The CME publishes a report, might be daily/weekly/monthly, which shows the deposits and withdrawals of metals. The clients are big primary dealers like JPM and international commodity dealers. The list is usually short with 4 or 5 dealers and shows the total positions held for possible physical delivery.
“If the contracts aren’t settled in physical, they need not bear any relation to the underlying asset.”
“Where do you get your cut?”
Banker (pigman): “Off the top, the bottom, both sides and down the middle.”
Perpetual Perp
Congress is NOT only clueless but lack basic financial knowledge of many trading instruments except for a few, especially with regard futures trading ( or derivatives, CDOs etc) . SEC and FTC, both are captive to the industry they regulate. This is crux of the problem with ALL the Federal Regulators – they work for the vested interests and not for Public. Retail investor and man on the main street is just fodder to them. Going on for decades!
The same reason people had 2020 May WTI oil contracts?
Most contracts are not settled in physical.
A very unusual thing happened when oil briefly went negative. A bunch of traders on the contract
didn’t know or expect that unless it could be rolled over by end of day. they HAD to settle in physical and take delivery of, I think, 1000 barrels per contract. A tiny group of traders in the UK with ‘balls of steel’ bet everything to make it very expensive for those on the other side to exit. Storage was full.
Then the end came and it was kind of like: ‘your oil is ready sir, where is your tank truck ?’
“can” – yes
“have to” – no
Many/most/nearly all of various futures contracts can be settled by buying an offsetting futures contract…taking delivery can be a vanishingly rare event in some markets.
So…the point about futures markets being a potential playground for very highly levered financial plays wholly divorced from operational use…well…that can be a distinct possibility.
There are other mechanisms, though, that may tend to apply some brakes…exchange/clearinghouse rules, etc.
and as Canada’s temps hit -50C in many places. Not much gets moved at those temps (including Teslas)
I live in timber country and the mills I have passed this last year have HUGE log decks.. It isn’t supply of the raw materials. The fires if anything increased their supply. Long term may be different but they have been aggressively logging all the dead trees.
Most people think forest fires destroy the timber but it mostly moves thru very quickly and scorches the back, burns off all the needles and leaves a standing dead tree that then needs to be harvested within a few years.
scorches the bark
Pure, unfettered, 100% speculation by cashed-up pigmen, thanks to Weimar Boy Powell and his printing press….that’s STILL PRINTING, mind you.
Hanke back on Kitco interviews again…more “It’s the money supply, Stoopid!” Fed will probably just look at him like Eric von Zipper yellin’ at the Ratz gang. Then proceed to do more of the same, ’cause hey, “It’s a surf party! Pour more sand!!”
Saw that. He is saying we got at least two more years of this 7% or higher inflation unless Fed panics and puts us in recession. He pretty much says Fed is lying. Don’t listen to them, watch money supply which went up about 6% too much last year and has 1 – 2 year lag working through the system.
The was supposed to be in place to assuage short term banking issues and expand the money supply to meet an expanding economy.
Then they decided to “let’s have some fun”, and they jumped it by some accounts 30% in less than 18 months.
That is too much power. That is watering the garden with a firehose. Asset prices spiked and now the mantra is rates cant rise lest the spiked prices decline. Really? Must irresponsible monetary policy always be in place to support spiked prices?
Remember how last summer some politicians, Wall Street analysts & central bankers eagerly pointed to falling lumber prices as INDISPUTABLE PROOF inflation was temporary.
They ended up making fools of themselves. What’s strange is no one seems to have ruined his career over such a catastrophically bad call.
Even Powell did that.
Wolf, I can’t remember if you wrote about this recently, but why are rents and the OwEqRent just now in the past few months starting to show up in CPI? Why has there been at least a 18 month delay? Is it due to the way, OER at least, is survey based?
I just don’t get this. Also, is it indicative how how the newer CPI calcs are rigged to underreport rent & housing prices increases in CPI?
Thanks!
My guess is that since people sign 1-2 year leases, it takes a while for rent rates to catch up.
I will guess politically it is more convenient to say the homeless are all drug addicts and not people who could no longer afford to keep a roof over their heads with their normal jobs.
I saw some figures on the median wage vs the median price of homes in some hot markets. The spread is extreme in its divergence.
On a possible related note, the high end fashionista crowd is bawking about the price of looking affluent. Even they know the value is no longer there and it’s just price gouging now.
Jay,
This is as good as an explanation as I can give you. There may be other factors as well.
The owner’s equivalent is an opinion by homeowners. So actual rent increases take a while to sink in for these people who don’t rent.
The rent data is based on what renters say their actual rents did, so this is not an opinion.
But “asking rents” is the figure that I report on separately. These are rents that landlords are advertising on for-rent units.
People who discuss their rents in surveys, they’re already on a lease (and rent doesn’t change while on the lease) or month-to-month, and they get rent increases over time.
So asking rents is an immediate price tag, like in a store. The rent surveys are like the price tags of your food in the freezer: it takes a while to rotate through them and replace them with new items, and your average food cost in your freezer goes up gradually, long after the average price at the store went up.
In addition, each person on that housing panel gets two surveys per year, rather than one per month. These are huge panels, with many tens of thousands of people across the US. So each month they rotate through. And this also slows down how quickly changes filter into CPI.
“BLS does not use changes in the estimates of the implicit
rent to calculate the owners’ equivalent rent index. These
estimates are only used for the initial level of the implicit
rents. BLS estimates changes in implicit rent from changes
in the rents of units in the rent sample which have been
adjusted to exclude utilities and facilities. BLS uses a pro
cess called owner-renter matching, which assigns to each
owner unit a set of renter units that match the location,
structure type, and general characteristics of each owner
unit as closely as possible.
BLS derives an implicit rent for each owner unit in the
survey from the initial value estimated by the homeowner
and the change in adjusted rents from the matched set of
renters. The 6-month change in the average adjusted rents
for the matched renters is used to update the owner unit’s
implicit rent from 6 months earlier to the current month.”
source: How BLS Uses Rent Data in the Consumer Price Index
(Sept 1996, still current afaik)
So it seems that the owner’s estimate of equivalent rent is much less important than actual rent data in the cpi housing cost estimate.
General attention was distracted by a shiny thing a few moments later.
Or so many would like to believe. Doesn’t so much apply to followers of this site.
Paul Krugman must be the most inept economist there is. He said he didn’t see this 7% inflation coming. My dad who didn’t finish high school, but is 90 saw it coming because he knows how the real world works. Give away too much money and people are going to spend it.
I stopped insulting Krugman because he is merely a propagandist for the left. If you want to know what the left is up to, tune in to him.
Petunia:
Don’t insult the “left” or whatever is described by most.
Paul Krugman is the epitome of an ivory tower hack who can’t see the forest for the trees, wholly delusional from groupthink and political ideology.
Awh, Kruggles. I want to pet him and give him taffy.
I see no one so far has mentioned the 17.9 % US tariff on Canadian softwood lumber.
Moving on: Philly Fed Chief Harker is worried the Fed may not be doing enough:
“I think it’s appropriate to take action this year,” Harker said. “Three [hikes] is what I’ve penciled in, but four is not out of the question in my mind.”
Like the rest of the Board, Harker seems to take it that hikes are something like a quantum in physics, they only come in .25% packages. Maybe this market needs a shot across the bows, in the form of a .5% increase right off the bat on March 1.
nick kelly,
I get so tired of these silly thoughtless comments by Canadians about our tariffs. Look at the chart: were the tariffs imposed and then lifted and then re-imposed to cause these spikes and collapses? Nope. No relationship — only in the vivid imagination of the good people in BC. Does a little-bitty 17.9% tariff cause a price to quadruple and then to collapse and then to triple? Nope. Sheesh.
Little-bitty 17.9 % … Well, it certainly doesn’t help.
However I however agree with you Wolf, that this is not (ceteris paribus) the cause of these enormous spikes. It is the money printing phenomenon.
I laugh at the idea that Greenspan was the one to blame for the GFC of 2008, due to 0,00 % interest rates after the Dotcom bust, but somehow a genius came along and had the fantastic idea that having 10 years of near 0,00 % rates, won’t have any effects on the real economy.
The US was a lab rat and this was an experiment … We all knew this would not end well, it is however impressive to see, how it affects various parts of the real economy.
Where is Volcker? 18 % rates? People nowadays would jump out of the window if the rates were 3 %.
“I get so tired of these silly thoughtless comments by Canadians about our tariffs.”
Hey, where’s Pablo? /s
He’s out cutting trees down at his Canadian spread. Man’s gotta make a buck somehow.
Thxs Wolf…As a Canadian born Dual USA-CDN citizen living in Canada, I often spend time each week explaining Canadians to Americans and vice versa….
So close yet so different it’s remarkable.
17.9 % is little bitty?
I didn’t say the tariff caused the big fluctuations. I just don’t think it would be unreasonable under an apparent lumber emergency, to relax them until the situation returns to something like normal.
There is a whole lot of talk about the interests of the majority being at odds with the 1 %. You won’t find a better example than the interests of US timber- land owners being pitted against US lumber users. The same tiny group of very well- heeled timber- land owners have spent millions launching these suites for decades. More than once, joint US Canadian tribunals have ruled against them. Next year they refile and re- lobby.
This is not a ‘Buy American’ issue. The US only produces 70 % of its requirements.
Some of the US organizations against the lumber tariffs are the US Home Builders Association, the US Contractors Association, the US Bed Frame Association.
nick kelly,
yes, the biggest opponents to tariffs are the members of Corporate America because a tariff is a tax on their gross margins. But to hell with them. They’ve gotten coddled by our tax code way too much.
The US should put a universal 25% tariff on everything that is imported and encourage other countries to do the same. End of story.
A tariff is a TAX on the gross margin of a foreign producer (either a vendor to Corporate America or owned by Corporate America). Maybe they can pass some of it on, maybe they can’t. Prices are set in the market place, not based on the costs of importers.
Governments have to raise taxes. Rather than taxing local labor as much as they do, they should tax foreign producers. End of story. That’s what should happen — and if the corporate lobby didn’t have so much power, it would happen.
The US has a huge gigantic trade deficit, and it needs to be addressed. And the way to address it is by changing the cost equation and slap taxes on imports, rather than on local labor.
Canada should put a tariff on US citrus? To protect our growers?
No. Tariffs are a tax on corporate gross margins. A government taxes corporate gross margins instead of labor. The purpose is NOT “protection.” The purpose is to tax gross margins instead of labor. The side effect is disincentivizing imports, and incentivizing local production through labor. If you cannot produce locally, such as citrus in Canada, fine. You still tax gross margins instead of labor.
B.C. Forests are controlled, regionally, by local monopolies (monopsonies) who control the price of timber by squeezing out competition.
Lumber, like nearly every other commodities/ goods suffers from Market Control by fewer and fewer players; all as a consequence of bought Governments and Central Banks.
But but but all these crazy spikes are simply transitory mirages, and we’ll be back to normal next month. Or next quarter. Or next year. Or 2044. Maybe. Meanwhile, print on!
Has anybody, I mean ANYBODY, thought to ask Weimar Boy why he’s still printing? The guy’s a deranged lunatic. What’s it going to take to reign in this madman? Seriously, these people are destroying the country in record fashion.
He owns over $10 million in S&P 500 ETFs and another $10 million in treasury-linked ETFs, and he doesn’t want them to lose value.
What I don’t understand is how we allow people in these positions to personally profit from their actions. Government employees are required, by law, to file every year listing any assets they have that could be impacted by decisions they make in the course of performing their jobs. For example, if you are a contracting officer who handles transportation you cannot own Maersk and still award them contracts. Yet Powell and the Fed officers seem to have no issues with this. And no one in the Gov’t hold them accountable.
To my mind if they want the position they should have to comply with this type of oversight. You want to be Chairman of the Bank then you have to quit using other peoples money to enrich yourself.
It’s naïve to expect compliance, but the world would be better for it.
Fed and congress was all about diversity, but they don’t want diversity of thought. How about putting some people on the board that don’t think the only fix is more heroin.
OS
Great point!
And you can extrapolate that throughout these position filling games in the entire government.
I remember Obama telling his cabinet that he could do all their jobs better than they could. (Gate’s book)
Now, why would you select such a group? Wouldnt you want people who knew things you didnt know, had talents, had ideas? Different perspectives?
DC
Next quote from J “Havenstein” Powell
“We had to destroy the dollar in order to save it”
I will be needing to buy a good amount of lumber for my house in progress. I built walls and ceilings out of ICF partly for the very reason lumber prices were insane. Was hoping prices would come down, which they did briefly, but now I need rafters, plywood sheathing, interior walls, etc. If I hadn’t started last summer I don’t think it would be feasible to start now or the near future with inflation and shortages. I bought a lot of stuff almost a year ago like appliances and HVAC systems. Most of it has gone up in price by a minimum of 20%. I can see eventually what looked like a 450K project coming in near 600 at the end of the day.
Someone is just starting to prepare the infrastructure for a 100 housing unit subdivision on my road. Last time this happened was just before housing bust. They got roads and curbs in and then it set with no activity for seven years.
A lot of residential construction in progress, but they will be lucky to get them built and sold at a profit IMHO. People still aren’t paying student loans, how are they going to afford a house when reality kicks in?
“Last time this happened was just before housing bust.”
Old School, this is true in my area too, albeit on a smaller scale. The last subdivision was started in 2008/9 and sat undeveloped until the past couple years.
These developments can be coal mine canaries.
Biden just nominated 3 super-doves to FOMC governorships:
“The White House plans to nominate Lisa Cook, an economist at Michigan State University who has researched racial disparities and labor markets”
“Jefferson, meanwhile, is vice president for academic affairs and dean of faculty at Davidson College.
…
Notable works of his include a 2005 study that evaluated the costs and benefits of monetary policy that promotes a “high-pressure economy” in which the Fed allows easier access to cash and lower interest rates to spur tighter labor markets.”
I wonder how these nominations, if confirmed, will affect the policy path going forward. 🤔 Probably too late to stop a spring/summer rate liftoff as long as markets don’t crash, but I expect they’ll try to find any possible excuse to delay/cancel further tightening.
” 3 super-doves”
Maybe doves, but do they listen to the bottom 80% or the top 20?
They may be more inflation sensitive…
or, they may be for MMT, money spillage and the Fed bankrolling social justice and climate change programs.
Now, more women than men on the Fed board…
I wonder what the selection metrics were……..
Hope fully, they actually shop for their groceries but don’t bet on it.
They ALL are subjected to group thinking
Whatever can make it collapse faster, I’m all for. This clown car act has gone on too long.
Depth charge
They just cannot afford it, to collapse. They will let it bleed slowly or the leak the air from the bubble. Look at action of indexes, daily for the past 2-3 weeks. Up, down again up and then down down. Repeat more downs than ups. Just study previous bear mkts!
Was there a reason for the dip between the spikes? Or was it
1) Buying causes a shortage and price spike, people panic hoard
2)People started using the hoarded lumber instead of buying as needed, less demand so prices fall
3)People didn’t buy at fallen prices because no need it appeared lumber prices back to normal and they can work through
4) -> 1)
Or was there another reason?
Panic hoarding is a thing, but not necessarily by end customers. This is industry has no Just-In-Time supply chains – some forestries have qucik drying kilns for their own high-quality woods, but that’s not implementable at a global level. Log is cut and then it’s totally normal for it to rest 6-12 months on a lumberyard – sometimes even years – before being further processed. It’s the sawmills that started stocking up for the next building season. For them it’s absolutely rational to have minimal profit on their products next year rather than to have no stock and nothingto sell at all – they’ve experienced it and they didn’t like it, that’s a potential loss of old-time customers.
The local mills here in Idaho typically process all their logs within three months. They don’t let them sit longer than that.
Prof. E
You are correct (somewhat) if you are referring to hardwoods.
The major Softwood (commodity) lumber companies turn their inventory 4 to 6 times a year, and with the rising prices against the controlled costs (so far), some are now approaching turnover of less than 45 days.
Drying time? In a modern kiln, commodity lumber dries in less than 3 days.
And if the mills had total control on weather, the loads of logs needed to saw the unplaned lumber ( 1 day ), to dry (3 days), and to plane (1 day) the turn over could be reduced to 5 days. But for practical purposes (Murphy rules) most mills prefer to carry 30 to 60 days of logs, and 30-60 days of finished lumber, with unplaned lumber inventories usually around 30 days. On a cost basis.
Could it be futures that was just settled in cash?
The kind of commodity exchange, how it work and what is actually traded is interesting. Some commodity exchanges is quite decoupled from trade with the actually commodity.
In some cases aluminium traded at the commodity exchanges have little in common with aluminium qualities traded to actually make something of.
It’s all transitory.
Competition, in the absence of free money and economic turbulence, will bring prices down.
Even in the labour market.
I fear this time next year people will be begging for work.
Jobs and desire to work, and for how much, are just another variable being thrown around by the covid19 response.
Wood will be back where it was again.
Problem is, those darn, pesky trees keep growing, and if that ain’t bad enough, they keep planting more of ’em. Even burning wood instead of coal or gas won’t stem the population of trees and now the Greenies want to convert pasture lands to forestry.
There are far, far too many trees to justify the current timber prices; but then, rationality always takes a back seat to commonsense when speculation fever strikes.
Phony “green” movement hypocrisy:
Wood-burning stoves = bad for the earth, must make them illegal.
Clearcutting forests = bad for the earth, must save them.
“Green” biomass plants burning trees and cutting down forest = “environmentally friendly.”
I’ve always supposed that extreme price volatility (yes, in both directions) would be one hallmark of the post expansionary phase the decades long monetary profligacy. Lumber, auto and residential real estate and other volatility seem to bear this out, tho not in both directions on all items yet.
On the world scale, two ideas competed — aggressive (and unethical) U.S. money creation, and the “cleanest dirty shirt” theory of world currencies — and allowed the US dollar to continue to command world-wide respect.
Until now.
So has the US dollar’s relative tranquility phase has come to an end? If yes, what might replace the US$?
I know some people in the logging business in New England and they tell me that throughout all this the price for saw logs has barely moved.
That’s the way it works, yes. The actual people and companies doing the real work are miles away from the speculation and manipulation that distorts the entire market. Ain’t American (unfettered free-market) Capitalism beautiful?
“Just cut dem trees ‘n shaddup, boy!”
~Wall St. pigman
Timber is an entirely different story.
Sir: “Timber is an entirely different story” except that it mirrors the cattle industry and is sung to the same tune.
We know it well.
I firmly believe 90% of the price increases are due to speculators. Just like the stock market is swinging in volatility right now with the DOW & NASDAQ seesawing back and forth. We’ll, the people in the know can make money buying and selling through these peaks and troughs.
Sure, all of those things Wolf mentions as issues are true, so the wholesale price of cut lumber should be closer to 25-40% higher, not 150% or 300% like it was a year ago.
Speculation & market manipulation are the keys. If Congress announced an investigation into lumber prices, the price of lumber would fall back to $500 bf and stay there.
Jay
‘the people in the know can make money buying and selling through these peaks and troughs’
Any one who knows option trading (experienced nimble traders) can do the same. NOT easy but can be learned if one is seriously interested managing their own investments for a financial future. Other wise give the money to brokers (BROKE!) or invest in MFunds who don’t protect your capital during bear mkts. Just study the previous bear mkts and the performance of the various MFunds (NOT BEAR funds!)
I walked the lumber isles at the orange box this week and couldn’t believe the prices up again so soon. In the middle of winter too, I would have thought maybe March or April.
But it’s the other building materials that really put us on our knees in cost. Copper electrical wire 250′ long: $179. It stayed around $25 to $35 for fifty years last century and commodities haven’t increased in price so much as to justify this.
And quality? I can’t believe a lot of the electrical and plumbing fixtures even pass code. It’s junk. If you’re looking to buy a house that is ten years or older these days, beware, it’s equipped with cheap-made junk.
” electrical and plumbing fixtures”
and not even made here, likely.
Indeed, recently built houses are likely thrown up with the fastest means and cheapest materials, though some processes have improved with technology.
The crap they call “lumber” at HD is a disgrace. Try framing with a dried out, twisted 2×4. They buy cheap seconds from the mills.
The quality of everything is crap. I’ve never seen such poorly manufactured sheets of plywood. I recently had to replace a bunch of siding sheathing of CDX that was exposed to one light rain storm and had completely delaminated. That stuff could be left unexposed for months pre-covid. Wiring is at extortionist prices. Recently purchased 50 ft of 6/3 romex at almost $6 per foot. Used to be less than $2 per foot.
Glenlivet Archive 21 scotch, 2008, 1/5, $110.
Glenlivet Archive 21 scotch, 2021, 1/5, $290.
12.587pc increase per year. Gotta keep them margins.
“ You will live in a mud house, and like it”, J POW !
That’s a massive upgrade from the tent shanty on the asphalt. Hoovervilles were nice by comparison.
I suppose the old expression “it’s not like it grows on trees” won’t mean the same thing it used to anymore.
Yes, the new expression is “money grows from trees”.
My wife and I are about to build my second garage / barndominium before we build the home itself (due to a severe shortage in framers) and while I dislike inflation as much as anyone, the increased lumber costs are the least of my concerns going forward.
Skilled labor scarcity and building material shortages such as doors and windows keep me awake at night.
The first ~$300K of construction will be cash as I go, so my attitude is unrelated to cheap debt.
While rates are low, why not lock in a fixed price? Rates will only go up from this point on?
Go rent a custom home for a year. You will come out well ahead.
Last week I heard Mike Rowe say “For every 5 skilled laborers that are retiring, they are being replaced by 2 skilled laborers.”
Harvey Mushman
Read the humourous but based in reality blog titled ‘The Real Revolution Is Underway But Nobody Recognizes It’
bottomline(excerpt):
As millions of workers opt out of conventional employment / exploitation, individuals have leverage due to the labor shortage to reverse the game employers have been winning for 45 years. Corporate America dropped the pretense of rewarding loyalty long ago, and nobody believes the corporate PR about “we’re a family”–unless Corporate America is referring to an abusive, dysfunctional “family.”
I’m a tradesperson in my early 40s. If my experience is indicative of the country as a whole, I wouldn’t be surprised. At high school we were constantly told that everyone should go to college. I did & hated it, and ended up in the trades anyway. My 4-year degree is from a public university and it didn’t cost what degrees cost these days. Regardless the degree was useless for what I do today. The vocational classes that I enjoyed most, well we were dissuaded from pursing these types of careers. “Vocational schools are for dummies,” was the common refrain. So it’s not surprising that there are shortages of quality tradespeople. I ended up here because it was where I wanted to be, and I had to swim against the current to get here.
Digger Dave,
To each his own. I went to university and actually studied (a lot) and I loved it. It was very meaningful, very useful, and I loved it.
I now work an office job. I am not better than anyone else because of it, but I am thankful that I can provide for my family in a comfortable manner.
There’s one way to do it, and then there are other ways to do it.
For me personally, my degree(s) were not a waste of time or money, because I knew how to utilize it.
Perhaps for some it ends up being a waste. The problem is people decide that it was a waste after wasting it (and accruing the debt). Young people should make a decision about what they want to do in life earlier and either accrue the debt and utilize it for its benefits properly, or avoid the debt and contribute to the real world in the trades or in a useful vocation.
Both are great.
Peanut Gallery
‘Young people should make a decision about what they want to do in life earlier…’
You are right, but now a days and in recent past,
many youngsters are cluless unless they have good guidance counsellor(?) or educated and informed parents. Your seected ‘field of study’ ( skill needed in the outside world) is more important than which famous college/ivory school one goes.
Peanut – there are many intangible benefits to a university experience. You develop and demonstrate the discipline to achieve a goal. You form a broader perspective of the world and how it works. You form social bonds and grow as a person, hopefully with some character. You cultivate an interest in lifetime learning that means you can hang out on blogs like this and put its information to use. I never felt like what I learned at college was critical, that will come with many years of experience. What’s important is going through the process to be a better person, which you appear to have achieved. Fortunately you went when the process was affordable. Those intangible benefits are certainly hard to justify at today’s cost, to society’s detriment.
1) Lumber weekly will dance over a red flatbed cloud, pumping muscles for a while, on the way to a new high.
2) L3, L4 caused consumers lower back pain, with flexibility, by
avoiding pharma or surgery, consumer will cont to spend, like is there no tomorrow, flexing their muscles, piling up credit cards and non revolving debt, to a new high.
3) The banks salivate.
4) US gov forgave $1.5B student loans debt, up to $10,000, due to
a fraud.
Something like $2T in outstanding student loans in the US. So $1.5B is sadly a rounding error at this point. As posted before we need to quickly learn. What comes after a trillion, it would be quadrillion. Since as you can see, that is the number that comes exactly after a trillion. We can define a quadrillion as 1 with 15 zeros after it. It can written as 1,000,000,000,000,000
And yet, you can read ad nauseum from real estate experts / analysts that:
“Don’t worrry!. This time around is different. We’re in much better shape nowadays, because we don’t have bad underwriting.”
Hogwash! Market manipulation from the FED, builders and even buyers paying crazy prices are just as bad or possibly worse than subprime borrowers. The only difference is that insurmountable issues are more hidden and harder to predict when we’ll get to the inflection point. But, be not dismayed. It’s coming.
It’s a good rule of thumb that excesses to the upside will be followed by excesses to the downside. A lot of reasons for this, but you really don’t have to understand them all, just be prepared for it in case it happens.
I just find it hilarious that the RE industry is so gungho about the housing market for 2022. Granted, it will take time for the housing market to tank, but at some point you’d figure they’d start advising clients to wait a while.
We are in unprecedented times. The disgusting Federal Reserve has distorted asset prices – the whole economy – so badly that it’s made anything a “can’t lose” proposition. People threw money into every nook and cranny and made 5x + returns. Some are starting to feel the pain, however. For instance, Cathie Wood is getting kneecapped.
Well since we’re talking about market manipulation, how about the Realtor’s cartel. Previous to covid, Someone that works in a poor rural areas selling $100k houses makes 10% of someone doing the same work selling $1mil houses. Doing the same job. How is that possible??? Why doesn’t the market correct this. Easy, protectionist laws in every state that favors their trade group and it’s ridiculous commission structure. When there is no competition, there is no incentive or motivation to do anything that actually benefits the public at large.
What’s taking them so long?
old school
‘It’s a good rule of thumb that excesses to the upside will be followed by excesses to the downside’
Exactly!
Reversion to the mean and then down again, some!
But Fed?CBers and the deeply vested interests in Wall ST will fight it all the way. So it will roller coaster ride!
I don’t know. All you guys spreading fake news about high inflation and the poor state of the economy better watch out. Biden just ordered you to knockoff all the false subversive insurrectionist talk or the new DOJ Domestic Terrorist Unit will be on your tail. Oh, and: parents, leave those teachers alone.
And they said it was ephemeral inflation and they believed them and still do. We all pay for this stupid belief.
Stevik-
I burst out laughing this morning…..the talking heads are on screaming about the FED going to far. They are raising rates in light of a recession! Loosen money conditions! Consumers are not able to spend due to higher mortgage rates!
We don’t have a chance……welcome on board the Titanic.
Which talking heads, on which media platform?
Fred Flintstone,
Here is what actually happened to retail sales. If these talking-head morons had just looked beyond the headline:
https://wolfstreet.com/2022/01/14/oh-my-the-american-consumer-amid-the-distortions-and-price-spikes-of-our-time/
Fed has created 7.0% of a 10.5% “less fudged CPI”…
3.5% was caused by supply constraints, the other 3.5% of the “reported” 7% was caused by the Fed, and “real housing inflation” would add another 3.5% to the 7% “reported” CPI to make it 10.5% CPI…
Fed 7%
Supply Constraints 3.5%
Fed for the WIN!!!
Per Barrons:
But Joseph Carson, the former chief economist of AllianceBernstein, who has consistently sounded the claxon about inflation, finds that easy money boosted reported inflation as much as supply shortages and bottlenecks.
He assumes supply constraints accounted for all of the jumps in prices of new and used vehicles, rental cars, household furnishings and appliances, apparel, sporting goods, and food consumed away from home. All told, he figures, those items accounted for about 3.5 percentage points of the 7% rise in the CPI.
While the news stories trumpeted that this was the biggest yearly rise in the CPI in almost four decades, Carson points out that the jump would have been much larger if the index was calculated with the formula used before 1982, which counted house prices to estimate homeowners’ housing costs. House prices were up 19% from a year earlier, according to the most recent S&P Core Logic Case-Shiller Composite index. Imputed rent—a measure in CPI that estimates what homeowners would be willing to pay to rent their homes—was up only 3.8%. Adjusting the homeowners’ costs for actual prices would have added an additional 3.5 percentage points to the reported 7% rise in the CPI.
Easy money contributed to this actual surge in inflation while the pandemic pumped up other prices, Carson contends. Somehow we doubt there are houses or condos on those container ships anchored off the West Coast that would ease a tight housing market.
I realize we all know it’s all the Fed’s fault, but it would be interesting to also plot the graph of covid cases over the same period as lumber prices, to see if there’s ANY possibility it could have something to do with that.
They’re way off. The last bottom in lumber prices was early August 2021. The last bottom in the US infection rates was in mid-November 2021. Lumber started spiking before “omicron” even became the name of a virus.
Covid will become be a great execuse for Fed in NOT accepting their irresponsibility creating insane credit creation.
From nothing to see here, move along to transitory to persistent to entrenched to ????
Price is only part of the story; volume is the other.
What’s the physical data on units of lumber production, lumber shipments, customer demand in various nations?
We know shipments were temporarily disrupted but how much did that impact deliveries and production of next-stage goods?
of all the things you can bet on, leave the casino out of the forest. Trees give us oxygen. they are your life breath. leave the trees alone. choose to live in oxygenated air by spending your money where your lungs are.
One of the reasons lumber prices spiked is President Biden, in his special way of exacerbating inflation, more than doubled import tariffs on Canadian lumber to 18% in November.
And additional 9% in tariffs — that’s what Biden did — is going to cause lumber prices to spike by 200%? Sheesh. And last time it spiked, starting in early 2021, that was three years AFTER the first tariff went into effect.
If 1,000 board feet traded at $500 in Chicago when the additional 9% went into effect, and let’s assume that this was equal to import costs of lumber, which it is not, then the tariff (applied to the import costs) would have added $45 to that $500 = $545. And that would be it. But lumber futures (not import prices) are now at $1,289 without further increase of the tariff.
I already addressed this nonsense in a comment above.
Yesterday I visited the hottest resi real estate market in the U.S.: greater Sarasota. At every neighborhood in Lakewood Ranch (just one example), building lots are claimed almost before they are released for sale! Builders (Pulte, Lennar, Toll, Stock et al) can’t get roads finished before the fierce bidding starts on newly released lots. Prices? Don’t ask. The typical 3500 sq ft new build (lot included – IF ANY AVAILABLE which there aren’t) has gone from $850K 5 years ago to nearly $2 million today, with basically no lot availability till springtime. Thanks Fed!
Wallstreet made your grandkids bed, they have no choice but to lie in it, rest assured because the gov insists.
they are absolute in insisting and used cover of propaganda infused emergency when direct observation appeared. It’s all bond/debt/social manipulation for what should be a ‘free market. Even the Private sector that’s left is propped by endless bonds, it’s everywhere. while endless expansion gov, gov budget, gov regulation keeps the illusion. Extreme energy efficiency regulation for empty investment buildings, wtf. No housing supply with ‘extreme’ demand while they hold the keys thru permitting. Even ‘booming’ areas have developments locked in time till demand arrives. Empty housing in depressed areas for decades, no mention. Upside down Property taxes, that make so much undesirable per the oppressive taxes alone.
The fed Frankstein’d the American dream for 13 years thru financialization of basic needs and even medical tyranny is an acceptable tool at this point. this is the inevitable results of reverse fundamentals, gravity-less beliefs, and cattle class for production. Their MO
Critical thinking is the biggest challenge to their forced indoctrination. Climb in your box of fraud and accept or be cast into the shadows is why 50 million plus refuse to partake in the corruption gone exponential and arguable the only thing left. There is no customer now, just middlemen of the form conmen, shills, and coachroaches that follow the script to a T