Lumber: Now In Glut
It is interesting how things change. Earlier in the year, people were pointing to lumber as evidence of inflation. They said that all the money printing was causing prices to go higher.
On the open market, the price went bananas. It shot up to near $1,700 per 1,000 board feet. This was, by far, an all time high.
Of course, markets are strange animals, often not telling a realistic story. After touching the peak level, something interesting happened.
The price of lumber since crashed. In the last 3 months it gave back more than $1,100. This is a wild ride for traders but is instilling havoc on the retail market.
Supply Chain Disruption
There was a global shutdown last year due to the pandemic. This set of a series of events that left to the massive run up in prices. However, there is always a price to pay since there are many dynamic issues always in play. This is a point the inflationists tend to miss. They look at simple stimulus-response which is showing to be incorrect over the last 30 years.
Lumber, like everything else, was in short supply as we rolled out of the lockdowns and things opened up. This industry was hit especially hard since it was one of the areas that kept going during the lockdowns. People decided to engage in remodeling jobs. This coupled with the ongoing construction led to a need for lumber.
Since the mills were running behind, lumber yards did not want to be caught without supply. Hence they ordered whatever they could. This is something that we could be seeing across many industries.
Nevertheless, the idea was that there was a huge demand that would continue. As mills reopened, lumber was pumped out and yards filled up with stock. The prices were up but that didn't matter since people were buying.
Unfortunately, the solution for high prices is often high prices.
As people found out their home improvement jobs became too expensive, they stopped. Also, those that completed their improvements were not in the market again. Finally, there is a possible slowdown in housing.
Lumber Yards Sitting On Excess Inventory
There is now a glut of lumber at the retail level. This is something that stands to reason given the factors just mentioned. Also, the lumber that is there is at a higher price. The collapse in wholesale prices means new lumber can be purchased cheaper than what is in the yards. Companies are now tasked with trying to unload the lumber, possibly at a loss.
According to Bloomberg:
In July, 49% of building-material dealers and manufacturers said they had excess lumber capacity, while none described their levels as “very tight,” in a survey by John Burns Real Estate Consulting LLC. Back in April, 40% said their wood inventories were “very tight.”
That is a big turnaround in just 3 months. This shows us how quickly the supply/demand equation can flip.
For lumber, it is already taking place.
People are reporting they are starting to see prices in some of the different pieces dropping a lot. Pressure treated lumber along with plywood are collapsing in price. Of course, the drop is not moving as quickly as the market since there is still higher priced lumber in the yards.
Is There A Wider Issue
There is no reason to believe that this situation is limited to lumber. Getting the supply/demand equation is very difficult. Most everything saw supply chain disruption.
One of the challenges is that everyone reacted in the same manner. As retailers found themselves without inventory, they scrambled to make sure they had product. This is only natural since they did not want to lose sales.
Of course, this mean placing orders for whatever they could put their hands upon. As supply chains get back in order, products will start hitting the shelves.
The question for them, also, is whether the demand will be there. This is especially true for durable goods which held up fairly well during the lockdowns. Like lumber, people were purchasing as they were spending money in this area as opposed to on services.
What resulted is a number of years worth of demand was pulled forward. We are going to see those people who decided to engage in major purchases removed from the market for a while. This means that the supply buildup could result in a glut if demand wanes
The problem is that the latest University of Michigan Consumer Survey was very disappointing. For August, the preliminary numbers saw a sharp drop meaning that those questioned are less optimistic about things economically than they were a month ago.
This is one the barometers that many money managers and economists look at. With this survey, if it continues this trend, it will make for troubled economic waters.
We will have to see how this all pans out. However, we could see a duplicate of the lumber situation in other industries.
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This one has been the bain of my existence, I had to shell out more for timber because prices sky rocketed and delays were expected to be a year or more unless I paid more.
My neighbours had timber delivered twice only to have it stolen. They eventually cut their loses and their frame is now made of steel. He was telling me he should have done it sooner as it would have been cheaper with the amount of time he has had to replace his own timber because it wasn't being covered by insurance.
Fortunately I only rent a few blocks away from where we are building so am able to go check regularly. All's well so far but we aren't finished yet.
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It went nuts. Might be settling down for a while.
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This is an interesting topic and will be a focus of today's post when I get to it. But I had a chat with some people around policy and it turns out that the changes proposed will have impacts beyond cryptocurrency and are unlikely to be passed and if they are will impact more than just cryptocurrency.
Broad range of services will be impacted, the definition that has been drafted if maintained applies to all tech. Including gaming and anything where you purchase in game items. They make no sense and alot more people will be put off side with more businesses crumbling than tax gained.
I really do need lumber prices to keep dropping.
I really need a new fence...
I was quoted a ridiculous price. Maybe its time to get a second look at the project.
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Maybe keep an eye out over the next month or two. If what people are saying is true, retail prices will be coming down.
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Now it is vehicles. Used cars are at a premium and dealerships are offering big bucks if you want to sell them your used car. New cars, by and large, are in short supply.
Yeah makes you wonder if they are still producing at a high expected demand rate if the buyers will still be there when the chips finally come in.
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Despite that, I did not notice any change in the prices of our furniture here or in any nearby city
It seems that they do not care about the global stock market for iron and lumber, only gold is what is accurate.
It takes a while to filter through the system. There is a difference in what the futures market prices things at and what eventually goes through the system. Those who monitor this know lower prices are coming in many items.
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I do not understand the stock market well
But a strange decrease despite the wildfires that are currently spreading everywhere
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It was a matter of the mills being shut down.
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I am actually surprised it dropped back so fast. Even though the lumber prices have dropped, those construction companies will definitely not lower prices since some of them already paid high prices.
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No they are going to hold off on higher prices as long as they can. However, the first one to drop will set of a cascade effect.
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Interesting info. Well done
Crazy how demand drives pricing and then they wonder why they sit on inventory. What happened to not screwing people as the profits you make will end up being lost by the quiet times created by yourselves in the first place. People are dumb in so many ways.
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