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Terry Schumacher
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Terry Schumacher works as a business acquisition finder. This activity involves doing research and identifying potential acquisition opportunities primarily for private equity firms. The acquisition could be a whole company, part ownership of a company, or it could be related to the divestiture... More
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  • Look For A Summer Rally In Lumber Prices

    Using SPF 2x4s as a proxy for all lumber prices, the normal pattern is for a seasonal low to occur in October followed by a seasonal high in February. This year has been different in that prices have been trending lower since a high in November 2013. SPF 2x4s peaked at $385 per MBF in mid-November and are now at $314.

    The main reason for this price action was the severe winter weather, which slowed home construction activity and interfered with some mills ability to ship lumber to their destinations. Also, the 28 day truckers' strike at Port Metro Vancouver that began on February 26 interfered with exports of lumber to China, contributed to a buildup of inventory at some mills, and this put additional downward pressure on prices.

    In addition to this broad tendency for prices to bottom in October and peak in February, there is a normal but less significant tendency for prices to rise from June to August. This year a summer rally might be more significant than normal because of the preceding price weakness going all the way back to November.

    Buying by lumber yards, that might ordinarily have already taken place in a normal year, may now happen during the summer. Also, exports to China may be higher in the next several months because of the lower shipments earlier this year due to the port strike.

    Available data related to some of the significant supply and demand fundamentals for the U.S. and Canadian lumber market this year vs. last year is as follows. Combined U.S. and Canadian lumber production through March is about unchanged. Demand for lumber through April for U.S. housing starts, which takes into consideration the mix between single family and multi-family units, is up about 3% this year, while combined shipments through April from the U.S. and Canada to China is down about 9% this year. However, the volume of lumber used in housing starts is much higher than the volume exported to China, and when you combine these two important forms of demand, the volume is about unchanged from last year.

    Over the next three months I believe SPF 2x4s could rise perhaps $30 from the current price of $314 to $344. In fact last year from a sell-off low of $298 at the end of May prices rose $30 to $328 at the end of August and continued to rise to the previously mentioned high of $385 in November.

    Jun 09 7:44 PM | Link | Comment!
  • Seasonal Decline In Lumber Prices May Not Occur

    In my lumber market outlook in early July I indicated that given the big price decline in lumber this past spring and the associated limited buying, there should be a significant price increase from the low in mid-June to a high in August or the first part of September as the pace of buying picks up. Specifically, I indicated that the price of SPF 2x4s could possibly reach a high of $360 per MBF, but that there could then be a sell off to a seasonal low, which normally occurs in October.

    In fact a rally has occurred this summer with the price of SPF 2x4s rising from $287 per MBF in mid-June to a current price of $342 as of mid-September. However, whereas I was previously anticipating a sell off following this rally, I am no longer looking for a seasonal decline in price.

    This change in price outlook is primarily driven by a continued high level of exports of lumber from the U.S. and Canada to China, and the expectation that these exports will stay at a high level. When lumber demand for exports is combined with demand from U.S. housing starts, the exports can significantly offset the normal seasonal decline in demand and usage of lumber from just housing starts.

    This more bullish outlook for the price of lumber may be strengthened even further because of declining production. The latest U.S. and Canadian production data for the month of June shows a significant decline from the recent peak in April, and this lower level of production may have continued for the summer months.

    Furthermore, throughout the period of the summer rally, both mills and lumber buyers have remained cautious in their selling and buying. Mills have tended to focus more on maintaining solid order files rather than on raising prices, and at the same time buyers have not built large inventories. The effect of this behavior, which I expect to continue, is to keep prices from being vulnerable to a period of decline.

    I now believe the price of SPF 2x4s could rise to $400 per MBF or higher by the early part of 2014 without a normal seasonal decline in prices occurring. In part this increase in price should be supported by the normal tendency for Canadian production to be at a seasonal low in December.

    I believe that being long lumber futures is the best way to take advantage of this price outlook. Owning large lumber producers like West Fraser (WFT.TO) and Canfor (CFP.TO) would make sense except for the fact that the stock prices are already reflecting the expectation of higher lumber prices and are trading near all-time record highs. I am long lumber futures.

    Tags: WFTBF, CFPZF
    Sep 15 5:11 AM | Link | Comment!
  • Lumber Market Outlook

    After having declined by about 30% from $408 per MBF in late March to $287 per MBF in mid-June, the price of SPF 2x4s, which is the product specified in the lumber futures contract, now seems to be headed back up. Limited buying during this period of price decline has resulted in low field inventories of lumber, and there may have been some curtailment of production due to the price weakness. Also, there are problems with adequate availability of trucks and rail cars for shipping, which is something that is usually supportive to wood products prices.

    Given the big price decline in lumber this past spring, I think there will be a significant move up from the low in mid-June to a high in August or the first part of September as the pace of buying picks up, and SPF 2x4s could possibly reach a high of $360 per MBF. Then we could have a sell off to a seasonal low, which normally occurs in October. From there it would be normal for the market to move up seasonally to a high around the following March.

    Also, at times during the coming months there will likely be sizable demand for lumber to be exported to China, which will help push prices higher. The magnitude of this source of demand is significant, and it is likely to continue to be an important market factor for years to come.

    In 2012 about 3.4 billion board feet of lumber was exported from British Columbia, Washington, Oregon, and northern California to China. This is enough lumber to build a mix of about 264 thousand single-family and multi-family homes in the U.S., and it is incremental demand in addition to the lumber that was used in actual total housing starts of 781 thousand units in 2012. Also, it is notable that this is a relatively new form of meaningful demand. It was only as recently as 2009 that annual exports of lumber from the aforementioned geographic regions to China first exceeded 1.0 billion board feet. Before that, export volumes to China were comparatively small.

    The purest equity investments to take advantage of rising lumber prices are the stocks of four Canadian companies. These companies are West Fraser (WFT.TO), Canfor (CFP.TO), International Forest Products (Interfor) (IFP-A.TO), and Western Forest Products (WEF.TO). The price of all of these stocks will likely trade higher, but these stock prices have already moved up significantly.

    I think the best way to take advantage of rising lumber prices is to own lumber futures. I got long futures in mid-June with the intent of holding this position till August or early September.

    Jul 05 2:19 AM | Link | Comment!
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