America's saw mills didn't see this building boom coming

NEWPORT, R.I. -- When woodworker Michael Hendershot stocked up with lumber in March ahead of building season, he feared the coronavirus pandemic would disrupt the supply of wood more than demand for fences, decks and cabinets. He multiplied his usual order by four.

He was right. But he could have bought even more.

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Lumber consumption along Rhode Island's coast, as elsewhere in the U.S., has exceeded even optimistic forecasts, leaving home builders, retailers and craftspeople like Mr. Hendershot clamoring for wood.

Saw mills are having a hard time keeping up. Prices for wood products are hitting records all over the country.

Even in the all-markets rally that has sent stocks, bonds and commodities rising in unison since the economic shutdown, forest products stand out for how sharply their prices have climbed.

Lumber futures have more than doubled since early April, when roughly 40% of North America's sawing capacity was curtailed by mill owners. They expected widespread job loss and economic uncertainty would torpedo demand for building products.

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Instead, stuck-at-home Americans undertook home-improvement projects en masse. Home builders are rushing to meet soaring demand for houses, stoked by historically low mortgage rates and a flight to the suburbs.

"Our sales folks are spending three, four, five hours a day, dealing with customers that don't have any inventory," said Christopher McIver, vice president of sales and marketing at West Fraser Timber Co., North America's largest lumber producer. "Whether it's in plywood or whether it's in lumber, everybody is still very, very short, including the box stores."

Futures for September delivery ended Friday at $585.80 per thousand board feet, up from $259.80 on April 1. Even futures contracts for lumber that won't be delivered until 2021 are trading above $500.

Futures have traded north of $500 only once before, during a short-lived surge to $639 during the spring of 2018 when wood-boring beetle infestations and wildfires in the Northwest, a trade dispute with Canada and rail-delivery issues pinched supplies.

Random Lengths, a pricing service for which the futures contract is named, said Thursday that its Framing Lumber Composite price, which accounts for several varieties, surged further into record territory at $627 per thousand board feet. The $40 weekly jump was the largest since Random Lengths started keeping track in 1995.

Ticker	Security	Last	Change	Change %
WFTBF	n.a.	n.a.	n.a.	n.a.
DHI	D.R. HORTON INC.	145.78	-0.29	-0.20%

In the South, the service said in its bulletin, "price often became irrelevant in negotiations. Buyers desperate to avoid running out of inventory told suppliers to name their price." In the West, "ship times extended to late August and early September, with quotes rising as weeks pushed out."

Mill owners reporting quarterly earnings in recent days said that saw facilities are running again and there is little they can do to boost output to replace the boards that weren't produced during curtailments in March and April.

"It's challenging in a Covid environment to run overtime and to add more shifts or more people," said Michael Covey, who is chief executive at PotlatchDeltic Corp., which owns mills in four states. "The supply is what it is."

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UFP Industries Inc., which is a big supplier of pressure-treated lumber to stores such as Home Depot Inc., said June sales in its retail division jumped 47% year over year.

"We could have sold significantly more had we had material available," CEO Matthew Missad said when the Grand Rapids, Mich., company reported its highest-ever second-quarter earnings. Shares of the company, which also sells trusses and concrete forms to builders as well as crates and pallets, shot to new highs.

After crashing in March and April during the lockdown, home starts and new residential building permits have been rising. The country's largest home builder, D.R. Horton Inc., said Tuesday that it sold 21,159 houses during the quarter that ended June 30, which was 38% more than the same period in 2019. Orders in each of May and June were up 50% and July was similar. Pretax income rose 25% year-over-year.

"There could be some headwind coming at us from lumber," Michael Murray, the home builder's operating chief, told investors.

For Mr. Hendershot, in Rhode Island, surging prices and uncertain supply has made it difficult to plan jobs and give customers a clear idea of when the new decks and outdoor showers will be finished.

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His Greenwich Wood Products LLC had been negotiating with a customer over a big custom deck since before the pandemic. By the time they agreed in May, there was little pressure-treated lumber available. His suppliers couldn't say exactly when the wood he needed would arrive.

"When the client asked us our lead time for completion, we joked that it would take three to 30 weeks," he said.