North American lumber prices has been among the biggest commodity price decliners this year, and the outlook for the market doesn\u2019t look to improve anytime soon.<\/p>\n
Random-length lumber for January delivery settled at $423.80 per 1,000 board feet on Nov. 29, down about 63% for the year.<\/p>\n
\u201cCME lumber futures have been, by far, the worst-performing commodity futures in 2022,\u201d says Walter Kunisch Jr., senior analyst at HTS Commodities. The \u201clack of confidence in the U.S. housing market, amid the sharp rise in interest rates and mortgage rates, is creating headwinds and lackluster demand for lumber.\u201d<\/p>\n
Related market data<\/strong><\/p>\n U.S. new residential construction declined in October by 4.2% to a seasonally adjusted annual rate of 1.425 million, according to the Commerce Department. That is a sign of weaker construction activity as the housing market struggles with rapidly rising mortgage rates.<\/p>\n The Federal Reserve\u2019s commitment to combat U.S. inflation, combined with tightening underwriting standards, is \u201cscaring off would-be home buyers and has them running for the safety and comfort of the rental market,\u201d Kunisch says.<\/p>\n The national average 30-year mortgage rate has softened over the past few weeks to under 7%. But the recent rate, at 6.78%, is still at \u201chighs not see since December 2001,\u201d he says. And lower domestic demand and strong U.S. lumber imports have been a \u201ccombustible cocktail\u201d for U.S. lumber futures prices.<\/p>\n In October, U.S. data showed multifamily housing starts decreased by 0.5%, while single-family projects fell 6.1%. Multifamily starts require less total lumber, and they have also climbed as a proportion of total housing starts, contributing to lower lumber demand, says Scott Reaves, director of forest operations at Domain Timber Advisors.<\/p>\n U.S. residential permits, which can be a bellwether for future home construction, were at a seasonally adjusted annual rate of 1.526 million in October, compared with 1.841 million in January.<\/p>\n Lumber can be an \u201ceconomic bellwether\u201d for the U.S. economy, says Kunisch, and its negative price performance this year is likely indicative of a slowdown. The U.S. economy grew at an annual 2.9% pace in the third quarter, after posting two consecutive quarterly declines.<\/p>\n Domain Timber Advisors expects a downturn in lumber demand over the next two years or so, says Reaves. Demand may then start to increase as the millennial generation reaches homebuying age.<\/p>\n Even so, lumber isn\u2019t likely to return to, or sustain, the recently achieved pricing highs, Reaves says. Lumber futures hit a 2022 intraday high of $1,477.40 in March, the highest since May 2021. The new lumber futures contract, which launched in August and has a much smaller contract unit sizing, will eventually replace the legacy contract. It traded at $532.50 on Nov. 29.<\/p>\n In terms of supplies, Reaves says there has been an increase in lumber production facilities across the U.S. That higher production capacity may tighten log supply over the next five years, which \u201cbodes well for timberland ownership,\u201d he says. Owners would have the flexibility to sell their trees in times of high demand and curtail sales when demand is soft, he says.<\/p>\n The NCREIF Timberland Index, which consists of 466 investment-grade timber properties, saw a return of nearly 2.4% in the third quarter, up from 1.9% for the same quarter last year, according to the National Council of Real Estate Investment Fiduciaries.<\/p>\n Overall, however, lumber is facing demand-related headwinds while supplies and imports continue to be accommodating, HTS Commodities\u2019 Kunisch says. Whether the imports are a function of a strong dollar or rebuilding depleted supplies, \u201cslowing demand and increasing supplies are not a positive mixture\u201d for lumber prices.<\/p>","protected":false},"excerpt":{"rendered":" North American lumber prices has been among the biggest commodity price decliners this year, and the outlook for the market doesn\u2019t look to improve anytime soon. Random-length lumber for January delivery settled at $423.80 per 1,000 board feet on Nov. … Continue reading