A timber industry veteran told CNBC Thursday that he expected the hot wood market to last for at least a few more months and that both prices and volatility would remain elevated.
“We believe this cycle we’re in right now is here for the foreseeable future,” said Kyle Little, chief operating officer at Sherwood Lumber, a privately held wholesaler in New York. He is also a former timber merchant.
“That doesn’t mean we won’t weigh these recent highs,” Little said in an interview on The Exchange referring to May 10, when wood hit a record of $ 1,711 per thousand board feet.
“But the lows will tend to be much, much higher than they have been in the past due to the lack of supply and high demand in the market,” he said.
Little said his view is supported by research his company conducted late last year that analyzed seven previous bullish cycles in lumber over the past 35 years. They ranged from nine to 41 months, with the average being between 18 and 24 months.
He said the current boom was around its eleventh month, triggered in part by a pandemic spike in housing construction that caught both builders and wood producers off guard.
“Volatility is pervasive and we expect it will continue to do so with lumber,” said Little.
The Chicago Mercantile Exchange has a maximum price range, known as Limit Up and Limit Down, in which futures contracts for various commodities can be traded for each session.
Lumber futures for July delivery rose 4.75% Thursday, hitting a limit of $ 1,390 per thousand board feet in the session.
The Thursday promotion follows a wild session the day before, in which wood futures lowered the limit and reached the limit later in the day.
There were questions about when rising lumber prices, which increase construction costs, would lead to a cooling of demand. Recent data showed that the number of single-family homes fell by over 13% in April compared to the previous month, and the cost of sawn timber and other raw materials was seen as a factor in the slowdown.
For Sherwood Lumber, Little said, “One of the most important metrics we specifically consider when measuring short-term demand and sales pace is how we look at our current shipments versus our actual sales pace.”
In the last six months as the timber market warmed, sales accelerated to more than “double and triple the amount,” he said, compared to the shipping rate. But that has recently changed.
“We saw a decrease of about 27% in the past two weeks from the late April high,” he said. “It looks like we’re seeing a similar reduction this week as well.”