There are currently several factors affecting lumber prices this year. The exchange rate between the United States and Canada continues to widen. As of this writing it is $1 U.S. to $1.30 Canadian. That means for every dollar the Canadian mills sell into the United States they receive about $1.30 in return. By comparison, the exchange rate between Canada and China is $1 Canadian to $.21 Chinese which results in a return of $.21. The implications are that Canadian mills are much better off selling into the United States from purely an exchange rate perspective.
Exchange rates are not the only factor. There is currently a tariff between the United States and Canada. This is an oversimplified representation, but for every dollar Canadian mills ship into the United States they currently have to pay a 15% tariff. Pricing this quarter rose as the tariffs were responsible for an incline we felt in August. The current tariff treaty is set to expire this fall and we will have a period with no treaty in place throughout next year. If you recall, the treaty was lobbied for by the U.S. lumber producers to hold off the perceived low priced subsidized Canadian wood. If all other variables remain constant, dimensional lumber could remain at these low levels at least through the fall.
From the demand side I am currently hearing that sales of new single-family houses in June 2015 were at a seasonally adjusted annual rate of 482,000 which is 6.8% below May’s rate of 517,000, but 18.1% above the June 2014 estimate of 408,000. This indicates that starts seem to be better than previously estimated, but not as high as anticipated. The permit data suggests there is some work coming but an uptick in permits doesn’t necessarily translate into a monthly demand increase and it doesn’t solve our current labor solution.
All in, all, the data is pointing towards ample supply and a slight increase in building. We are just coming off the situation where Canadian mills didn’t want to ship into the United States until the tariffs were gone and we are going into the season of summer shutdowns. There appears to be ample supply in secondary sources if needed despite Canada’s hesitancy to export. That being said, demand trumps supply when it comes to lumber pricing. At this point, I wouldn’t expect pricing to go too far one way or the other unless mills lose their order files. I think this all points to relatively stable pricing as we push into fall with a small chance for a few bumps in the road along the way. Thanks for your continued partnership.