Monthly Archives

November 2015

Market Update: Exchange Rates

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John-Colley-Final-1024x1024Exchange Rates

In July of 2014 the exchange rates between the United States and Canada started to slip.  It moved from parity to $1 USD vs. more than $1.30 CAD.  This indicates for every dollar the Canadian lumber producer’s ship into the United States they receive more than $1.30 back.

The exchange rates between China and Russia came into play as well.  China’s economy is slowing… Their stock market crashed hard but it also isn’t representative to the population so you have to take that with a grain of salt.  The lumber they consume is also typically lower grades as well but it is still mill production.

It is easiest to look at it in China’s perspective the same way we look at US consumption from the US perspective.  Currently, for every dollar China spends on Canadian lumber they get $.21 worth of product.  For every dollar China spends on Russian lumber they get $9.87 worth of product.  Clearly they currently are getting better value buying from Russia if they can deal with all the reported logistics issues.

The market proved in economic terms “inefficient” meaning it didn’t correct very fast.  The slide in commodity pricing really didn’t take place until the first quarter of 2015.  Technically it was the largest first quarter price drop recorded in Random Length’s history.

The following graph depicts the futures pricing.  It shows what happened after we established most pricing in April.  Essentially we rode the lumber market up and subsequently back down to about the same point with little impact on customer pricing.

lumber chart 1

 

The Softwood Lumber Agreement

The slide on pricing in the first quarter triggered the Softwood Lumber Agreement (SLA) trade restrictions which placed a tariff on the Canadian Exports.  Essentially the tariffs were largely responsible for the bump in pricing that peaked towards the end of June.  They were also responsible for the bump that started in October.  The SLA expired this fall.  There have been rumors it may be re-instated but as of now nothing has materialized.  Contributing to the debate is the fact that Northern mills such as West Fraser, Canfor, and Weyerhaeuser all are acquiring Southern Yellow Pine mills in a process known as “consolidation.”  Essentially this means they are “playing both sides of the fence” and aren’t as interested in a tariff any longer.

Futures

One more issue on the lumber side that really hasn’t received much attention yet is how the lumber futures are traded on the Chicago Mercantile Exchange (CME).  The CME moved to an all-electronic format and closed the pit trading this summer which has reportedly changed the “feel” of how the futures trade.  There are also talks of eliminating after hours trading as well.

The dynamics haven’t really been evaluated critically yet but watching the futures trade it appears any industry news tends to create a lot of “panic” transactions which move the market rapidly.  Investment funds that have to maintain a specific percentage of their portfolio in lumber also tend to move the market substantially.  At this point I’m not expecting any real changes.

Freight

            Freight continues to be one of those intangibles and doesn’t seem to go down.  Fuel costs are currently low, but increased regulations on trucking in the United States and the draw of more lucrative contracts keeps many truckers from wanting to delivering lumber.  Canadian mills have reported higher freight rates and shortages of trucks almost all year and tend to blame the shortage on lack of drivers that want to cross the border into the United States. Other times truckers shift their services to hauling for other industries  such as produce and currently I’m hearing “Christmas trees.”  Regardless of the reasons, it is apparent the trucking industry is going to go where they get the most lucrative returns.

Wood Markets Monthly

“Wood Markets Monthly International Report” is a publication that provides information on sawmill global results, sawmill global earnings, the global cost of logs, the global sawmill costs, lumber revenues, and the U.S. Markets Competitiveness.  In their October edition they suggest competitive pricing as a result of Exchange rates and currency valuations for wood coming from Canada and southern US mills.  Western U.S. mills will suffer from a lack of substitutable products (they can’t import cheap logs or mill material any cheaper than a Canadian mill).  Overall though, they suggest “Lower lumber prices are expected in 2016” and suggest prices may “fail to see the levels of 2013 and 2014 until demand moves to much higher levels – perhaps 2017”.

With all this being said, a Look back at the futures chart shows we have already came back up above the annual lows (where we set pricing last year).  At $220/m mills curtailed production and drove the market back up.  My own personal feelings are that dimensional pricing levels are going to go too far one way or the other than the level they are now.  There may be a few opportunities before spring yet but by March and April at these levels it is definitely a safer bet to expect a seasonal bump.

Panel Summary

The panel market is a different story.  Panel manufacturers really have ample production capacity if they chose to use it… pricing remained relatively low for most of 2015 until mills curtailed production.

Panel pricing is a function of many of the same criteria as lumber pricing; log costs, production costs, freight costs, exchange rates, and etc.  The current spike is a reminder that when panel pricing is too low, any disruption in production will result in an increase in costs.

Freight issues to this point have prohibited bringing in material from different geographic regions.  From the current exchange rate perspective production from Canada should be economical in the U.S. but the fact that the one clear substitute for Weyerhaeuser, the G.P. Englehart mill, took an extended curtailment made it a mute issue in our market.

As pricing bumps up slightly it will open up supply from other zones, currently manufacturers want to ship wood at market price but we are approaching the levels where North Central producers will hurt themselves going much higher.  Overall OSB pricing was too low and freight was really problematic to get OSB from outside North Central.  Crossing the border from Canada to the US again continues to be problematic.

lumber chart 2

With all this being said, G.P. announced they are starting to have wood available in December.  This would suggest pricing will remain firm well into the first quarter but rise has appeared to have halted.  With March and April needs right beyond that I wouldn’t look for the bottom to drop out of the OSB market right away and I would expect pricing around these levels.

 

November Lumber Pricing

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Entering Ottawa County on the way home from deer camp, I felt like I moved right back into the heart of winter. This and we are only halfway through November.  Considering the heavy snow, markets have been light the last couple weeks.  The November futures contracts fizzled out at expiration due to cold weather encompassing much of the country.  Many dealers appear to be running inventories down in anticipation of a harsh winter.

That being said, OSB pricing has been stable.  Mills have a good handle on dialing back production.  Speaking with the mills they have indicated numbers would remain flat for the short term but many dealers are going into the 1st quarter relatively lean.  If the weather  decides it actually wants to cooperate, then dealers would all need to replenish inventory at the same time. If this happens we could then see some slight upward movement.  Personally, I won’t make any predictions on the weather, our weather reporters have a hard enough time as it is!

2×4 and 2×6 lineal came down slightly as the mills had to cut asking levels at the close of the November futures contracts.  2×6 also continues to be a premium over 2×4.  This is due to reports that some overseas business was done on 2×6 keeping the availability scarce.  Technical analysis of the futures chart shows pricing may have a little more to give, but there are still plenty of people making an argument that pricing could rebound.  At this point I would expect it to be soft for the next couple weeks.  We are mostly watching while trying to find opportunities that we feel can provide value to our clients.

Studs also moved down slightly, but Potlatch continues to have a decent order file and has not dropped pricing much.  We are moving into the season where the wide’s typically come down and we starting to see this trend already.  I know many folks like the Hem Fir and Doug fir offerings but our #1 Southern Yellow Pine is actually superior structurally. I recommend that you use it when you can.  Also, remember freight on the western species is limited to rail.  We may use #1 Southern Yellow Pine to fill in as needed.  Many of us learned a lesson last year that service by rail can be difficult to predict as it doesn’t necessarily operate all that efficiently in the winter.  Please keep this mind as you place your orders.

Anyway, what does this all mean to you?  I don’t anticipate any major changes coming to pricing long term in either direction.  I would sell at these levels with confidence as we push through the first quarter of 2015.

 

Now Hiring: Material Handler

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Apply

Location: Zeeland, MI

Summary: General warehouse labor job responsible for all aspects of material handling (stocking and credits) and serving customer’s needs.

 Essential Duties and Responsibilities:

  • Operate a gas or electric powered forklift truck or hand-truck to move, stack, load, or unload materials in and about the facility, warehouse, yard, staging area, etc.
  • Move materials from one location to another.
  • Load and unload trucks and train cars and move material within the warehouse and yards.
  • Assist with stocking of materials within warehouse.
  • Greet customers and assist them with their product pick up
  • Use banding and shrink wrap machines, additional packaging may be required
  • Pull orders together and assemble them for shipment to customers or distribution centers
  • Gathering or distributing product or materials within the warehouse or yard
  • Workers may use bar code readers, computer terminals or other electronic devices to track product.
  • General knowledge on all of Zeeland Lumber’s products and WMS/ERP systems

Qualifications / Requirements

  • Energetic, forward-thinking and creative individual with high ethical standards and an appropriate professional image.
  • Ability to follow basic written and verbal instructions, such as bills of materials and shipping documents, or equivalent.  Ability to read shipping documents.
  • Outstanding interpersonal and communication skills.
  • Strong analytical and cognitive skills.
  • Commitment to company values.

 Education / Training / Experience

  • High School Diploma or GED Equivalent.
  • Powered Industrial Truck (Forklift) Certificate.

 Reporting to this Position:     No direct Reports

Physical Demands and Work Environment

The physical demands and work environment characteristics described here are representative of those that must be met by an employee to successfully perform the essential functions of this job.  Reasonable accommodations may be made to enable individuals with disabilities to perform the essential functions.

  1. Physical Demands: While performing the duties of this job, the employee is occasionally required to walk; sit; use hands to finger, handle, or feel objects, tools, or controls; reach with hands and arms; balance; stoop; talk or hear.  The employee must occasionally lift and/or move up to 80 pounds.  Specific vision abilities required by the job include close vision, distance vision, color vision, peripheral vision, depth perception, and the ability to adjust focus.
  1. Work Environment: While performing the duties of this job, the employee is exposed to weather conditions prevalent at the time.  The noise level in the work environment is usually minimal.

SUCCESS FACTORS

Personal characteristics/behavior that contribute to the ability to do your job well:

  • Respect for employees, customers, vendors and management.

Summary:

The above is a list of activities routinely performed by this position and includes the essential functions an individual must perform for the position.  The above list is not all inclusive and the President reserves the right to add and/or remove any job duties as deemed necessary at any time.  The employee is expected to adhere to all company policies and to act as a role model in the adherence of policies.