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Professional Builder News

Extraordinary circumstances are surrounding this year’s market – protect yourself!

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There is a lot of uncertainty in the market this spring

With both an expected agreement on a new Softwood Lumber Agreement (SLA) and the settlement of a Countervailing Duty (CVD) for presumably subsidized Canadian lumber sold into the United States.  The United States and Canada operated all last year without an agreement.  Most parties seemed content with last year’s business with one exception – small U.S. lumber producers.  With no SLA, the high volumes of Canadian lumber that shipped to the United States kept pricing low and the returns that went back to Canada were aided by an almost 30% exchange rate advantage keeping Canadian mills happy.

This isn’t a new argument between the United States and Canada, the argument stems from a fundamental disagreement on land management.  U.S. mills own or lease vast tracks of timberlands and must therefore manage their own sustainability while Canadian mills pay a stumpage charge to the Canadian government to forest the Canadian government’s land which the Canadian government manages.  Canadian mills therefore presumably do not bear the burden of maintaining land on their balance sheet.

Decking Products

To dealers like us the issue seems ludicrous

Many of the larger mills operate on both sides of the border now anyway and pricing appears directly correlated between northern and southern offerings.  We just simply want to provide our customers with the products they want, when they want them, and at a price they are willing to pay for them.  Unfortunately, we are not the only parties involved and some feel the competition is unfair.

That being said, the United States Softwood Lumber Coalition filed an anti-dumping lawsuit after a one year “cooling down” period when the SLA expired.  The suit named the four biggest Canadian lumber producers (West Fraser, Canfor, Resolute, and Tolko).  A panel agreed there were damages and now anyone interested in North American lumber is eagerly awaiting the determination of what those damages are.  Between the SLA and the CVD, Canadian mills are bracing for 30% increase but the actual determination may be quite different than that.  Unfortunately I think we are along for the ride this spring until it all gets sorted out.  There are four dates to keep in mind that will influence lumber pricing this year:

  • 01/24            Pricing for the countervailing duty is retroactive to this date.
  • 02/03            Pricing for the anti-dumping lawsuit are retroactive to this date.
  • 04/24            Determination date for the countervailing duty.
  • 05/04            Determination date for the anti-dumping lawsuit.

What does this mean for both of us?

Look for pricing to rise between now and the determination dates.  Pricing bumped up pretty good this week and if you haven’t raised your selling prices now is the time to do it.  Again, the market is bracing for 30% and the determination dates may bring more pain or relief.  Our goal is to always be a resource that adds value to your business and we pledge to keep you competitive in the market but pricing is going up in the short term.  Please protect yourselves with market correction clauses and expiration dates on your quotes.  The dynamics in this market are much bigger than both of us and neither of us can control them.  All is not lost though, it is very likely the market will come back down just as fast as it went up after the determination dates but don’t leave it in someone else’s hands!

 

 

 

John Colley, MBA
Purchasing Manager
Zeeland Lumber & Supply

2017 Zeeland Partner Summit

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Schedule of Events:

1:30 p.m. – 2:30 p.m.
Hiring Outside the Box – Panel Presentation
presented by the HBA
2:45 p.m. – 3:45 p.m.
Building Your Business with Social Media
presented by Lynne Jarman-Johnson
4:00 p.m. – 4:45 p.m.
Michigan Economic Forecast – Dr. Paul Isely
presented by Masco
5:00 p.m. – 5:45 p.m.
Keynote Presentation from John U. Bacon
presented by Trex
6:00 p.m. – 8:30 p.m.
Building Products Trade Show
John U. Bacon Meet & Greet
5:45p.m. – 7:45p.m.
Dinner Served
7:30p.m. – 8:00p.m.
Truss & Components: Building Solutions
Presented by Zeeland Truss & Components

Keynote Presentation

 ‘The Timeless Fundamentals of Leadership’ 
By: JOHN U. BACON

Best Selling Author, Commentator, College Teacher, and Coach

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@johnubacon | johnubacon.com

Endzone: The Rise, Fall, and Return of Michigan Football
Three and Out: Rich Rodriguez and the Michigan Wolverines in the Crucible of College Football
Bo’s Lasting Lessons: The Legendary Coach Teaches the Timeless Fundamentals of Leadership

Summit Highlights

Building Products Trade Show
*Product Innovation*
*Trends for 2017*
Educational Breakout Sessions
Economic Forecast
Catered Dinner and Drinks
Raffle Prizes and Gift Bag

Location

Frederik Meijer Gardens & Sculpture Park
1000 E. Beltline Ave NE
Grand Rapids, MI 49525

Grand Opening: Mishawaka, Indiana

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Grand Opening

Join us as we celebrate the Grand Opening of our new location in Mishawaka, IN. This facility has been rebuilt and remodeled to provide a first class experience for both the Professional Builder and Home owner.

Zeeland Lumber Logo

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Grand Opening Schedule:

8:00am:-5:30pm: OPEN HOURS
11:00am-11:30am: Ribbon Cutting
11:30am-2:00pm: Lunch on the Grill
1:00pm-3:00pm: Sunny 101.5 Live

  • Door & Raffle Prizes
  • Ribbon Cutting Ceremony
  • Meet the Staff
  • Showroom Tours
  • Grilled Lunch

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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.

 

Lumber Pricing Update October 2014

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John-Colley-Final-1024x1024The last time I checked in we had started to see that slow seasonal climb we typically experience in the fall.  2×4 and 2×6 pricing bottomed out in June, rose in July and has since traded ‘sideways’ to slightly up.  Last year 2×4 was commanding a premium over 2×6 and this year 2×6 has been commanding a premium over 2×4.  Specific lengths such as 10’ and 16’ continued to be pricier than 8’, 12’ and 14’.

Not much has changed with any of that.  In the current cycle of trading we bottomed out around October 1st and then pricing climbed through the first week of October.  This week the mill order files seem to have lightened up, but last week was a slow week for cash and futures trading.  There are a few ‘deals’ available but overall pricing seems to be flat with some specific items adjusting up or down.  Going forward, market reaction to any outside threats such as China stepping in would be my only concern with pricing moving upward in the short term.

Studs have been going back and forth while wide dimensional lumber has been flat.  Pricing from western mills on Hem Fir and Doug Fir have been better than Spruce pricing from eastern mills but the tradeoff seems to come with quality as all the “better” seems to have all been sorted out of the #2 and better from western mills.  Southern Yellow Pine followed a similar course as the eastern and western species with the narrower offerings such as 2×4 and 2×6’s stronger than the 2×8, 2×10, and 2×12’s which were flat.

Besides dimensional lumber OSB printed flat again.  There is good news for our region as Weyerhaeuser is back on line and trying to build an order file.  I kept thinking we would see a bump in pricing when Weyerhaeuser was down but this never happened. There still seems to be ample production so any bump would be due to obstacles outside of manufacturing such as trucking.  The orders we gave G.P. proved troublesome due to trucking issues which actually proved to be border issues.  I talked to a French Canadian driver who delivered a load of OSB to Zeeland Lumber & Supply. He explained that drivers are frustrated when crossing the border because traffic has been backed up for 3-4 miles, only two lanes are open and they have been waiting up to 6 hours cross.

What does this all mean to you?  I would say I don’t see anything other than seasonal adjustments and no major changes for the short term on the horizon.  I would continue to sell with confidence and I would rest assured that we are working hard to bring you reasonably priced lumber while keeping a critical eye on quality.  Use length’s like 8’, 12’ and 14’ for economy and use our Z-grade when you really want a nice appearance grade for studs and lineal.

 

Solving the Construction Skilled Labor Shortage

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Mike-Dykstra-SmallThe Construction Workforce Development Alliance of West Michigan (CWDA) was created by the Associated Builders and Contractors Western Michigan Chapter (ABCWM), American Subcontractors Association of Michigan (ASAM), and Home Builders Association of Greater Grand Rapids (HBAGGR). The goal of this alliance is two-fold: to present the construction industry as a smart career choice, and to provide educational opportunities for trade professionals.

Please check out the new CWDA website at www.webuildmi.com

On Wednesday, July 9 at the Pinnacle Center in Hudsonville, from 7:00 to 9:00 a.m., there will be representatives from the CWDA that will be hosting a discussion about solving the skilled labor shortage. This will be a great opportunity to learn more about opportunities for involvement. To register go to www.mygrhome.com/cwda I hope to see you there.

Continual Improvement and Measuring Results

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Mike-Dykstra-SmallOur leadership team has been working on measuring our performance to our customers with one simple metric.  This measurable is the percentage that we are on-time and complete on our product delivery to your jobsite.  We believe this is one key performance indicator that signifies the customer experience.  Our goal is 100%. This aligns with two of our core values: service excellence and integrity.

In the past three months, we have delivered product 92% on-time, and 96% complete.  Our commitment to our customers is in the event we are not on-time or complete, we are communicating this ahead of time so if it is a problem, we can work together for a solution.  Based on the fact that we have thousands of sku’s, over a hundred suppliers, several thousand delivery orders per month, with 250 employees involved, it may be an acceptable percentage, but we continue to look for ways to improve these metrics.  However, we think the real benefit is that we are measuring this and holding ourselves accountable, and that we are focused on continual improvement and the customer experience.

Lumber Pricing August 2014

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John-Colley-Final-1024x1024Last month we talked about the spread in pricing between asking levels and futures purchases.  We said at some point the two would come together because there was a relatively large spread. Cash did come down briefly but when the two met they both started rising together.  The uptick wasn’t much of a seasonal surprise, when this happens mills overproduce certain lengths which they tend to move off at a discount.  Pay attention to odd length’s such as 8’s and 14’s to get a better value on lineal if lengths are not critical.

Studs also continued their slow upward trend with the exception of 2x4x104 5/8″ which have been relatively flat.  116 5/8″ studs are becoming much more common which may be one of the factors contributing to the very high 2x4x10 and 2x6x10 asking levels.  We have plenty of 116 5/8″ studs in stock should you need a precut stud for a 10′ wall.

OSB is up but it is still trading at the bottom of the trading range.  Weyerhaeuser is moving into their planned shutdown so we can expect higher costs with freight factors and lack of production in the North Central region. As of today, plywood is trading at very high levels. I recommend that plywood subfloor users take a look at premium products such as Advantech.  ½” plywood users may even want to consider using thicker square edge OSB. Having put nails in both products, I know it feels better nailing plywood than OSB but these enhanced products are solid and hold up well.  Advantech actually has the best no-sand warranty on the market (500 day no-sand and limited lifetime transferable warranty).  Full warranty details on Advantech can be found here.  Again, this is in stock at Zeeland Lumber & Supply.

Wide dimensional has been flat until the last two weeks.  Pricing isn’t running away but it appears to be grinding upwards.  Look for alternative species with equivalent design values for Hem Fir or Doug Fir should major spreads start to develop.  We inventory 8′ to 16′  #1 Southern Yellow Pine in 2×8, 2×10, and 2×12 should you need anything with higher design values.  They work very well for pole barn carriers and you can sometimes get more length out of them when you need to frame rafters.

From my desk, I think it looks like we are in for the typical fall push.  If you have any projects coming that are particularly heavy in any specific dimension or length please let us know.  We continue to work diligently for you to provide solutions and value.