The insane rise in timber prices generates superb profits for sawmill owners. Home buyers, tenants and handymen take over the bill.
Last week, timber prices shifted to record territory, a sign that Weyerhaeuser Co.
, Canfor Corp.
and other sawmill owners are in line for even thicker profits than the record profits they reported in the first three months of 2021.
These companies have emerged as the biggest beneficiaries of the timber boom. They feast on an oversaturation of cheap pine trees in the southern United States as their finished products such as timber and plywood fly off the shelves of hardware stores and are traded by the hosts.
Timber futures for delivery in May closed on Friday at $ 1
On-site prices for two-by-four and other wood products have also jumped to new highs, according to Random Length. Traders are worried about being left empty-handed, and the company’s composite timber price has reached its highest weekly profit of a record $ 1,290.
“The nervousness on the part of many traders was palpable as they considered what the lack of running might look like,” Random Lengths said in his weekly report.
Waiting for wood may not help. Mill owners say they are backed by orders in June. Shipping boards in July, the most actively traded futures contract, closed on Friday at $ 1,376.50. September timber costs $ 1235.
“In the absence of a significant increase in mortgage rates or the revival of Covid, it’s hard to imagine what could lead to lower demand for timber and lower prices in the foreseeable future,” said Eric Kremers, CEO of PotlatchDeltic. Corp.
, which owns timber and mills in Idaho, Arkansas, Michigan and Minnesota.
In the first quarter, Spokane’s Washington wood products division earned $ 125.5 million, the best ever. Timber futures rose about two-thirds of the average price of $ 890 that Potlatch received in the first quarter.
“Builders are reporting record home sales and will need this timber to build these homes,” Mr Kremers told investors and analysts last week.
To emphasize the narrow supply of many wood products, the CEO told them about his own fence that exploded in a storm and the gardener who had to travel 100 miles outside the city to find cedar poles to find it. fix it.
When the economy was shut down last year to slow the spread of the coronavirus, sawmills sent workers home and curtailed production. As of April, approximately 40% of North America’s sawmill capacity was closed.
U.S. timber production returned to pre-pandemic levels in December, according to the Federal Reserve. Still, production remains about 16% lower than the peak in 2006, the last time so many houses have been built.
Last week, the Fed committed almost zero interest rates, which fueled the hot housing market. Rising house prices and low prices have also helped existing homeowners refinance mortgages to raise cash without adding much to payments. Mortgage finance firm Freddie Mac estimates that Americans withdrew nearly $ 153 billion from their homes last year to refinance cash. Vacation opportunities were limited by the pandemic and there was a boom in remodeling.
Demand has not been reduced by rising prices, managers say.
“Prices seem to be passing,” Canfor CEO Don Kane told investors on Friday. Canfor, which owns mills in northwestern Canada and throughout the southern United States, is recording quarterly sales and profit records. “So far we have not seen the resistance you would expect.”
Builders, including PulteGroup Inc.
and Howard Hughes Corp.
they say they have offset higher prices for timber as well as other building materials by raising house prices without slowing sales. NexPoint Housing Trust Inc.
investment director Matthew McGrainer assured shareholders that high timber prices do not eat builders’ margins. “We were able to pass on all the additional costs to the tenants,” he said.
At a recent investment conference, the CFO of Lowe’s Cos. Finance David Denton said the housing improvement chain and its competitors are not waiting to see if the accumulation of timber prices will be short-lived before raising prices.
“It’s largely real-time in the market, and you see it in the whole industry,” he said.
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