Against the Grain

Agricultural worker Istvan Puskas of Tiszaors, Hungary, spent four months in his workshop building a car almost entirely out of wood – including the gas tank.
“I love to work with wood,” Mr. Puskas told The Telegraph here (includes video). “And I like to create unique things which attract interest from people. My aim was to make it out of wood as much as possible. A wooden car must be made from wood! Most probably I will sell it. I have no place to store it. I have no garage, I have nothing. It can be good for a collector, for somebody who likes nostalgia, for somebody who likes to drive slowly.”

What Happened?

Evidently the “fractured supply chain” we heard about at so many industry conferences earlier this year works just fine when it’s chock-full of wood. Mark Kennedy, Executive Director, Equity Research at CIBC World Markets, cites a combination of four market factors which created an oversupplied North American supply chain:

  1. The over extension of prices (caused by momentum, with little fundamental demand support)
  2. Construction delays caused by poor weather
  3. The ramping up of production at sawmills in the U.S. and Canada in the face of strong market pricing
  4. Push back from China.

‘Push back from China’ is explained as follows:
“Lumber prices (on North American lumber) in China hit an all-time high in Q1/2013 of about US$280 per m3 on utility grade SPF (equivalent to about US$370/M mill net). China’s response to this record level of lumber pricing was to push back on several fronts. They picked up more lumber volume from other countries. In addition, some Chinese lumber buyers switched back to buying logs and then doing the product conversion in China. The combination of these two events was to reduce Chinese purchasing of North American lumber – particularly in the recent months of March, April, and May.” Mark was on BNN earlier today to talk about the ‘lumber tumble’ here.

Meanwhile, some lumber wholesalers point to the lumber market having plummeted ever since Tom Davis was announced this year’s recipient of the BCWLA Lumberman of the Year Award (click image for larger size).
Tom Davis vs CME Chart May 2013-page-0 (1)

Where do wooden boxes come from?

Founded in 1897, the Phillips Brothers Mill in Oak Run, California, was listed in the National Register of Historic Places in 2002. It is the last fully steam-powered sawmill in America and is still operated by the family (see mill history here). A video of the operation is available below.
Breathe deeply… exhale slowly… and enjoy… Wooden it be lovely!
(Hat Tip: Al Harder)


WhatWood is “the only english-language weekly journal in Russia that writes about the forest industry in Russia and CIS countries” according to their website here. Their post today entitled Wood Pricing Peculiarities in Russia and Finland is telling, indicative of the impact global supply factors have on domestic lumber prices today.

What to make of it?

Some suggest that market forces, especially those playing out between the U.S. housing recovery and what’s reported to be a glut of Russian Pine lumber supply at the moment in China, are competing market dynamics currently at the fore. Back in April at the COFI Conference, “fragile” was an oft-used word by many speakers in characterizing the forest industry recovery after five dismal years. The futures market has spoken; traders anticipate the increase in supply capacity will outstrip fibre scarcity concerns in the short term. The timing of patterns in play just now is fascinating, considering that while offshore activity tends to ease in the summer, variables such as summer sawmill shutdowns and seasonal fire hazards have yet to unfold.

Can’t take it home with you..

Thoughts of taking your work home with you in forest-related industry is not always possible. In Prince George, as example, by-laws that don’t allow you to store, repair, or even wash your logging truck on your residential-zoned home property will be tested in Supreme Court (see story here).

In these days of apparent oversupply – in some cases overbought inventory positions – it  might represent a note of caution for any traders looking to pile up those tubafors on the home front lawn in hopes that brighter demand on the horizon will afford opportunity a bit later in the building season to less painfully dispose of overbought positions.

Micro / Macro

Lumber prices began their descent six weeks ago. Right on cue, the MSM is only just now beginning to report the collapse. These reports are inevitably accompanied by headlines of doom like Reality Check, Output Glut, Timber! and the deadliest of them all – Death Cross on Lumber Chart.

On the surface, the April dip in U.S. housing starts reported this morning is perplexing. Coupled with the fact China appears to have pulled a Casper, it certainly goes a long way to explaining the  losses reduced market activity of late. However, perhaps just as telling as the weak starts is the strong permits data, suggesting it might be timely to focus on the big picture. Bloomberg explains:
Building applications that are higher than the level of starts signal residential construction will rebound as near record-low mortgage rates and improving job opportunities draw buyers. A limited supply of land is a hurdle for housing even as recent strength in real estate extends beyond builders to boost lenders and suppliers of construction materials. “The housing sector has had a bit of a pause recently but the permits data suggests the momentum will resume,” said David Sloan, a senior economist at 4Cast Inc. in New York and the top forecaster for housing starts in the past two years, according to data compiled by Bloomberg. “Starts are very weak and permits are very strong. It seems to have been exaggerated by the volatile multifamily sector.”  Source

The following U.S. housing market snapshot was published May 14th by John Burns Real Estate Consulting. It is posted here with their permission:

Around the Country With Our Consultants

West Palm Beach-based SVP Lesley Deutch reports that prices seem to be rising every week in Florida,and the Panhandle has now joined the rest of the state in a solid housing recovery. Builders are buying raw land in newer sub-markets in order to plan for the future, and the Active Adult market is booming across the state.

Atlanta-based SVP David Kalosis, a former Pulte market analyst, reports that Atlanta and most of the Carolinas have finally joined the housing recovery, but the recovery is very location-specific. He points out several areas where lack of supply is driving new home demand and pricing sharply higher and notes that the rate of recovery is often closely correlated with the perceptions of local school districts, some of which have changed in the last few years.

New England-based SVP Jody Kahn, former industry M&A exec and now the manager of our surveys, reports that international buyers are driving the New York condo market, which is the only Northeast market that is strong. Finally, the DC housing market is picking up nicely, as is New Jersey and Massachusetts.

Chicago-based SVP Lance Ramella, a 26 year industry veteran, is one of our frequent fliers, and reports that many of the Midwest markets have finally joined the recovery this Spring. Many of our building products clients rely on him to understand where the home building industry is headed.

Dallas-based Senior Manager Paige Shipp, formerly of Hines, Ashton Woods and Mercedes Homes, reports that finished lot prices throughout Texas are at peak values. Houston is the hottest market, where strong job growth is driving tremendous housing demand, particularly for the many master-planned communities.

Northern California
Northern California-based VP Dean Wehrli confirms that the housing market strength reaches from Palo Alto all the way to Sacramento, where homes are now on the market for hours instead of days. He recently led a client tour of communities in the outskirts of the Bay Area where seemingly every sales agent said prospective buyers “are all engineers.”

Southern California
San Diego-based SVP Pete Reeb, with 28 years of consulting experience, confirms the tremendous lack of supply throughout Southern California.  There are far too many builders chasing far too few deals in Grade A and B locations, which has pushed land values back up to mid-2000s boom time highs, and made land acquisition a highly competitive research-intensive pursuit for even the smartest execs.

Nevada and Washington
San Diego-based SVP Ken Perlman, with 15 years of consulting experience, is one of our road warriors and a master plan specialist, bringing best practices to the top communities in the country. Ken reports that:

  • the Las Vegas new home market is back strong, particularly in the master plans because they are so much better places to live than the subdivisions, and so incredibly affordable
  • the MPC-starved Seattle housing market may be the most popular market among public builders and private equity sources, who have created a tremendous spike in land prices

San Diego-based President Don Walker, former exec of Corky McMillin Homes, has been spending a lot of time on the growing single-family rental business, where Phoenix has become ground zero. He reports that Phoenix home prices have increased 19% in the last year, attributable both to investors and entry-level home buyers. Despite the strong appreciation, the mortgage payment on the median-priced Phoenix home only eats up 22% of the median household income.

Irvine-based VP Nicole Murray, a former Fieldstone Homes exec, has been working in a number of markets, including Utah, where she reports that Utah County’s population exploded 40% over the last decade and has very little ethnic diversity, creating plenty of demand and making the target home buyer audience a bit easier to understand.

Consumer Insights
Irvine-based Principal Mollie Carmichael, with 20+ years of experience at The Irvine Company, Pulte and Lennar, is another one of our road warriors, bringing consumer research insight and other knowledge to builders and developers all over the country. Mollie reports that many of the shelved master plan communities are getting started again, backed by solid research that the developers are providing to the builders to get them to bid on land with more confidence.

Shifting Demographics
Irvine-based Senior Manager, Chris Porter, who just celebrated his 8 year anniversary with us and manages our Demand Model by Lifestage and Price Point, reports that there have been some huge shifts demographically in the last few years.

  • Foreign Immigration Shifts: We are seeing a surge in affluent immigration into California, Florida and New York, and growing ethnic diversity throughout the internal U.S.
  • Move-up Buyer Shift: The low birth rates from 1971 to 1978 have created a population aged 35-42 (entering prime move-up home buying years) that is the lowest we have seen in 18+ years. That group would much prefer to buy a new home over a resale though, because new homes have the latest technology and are designed for 2013 lifestyles.

Yogi was right!

It ain’t over ’til it’s over!
Who’s to say what turned the tide? When all the pundits and pollsters had forecast an NDP victory in yesterday’s B.C. election, the experts are left scratching their heads as to what left Dix with a shrunken caucus. Around here, some are suggesting it was a widely distributed photo taken at the recent COFI convention in Prince George. Nah.. couldn’t be, could it?!

Closeup With The Premier

Closeup With The Premier