On Thinking Inside the Box

With the upcoming Super Bowl, we’ll soon see again that at the risk of sometimes being routine, the most basic skills on a football field like blocking and tackling are key to surviving playoffs and winning championships. On the trading floor, challenges in the second half of 2018 offered stark reminders of importance of performing well on the fundamentals that are key to delivering effective service for our mills and customers – in all markets.

In his practical “Building Sales” column at LBM Journal, author Rick Davis has been exploring a number of contrarian sales concepts. This month, he emphasizes the value of concentrating on the “tried and true ways”, by thinking “inside the box”. He argues: “It’s so easy to boast about being an outside-the-box thinker.. but everyone should first master the great ideas inside the box. High-powered sales people don’t ignore the skills that made them successful early in their careers.” In the article, Davis expands on four rudimentary sales skills:

  • Success starts with a cold call – “the most essential skill in the box”
  • Count contacts – “the law of averages will help you grow your business”
  • Let people share their story – “the best and oldest inside-the-box idea of them all”
  • Promise and deliver the things you can do easily – “sell what you can deliver in the normal course of business”.

We might suggest that lumber traders naturally have the materials with which to build the box inside of which to think.

Outside-the-box thinkers are creative people who put out fires and believe they should resourcefully cater to the demands of high maintenance customers. Inside-the-box thinkers prevent fires and make promises within the confines of their company’s operational capability. I’ve never been a fan of the ‘under-promise and over-deliver’ concept. Just promise and deliver what you can.
– Rick Davis, Building Leaders

BMC National Meeting, Las Vegas (photo credit: Brad Taylor, Dakeryn Industries)

19 Questions for 2019

Here are 19 questions that Harderblog will be watching next year, in search of answers:

1. Will the railways be better prepared for winter weather conditions?

2. Will the extreme price volatility in lumber markets this year persist in 2019?

3. Will Justin Trudeau still be Canada’s prime minister after Canada’s federal election scheduled on or before October 21, 2019?

4. Will Donald Trump still be America’s president by the same date?

5. Will Beto O’Rourke or Joe Biden emerge as the leading Democratic presidential nominee for 2020 by the end of 2019?

6. Will the 12 months of 2019 provide conclusive evidence that trade wars are “easy to win”?

7. Will noise about the border wall on the U.S. southern border have lessened by the end of 2019?

8. Will progress be reported in solutions for solving the opioid epidemic?

9. The American Psychiatric Association says anxiety levels jumped 7 per cent from 2017 to 2018. Will 2019 see a reduction in anxiety levels among the American general population?

10. Will 2019 see a reduction in anxiety levels among continent-wide lumber distributors?

11. Will Canadian softwood lumber exports to China (dropping each year since 2014) continue to decline?

12. Will an old-growth protection strategy be established in B.C.?

13. Will the accelerating rate of climate change evidenced in 2018 be exacerbated by global climate patterns experienced in 2019?

14. Will the U.S. repeat as the FIFA Women’s World Cup Champions?

15. Will the record number of homeless people identified in the City of Vancouver’s 2018 Homeless Count be broken again in 2019?

16. Will 2019 have seen an economic recession?

17. Will Brexit status be significant in determining whether Britain is “better off” at the end of 2019 than at the end of 2018?

18. Will European lumber deliveries to the U.S. decline in 2019?

19. In view of lower lumber prices, will we see movement in the Canada-U.S. softwood lumber dispute?

Answers

Year-end Answers

As we approach year-end, you’ll recall 11 questions for 2018 we posed one year ago at Harderblog:

1. Will rhetoric of military strike pass the ‘tipping point’ into war with North Korea?
No.

2. Will the Bitcoin excitement be fading, or prove to be a bubble?
“For built into this situation is the eventual and inevitable fall. Built in also is the circumstance that it cannot come gently or gradually. When it comes, it bears the grim face of disaster. That is because both of the groups of participants in the speculative situation are programmed for sudden efforts at escape. Something, it matters little what – although it will always be much debated – triggers the ultimate reversal. Those who had been riding the upward wave decide now is the time to get out. Those who thought the increase would be forever find their illusion destroyed abruptly, and they, also, respond to the newly revealed reality by selling or trying to sell. Thus the collapse. And thus the rule, supported by the experience of centuries: the speculative episode always ends not with a whimper but with a bang. There will be occasion to see the operation of this rule frequently repeated.”
– John Kenneth Galbraith, A Short History of Financial Euphoria

3. Will the extreme weather patterns evidenced in 2017 be as pronounced in 2018?
According to The Washington Post, the extreme floods, droughts, heat waves and wildfires that broke out this year across North America, Europe and Asia were unprecedented. In Canada, it’s reported no region was spared from extreme weather events; in B.C., 2018 was the worst wildfire season in history, beating the previous record set in 2017. The Weather Channel calls 2018 the year of the California wildfires.

4. Will Trump take steps to call a halt to the special prosecutor’s investigation into Russia’s interference in the 2016 U.S. presidential election?
Who knows for sure, although reports suggest it’s less likely now than appeared to be the case at the beginning of 2018.

5. Has integrity lost some of its lustre as a perceived prerequisite for leadership success?
2018 – a year when we’ve been inured to shock! Many revelations, many developments unfolding still, lead us to believe that integrity remains a prerequisite for leadership success in the long run.

6. As higher lumber prices effectively offset impact of duties, will Canadian major producers’ newly-hedged investments in U.S. production assuage any further concerns companies such as West Fraser and Canfor might have about the ongoing Softwood Lumber Dispute?
It’s a combination of factors, including fibre supply and ongoing international trade/duty related concerns that has motivated major producers to seek out options for gaining better control over the variable factors that go into managing their operations. Contrary to Trump’s America First philosophy, these days the large integrated corporations recognize they have to think globally to be successful.

7. Will Germany repeat as FIFA World Cup champions?
No. Germany did not make it out of the Group Stage, finishing last in Group F which also included Sweden, Mexico, and South Korea. France won the 2018 World Cup, beating Croatia 4-2 in the final.

8. Will the powers that be acknowledge that the re-manufacturing (value-added) segment of the Canadian forest sector is being unfairly penalized in the application of the AD/CVD?
No. On re-manufactured specialty wood products, the cross-border Anti-dumping (AD) and Countervailing duties (CVD) continue to be applied to the selling (border) price instead of the first mill price. Freight and all processing costs are included in the AD/CVD calculation. The resulting, punishing impact of this application on the value-added segment of the Canadian forest sector has been described as “an unintended consequence” of the Softwood Lumber Dispute.

9. Will softwood lumber be incorporated into NAFTA?
Softwood lumber was not incorporated into NAFTA 2.0 which was signed November 30th but has yet to be ratified.

10. In view of the fractured supply chain, will lumber buyers abandon the “just-in-time” model in favour of securing coverage that satisfies longer-term projected needs?
No. On the heels of the epic, bull-trap riddled lumber market collapse from the record high prices reached in June, the “just-in-time” model has probably intensified.

11. Will broccoli, the least-trusted vegetable of 2017 among lumber traders and the general population, retain that notoriety in 2018, at the same time as the world watches broccoli’s favorability surge to number one in Scotland?
A not-so-random survey among lumber traders reveals that broccoli has been gaining in approval ratings among lumber traders and the general population this year. In fact a survey suggests that as of June 2018, broccoli took the lead as America’s favorite vegetable. While many vegetables consumed in the U.S. are imported from Mexico, broccoli is well down the list of imported vegetables.

O Christmas Tree

It’s a buoyant market… if you’re talking Christmas trees. On both sides of the 49th parallel, Christmas tree growers say that sales are on the right track this year.

According to the National Christmas Tree Association, environmentally-conscious Millennials might be to thank. Both Canadian and U.S. tree farmers indicate it’s mostly younger couples who are fueling the optimism for green tree sales. “They’re coming in for the experience. It’s their first Christmas and they want to purchase a real Christmas tree.”

Bloomberg confirms it’s going to be a green Christmas for tree growers. With more buyers opting for pine over plastic, prices in the U.S. have surged 17% over the past two years. In the Great White North, growers point to $77 million annual sales, with approximately half their production heading to U.S. markets.

At our house, while the Christmas lights are up, ‘we’ usually prefer to wait until mid-December to buy a tree. Turns out our kids were paying close attention to the systematic setup of our neighbourhood tree lot this year. They pass the site daily when my wife drives them to and from school. Fencing went up couple weeks ago. Big tent popped up. Then activity seemed to stall. Suddenly this week, rows of crisscrossing 2×4’s appeared. Plywood walkways surfaced. Wednesday, colorful signage! On the way home yesterday, LIGHTS!! This morning, my phone rang early at the office. “Daddy, we’re thinking of buying our Christmas Tree now.”

Spirit of Thanksgiving

Posted by Ernie Harder 11-20-2018:

While Americans and Canadians celebrate Thanksgiving on different dates, we note an increasing universality in search for genuine meaning in events of traditional significance. Celebrations built around tradition are less inclined to differentiate the changing times and circumstances. Even so, realities of change, well beyond climate, traumatized lumber markets, or traditional celebrations touch us all. How we adapt is becoming a question of increasing relevance. Celebrations that mark historic or seasonal events, such as the recent honoring of sacrifices and the 100th anniversary of the end of World War I, or, the American Thanksgiving celebration this week, command our attention even as we ponder revised distribution yard inventory values.

The events of life intersect with our lives at the same time as we struggle to assimilate disparate transitions – comprehend election results, seek resolutions to concerns such as those posed by unprecedented raging California wildfires, contemplate the world’s refugees in search of a safe place to call home, support ongoing hurricane and flood revival efforts.

Adapting to the dynamics of life is complicated by the increasing speed of unfolding change. A study published last week out of the University of British Columbia suggests humans have become one of the largest drivers of evolutionary change on the planet, with conclusions that “evolution is now speeding up”.

We’re told that peace is not a season, anymore than a holiday defines the spirit of Thanksgiving. Borders that demarcate North American as well as global nations may help delineate different currencies, exchange rates, trade objectives and culture. However, in recognizing that “the rain falls on the just and the unjust”, the laws of nature do not differentiate between country or region. So too the symbolism found in celebration around specific events is measured in lives and relationships demonstrating acts of integrity and compassion everyday. It is in that spirit that we’re reminded of the life of the late senator John McCain, who infused language of Thanksgiving with demonstrated action beyond his quote: “If there is one word that embodies the ideal of duty, honor and country it is gratitude.” Happy Thanksgiving blessings to all our American neighbors and friends.

Atlin Lake, BC

Market Milieu

Where, oh where has the market gone? This is the mournful lament intoned on lumber trading floors spooked well in advance of Hallowe’en this year.

Conditions testing the resilience of experienced traders are drawing comparisons with the global financial crisis and US housing market collapse of a decade ago. Today’s geopolitical landscape seems besieged with instability amid crises, including international trade concerns, rising interest rates, financial market volatility, and looming US elections.

Seasoned traders seek to offer reassurance and calm aimed at validating longstanding customer-supplier relationships. While financial analysts scramble to make sense of conditions in the face of seemingly disparate economic data, it seems timely to explore tips for dealing with the biggest lumber market meltdown in history.

Google has advice for handling times like these. One link offering “28 positive things you can do when business is slow” suggests a slow period is just another name for opportunity: “ask for help, take some down time, take a course, take up a hobby, network, develop new offerings, rethink your business model and processes, strengthen important relationships, write, teach, volunteer, exercise, study another industry.” Some guys have even been known to enthusiastically take up coaching – not one – but two girls’ soccer teams.

Another column suggested eating lots of leafy green vegetables to keep your cognitive abilities sharp and on high alert. Even so, we’re told Canada’s legalized cannabis should not be seen as a tool for alleviating anxiety in current market milieu.

Where, oh where has the market gone?
Like a saucer of yesterday’s beer.
I don’t wanna be short,
I don’t wanna be long,
In fact Duthie, I don’t even wanna be here.

– Ernie Harder, singing live at the 1995 British Columbia Wholesale Lumber Association Roast honoring Duthie Welsford, BCWLA Lumberman of the Year (recording below)

11 Questions for 2018

Here are 11 questions that Harderblog will be watching in 2018, in search of answers:

1. Will rhetoric of military strike pass the ‘tipping point’ into war with North Korea?
2. Will the Bitcoin excitement be fading, or prove to be a bubble?
3. Will the extreme weather patterns evidenced in 2017 be as pronounced in 2018?
4. Will Trump take steps to call a halt to the special prosecutor’s investigation into Russia’s interference in the 2016 U.S. presidential election?
5. Has integrity lost some of its lustre as a perceived prerequisite for leadership success?
6. As higher lumber prices effectively offset impact of duties, will Canadian major producers’ newly-hedged investments in U.S. production assuage any further concerns companies such as West Fraser and Canfor might have about the ongoing Softwood Lumber dispute?
7. Will Germany repeat as FIFA World Cup champions?
8. Will the powers that be acknowledge that the remanufacturing (value-added) segment of the Canadian forest sector is being unfairly penalized in the application of the AD/CVD?
9. Will softwood lumber be incorporated into NAFTA?
10. In view of the fractured supply chain, will lumber buyers abandon the “just-in-time” model in favour of securing coverage that satisfies longer-term projected needs?
11. Will broccoli, the least-trusted vegetable of 2017 among lumber traders and the general population, retain that notoriety in 2018, at the same time as the world watches broccoli’s favorability surge to number one in Scotland?

Answers

Lumber Market Pricing

“What’s going to stop this market?!” is among the questions that lumber traders are pondering these days. Could softwood negotiations be the determining factor? What if the U.S. Department of Commerce throws out the case? More weather-related factors? This time, snow? Salvage logging? Traders taking a position, a stand, …or, a knee?

Back in 1994, when Michael Carliner was Staff VP for Economics at the National Association of Home Builders (NAHB), he wrote What’s Driving Lumber Prices?. In the article, it’s noted that changes in inventory levels create expectations on future levels of activity. It’s accepted that expectations about future supply and demand are key determinants in short-term behaviour of market participants. We’re told that rising prices, such as have been experienced, may of themselves create expectation of further price increases, causing speculative behaviour.

Carliner points out that historically, prices of lumber have not increased gradually with increased demand and constrained supply. Instead, data suggests an erratic pattern of booms and busts that are largely attributable to changes in expectations about future supply. Historically when supplies were not so uncertain, changes in housing statistics and other demand factors were reportedly less pronounced in their impact on short-term market pricing. We’re told that price spikes occurred when market participants were subject to uncertainties in policy, litigation impacting trade, plus the many additional factors that historically impact timing between a tree being felled and being delivered as lumber to market.

What’s different now?

The run-up in lumber prices over the past few months contains some short-term speculative elements, but the underlying trend is toward higher average prices.
– Michael Carliner, Housing Economist (January, 1994)

On this National Tree Day, any image of a tree is music to our ears! Hat Tip: Al Harder (Source: boredpanda.com)

An Accident of Circumstance

Some participants on both sides of the softwood lumber dispute are seemingly struggling to understand basic tenets of supply and demand. A global market is in play in the long run to influence supply and pricing. However, as this Bloomberg report demonstrates, imposition of duties on Canadian softwood lumber is mostly hurting U.S. consumers these days.

This unexpected boon for Canadian lumber producers is essentially an accident of circumstance. The attacks on Canadian lumber exports combined with serious wildfire issues in both Canada and the U.S. have served to reduce lumber supply. Meanwhile, the recent hurricanes that impacted the U.S. have led to a spike in construction – causing lumber demand to soar.

The result of these simultaneous supply/demand pressures has been a sharp surge in lumber prices. According to The Globe & Mail, Canadian softwood lumber producers have seen gains in their share prices of more than 40%. In contrast, U.S. lumber producers are averaging gains of only 10%.

The end result of the latest harassment on Canadian companies is that these companies have become more profitable, while U.S. consumers are paying significantly inflated prices for lumber – even as natural disasters have created an imperative need for new U.S. construction.

– Stockhouse Newswire 09-20-2017

Talk About the Weather

On the heels of the worst wildfire season in memory, a continent braces for reportedly the most dangerous hurricane ever. There’ll be time later to cast all this talk of weather in relation to climate change. For now, the impact on human lives is of foremost concern. Even so, lumber traders try to make sense of the variables that shape lumber markets thrown into unpredictability by virtue of trade talk uncertainties and subject to more volatility by forces of nature.

The reporting of Random Lengths since July (see excerpts from Random Lengths Lumber Market Reports below) suggests that traders sensed greater downside market risks heading into September. Pricing trends in evidence this week suggest the opposite to be true. We’ll share buyer caution in interpreting the changes that shape lumber markets this fall. Hazarding pricing forecasts seems especially risky for the remainder of this year. A recent posting we noted on a Vancouver church sign this week might have been aimed as a caution at bloggers and lumber reporter forecasters: “If pride comes before a fall, we should see humility by winter.”

July 21
“Some traders pointed to the gap in the application of the preliminary CVD on Canadian imports that starts August 26, hoping that prices would ease with no CVD in place.”

July 25
“While some quicker loads developed, mills widely quoted shipments for the weeks of August 14 and 21. Buyers were leery of booking into or beyond those weeks. They cited the coming pause in the countervailing duty, a steep discount in September futures, and quicker shipments from secondaries.”

July 28
“But the coming pause in collection of countervailing duties starting in late August, and the possibility of a lumber trade deal between the U.S. and Canada, left traders sensing downside price risk in the weeks ahead. Many turned to secondaries to fill holes in inventories.”

Aug 1
“With the preliminary CVD only in effect through August 25, buyers of Canadian S-P-F showed an increased fear of downside risk. The futures market’s huge discount to cash gave buyers another reason for caution.”

Aug 4
“Buyers maintained the view that purchases at current levels in advance of the onset of the gap in the countervailing duty carried risk. Producers, meanwhile, were largely content to limit sales to the U.S. until the gap starts, if not stack production until then.”

Aug 8
“Buyers anticipated downside in Canadian lumber amid the gap coming in the CVD. Reports circulated that shipments could be CVD-free as early as August 14.”

Aug 11
“Trading slowed as buyers’ sense of the market turned more bearish. Numerous factors weighing on the market generated uncertainty, which in turn led to a cautious approach. Topping the list was the coming pause in the countervailing duty, and anticipation that Canadian mills could lower prices with the nearly 20% CVD suspended.”

Aug 15
“A bearish tone grew more prevalent in softwood lumber and structural panel markets. Near record prices in many markets kept buyers only purchasing enough to fill in inventory, amid increasing fears of downside risk. Traders awaited next week’s countervailing duty gap period.”

Aug 18
“Dealers, distributors, and office wholesalers were reluctant to purchase more than immediate needs. They cited current price levels, the suspension of the preliminary CVD, and a slowdown in consumption as key reasons to hold back.”

Aug 22
“Buyers grew more concerned about downside risk and delayed purchases as long as possible. The pause in the countervailing duty on Canadian shipments to the U.S. takes hold at the end of the week, causing further fear.”

Aug 25
“Buyers anticipated opportunities to buy Western and Eastern S-P-F at lower levels with the August 25 arrival of the CVD-free period. Producers, however, proved to be far less vulnerable than buyers anticipated.”

Aug 29
“Monday’s announcement by the Commerce Department of a two month delay in the final determination of the countervailing and anti-dumping duty cases drove many buyers to the sidelines, waiting to determine a market direction.”

Sept 1
“Activity in S-P-F markets picked up Wednesday and Thursday once buyers digested news on the CVD case and returned to the market.”

Sept 8
“Many buyers.. scrambled for coverage, having held off for weeks in anticipation of a pullback once the pause in the countervailing duty on Canadian shipments to the U.S. commenced. Many were wary of booking loads past September at current prices.”

Log flume – Lower Seymour Conservation Reserve (North Vancouver, BC)