Lumber futures have soared since the start of April, driven by cutbacks at mills, signs that the home-building season might be salvaged and brisk business at home-improvement stores.
Among major commodities only gasoline and crude oil, up 82% and 66% respectively since March ended, have seen a sharper rise as Americans emerge from stay-at-home orders aimed at slowing the spread of the coronavirus.
Lumber futures for July delivery ended Friday at $367.50 per 1,000 board feet on the Chicago Mercantile Exchange, up 46% from a low on April 1 and 15% higher than a year ago.
Just as oil producers reacted to a historic drop in demand by shutting in wells and stashing crude on tankers to alleviate a supply glut, lumber mills from northwest Canada's rainforests to the piney woods of the Deep South were quick to curtail production as wood prices plummeted in February and March and it looked like the home-building season would be lost.
Some shut down temporarily, others for good. Mill owners and analysts estimate that daily North American lumber production declined last month by as much as a third.
Though some mills have ramped up to meet resurgent demand from builders and retailers, about 20% of normal production remains curtailed, according to executives with Interfor Corp., North America's fourth-largest lumber producer, with mills in the Northwest and Southeast.
"With that kind of volume taken out of the market, prices will react," said Shawn Church, editor of Random Lengths, a wood price-reporting company.
Random Lengths' report for last week described "tight supplies in all species," mills booking orders into the second half of June and "scorching home center demand" for southern yellow pine, often used for fencing and decks.
"Demand has been the speed boat: It is much more agile and it has turned quickly," said Greg Kuta, president of lumber broker Westline Capital Strategies. "Supply is the oil tanker meandering slowly through the water. It's turning, but it's difficult."
Interfor, which was producing at just 50% capacity earlier this month, has led a surge in lumber-producer shares. Since March 23, its stock has gained 95% amid expectations that it will benefit from builders making up for lost time and the huge supply of cheap timber around its southern mills . Shares of West Fraser Timber Co., the continent's largest lumber producer, are up 68% over the same period, compared with a 32% rise in the S&P 500 stock index.
Though Census Bureau data released last week showed a predictable plunge in both new housing starts and residential building permits in April, home builders told investors during a virtual conference arranged by JPMorgan Chase & Co. that the drop in demand hasn't been as bad as feared. Home builders said orders are picking up from people eager to move out of apartments as shelter-in-place orders are lifted.
D.R. Horton Inc. executives said April sales wound up only 1% down from last year after a strong finish to the month. The country's largest home builder had earlier told investors sales were off by double-digits. Its shares have shot up 39% over the past month.
Meritage Home Corp., which sells houses that are typically priced just under $400,000, said that April orders fell 15% from last year to 775, but that sales have picked up. "We expect this month's orders could be in-line with last May," said Chief Executive Steven Hilton. The company's stock is up 75% over the past month.
With a few exceptions, notably in Washington and New York, home builders were able to stay on job sites after being deemed essential businesses. Construction slowed, though, as the number of workers allowed at each house at a time was limited by social-distancing guidelines and municipal inspectors and permit offices were pinch points.
Hamir Patel, a forest-product analyst with CIBC Capital Markets, said home-builder orders are encouraging for lumber demand and suggest that the massive job loss during the pandemic has been concentrated "among low-income households that are not typically in the market to own a home."
Meanwhile, many who already own houses appear to have used the time stuck at home to embark on renovations and repairs.
"There's nowhere to spend their money, they can't go out, they can't go to restaurants," said Paul Jannke of Forest Economic Advisors. "So what are they doing? They are going out to Home Depot to buy wood to fix their homes."
Home Depot Inc. and rival Lowe's Cos. reported strong quarterly earnings last week. A Lowe's executive cited double-digit growth in lumber sales during the first quarter, the end of which is when millions of Americans stocked up and hunkered down to wait out the pandemic.
"Clearly, the customer is re-engaged with DIY," said Home Depot CEO Craig Menear. "There's no doubt about that."