For a look at just how extreme America’s shortage of lumber has become, consider this: For the first time in recent memory, a lumberyard was the one selling wood to a supplier.
This kind of trade is virtually unheard of. In a normal world, wholesale distributors buy lumber from sawmills and sell that to the yards that home builders frequent. But lumber markets today are anything but normal: Futures have surged by more than 60% to record levels this year as the entire timber supply chain collapses under the weight of soaring demand from people renovating their homes and buying bigger ones. Sawmills can’t keep up with orders. Truck shipments have been delayed. And distributors are running short on product.
“That’s how crazy the marketplace is,” said RCM Alternatives lumber analyst Brian Leonard, who has covered the industry for 35 years and had previously never heard of lumberyards selling to distributors. “Obviously it shouldn’t happen. You never push product back up the chain but you can today because of the volatility of the market.”
What’s more, reverse trades like the one that occurred earlier this month threaten to push wood prices higher. Distributors buying back supply from yards will inevitably mark up prices to the customers they resell to, potentially creating a vicious cycle that continues to stoke what has already proven to be an unrelenting lumber rally.
According to MaterialsXchange, a Chicago-based digital trading platform for physical wood products, the trade involved a lumberyard selling about 30,000 square feet of oriented strand board — a cheaper stand-in for plywood that is widely used to make house floors and walls. It’s known as OSB for short.
“Building materials are moving from company to company in nontraditional flows,” said Mike Wisnefski, co-founder and chief executive officer of the exchange. He says that prices have gotten so high that some home builders are being forced to cancel projects, leaving certain lumberyards with a little “excess inventory.”
On Wednesday, the electronic platform brokered another OSB sale involving a U.S. East Coast lumberyard selling to another one in Arkansas at $1,500 per 1,000 square feet, surpassing a record $999 that was reached at the end of March, based on Random Lengths pricing.