After an historic run-up in the price of lumber that began at the start of the pandemic, futures finally came crashing down after peaking in the spring. Lumber futures appeared to stabilize near pre-pandemic levels in August, bringing joy to builders happy to see some normalcy in a volatile market over the last year.
However, the price of lumber has been trending higher again, rising as much as 40% since late August and may be preparing for another run-up amid significant supply disruptions. Demand for the material is only forecast to rise over the next few years as sawmills continue to curtail their production over the last few months.
Related ETF & Stocks: iShares Global Timber & Forestry ETF (WOOD), iShares Global Timber & Forestry ETF (WOOD), Weyerhaeuser Company (WY), PotlatchDeltic Corporation (PCH), CatchMark Timber Trust, Inc. (CTT)
Lumber Prices Rallying On Strong Demand After Summer Plunge
Lumber markets have been far from normal since the onset of the pandemic as futures contracts for the commodity have been incredibly volatile over the last year and a half. The price of lumber from 2015 to 2019 averaged out to be roughly $357 per thousand board feet, yet supply disruptions and surging demand drove the commodity’s price to all-time highs.
The combination of a housing boom, do-it-yourself home construction trends and sawmills slowing production pushed lumber futures as high as $1,711 in late May, per The Wall Street Journal.
MRP previously highlighted the lumber market, noting in late April that the lumber boom was likely coming to an end as demand for wood faded and consumers shifted their focus to leisure and travel. We closed our LONG Lumber theme – initiated July 23, 2020 – on April 26, 2021. Over that period, a basket of 4 timberlands REITs we used to track the performance of the theme, garnered an average return of 34%, outperforming the S&P 500’s 24% gain.
That timing proved to be advantageous. After surging more than 300% from pre-pandemic levels, lumber futures tumbled through the summer to as low as $389 per thousand board feet at the end of August, settling at typical market prices.
Buyers hoping for some stability in the market were quickly disappointed as prices have slowly risen since bottoming out at the end of August. According to MPA, prices increased for the fifth straight week, soaring as much at 40% in the month of September to $628.
Further Lumber Volatility Likely
While lumber prices are still well below their record highs seen in May several factors are setting wood up for a late-season rally from the lows set two months prior.
MarketWatch reports that cheap lumber costs…
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