Builders Scour for Cheaper Lumber as Futures Prices Tumble

U.S. lumber futures tumbled from a record high for the sixth straight session, pushing some builders to the sidelines while they wait for even lower prices during North America’s boom in home construction.

The price of lumber for July delivery has dropped 23% from its May 10 peak of $1,733.50 per 1,000 board feet -- a level then that was more than four times higher than a year ago. Prices have fallen for six straight days, marking the longest streak for declines since September.

Futures were “overvalued as scrambling began for upcoming jobs to get covered, creating an unsustainable market,” said Joy Robles, who trades lumber on the cash market for Sherwood Lumber on Long Island, New York.

Builders Scour for Cheaper Lumber as Futures Prices Tumble

Lumber prices soared in the past year during an unexpected surge in house building and renovations that left sawmills unable to catch up to demand. The gains have threatened to price out home buyers, with the National Association of Home Builders estimating that the cost of boards for an average U.S. house have jumped by almost $36,000 in the last year.

Despite the latest selloff for futures contracts, prices remain elevated for wood that builders need quickly to complete projects even though purchases have slowed. It’s typical to have a gap in prices between the cash market and futures contracts, according to traders.

“There was an increasingly cautious tone in the market, with a sharp decline in lumber futures, reports of slowing home center volumes, and inflation data catching the attention of traders,” RBC Capital Markets analyst Paul Quinn said in a May 16 note. These jitters, however, have not yet impacted the cash market, RBC said.

The cash price for Western spruce-pine-fir 2x4s -- a lumber category used in homebuilding -- increased another 5% last week to a record $1,630 per 1,000 board feet, TD Securities equity analyst Sean Steuart said Monday in a note.

Demand for lumber remains strong, with the number of U.S. homes being built in March reaching the highest level since 2006. Most builders are buying on the cash market because delivery dates are more flexible and they require a variety of products not available on the futures market.

Lumber for July delivery won’t likely find its way onto a job site until late August, according to Mike Wisnefski, chief executive of lumber digital trading platform MaterialsXchange in Chicago.

“If you need wood in June, the futures won’t help you,” he said.

Still, sales of physical wood products on MaterialsXchange slowed last week and prices crept lower. A truckload of European spruce 2x4s already imported in Florida sold for $1,795 per 1,000 board feet on May 11. Two days later, the same quantity fetched $1,750. On Monday, the seller offered another truckload for $1,700, Wisnefski said.

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