Lumber has gone nuts, especially in relation to its ambient trend over history.
Since 1978 we have the following (nominal) pricing data:
And in the past year:
Similar to crypto, nothing shows proof of work more than a sawed 2″x4″x8′ stick of wood available at Home Depot!
Not surprisingly, given the completely out-of-history price rise in lumber pricing (right up there with government bond pricing), we have seen lumber producers skyrocket in price from their Covid lows. The previous rise up in 2018 also caused a spike in lumber producers, but this time the prices are even much higher.
However, lumber is like most other commodity markets that are highly cyclical – I suspect pricing is at the point where there will be an element of demand destruction and when this occurs, watch out below. It’ll probably happen in 2021 when the current backlog of “must-construct” projects abates and supply continues to stream in.
The times are good right now – lumber companies will be posting insanely high profit numbers in Q1 and Q2, but the question remains how sustained this massive commodity boom will be. The phrase “leaving the party while people are still drinking the hard liquor” seems apt – it seems so contradictory, but you want to unload your commodity shares at a point where the historical price to earnings is the lowest (typically a mid-single digit). The market has a very good sense of being able to detect when the commodity company has reached its peak profit.
I’ve sold half of my lumber stock, thinking it was the top, when prices hit $1000, and look where we are now.
Even though I disagree, some say high prices are here to stay, and others even act on that:
https://gffp.ca/home/investors/news/greenfirst-to-acquire-forest-and-paper-products-assets-in-ontario-and-quebec/
Time the second half of your dump properly and you should be happy.
I don’t see any structural reasons why these prices will stay permanently elevated (short of overall monetary policy which will hit all commodities). The shortage doesn’t appear to be raw timber, and it appears to be caused by the reverberations of inventory reductions and supply cuts that were shortly after Covid began last year, coupled with a complete mis-judgement of the demand after the Covid thing started, a lot of people were like “crap, we have to self-isolate, now’s a perfect time to build a deck!”.