palletcentral

PalletCentral • May-June 2022 23 for truckers to as much as $110,000 and launched a training program to increase its fleet size. While this will not directly benefit the lumber industry, it is indicative of broader efforts to boost trucking numbers in the U.S. For the lumber market, improving logistics have quickly turned into a bearish influence after months of bullish impact that sent prices soaring. is comes as the sector enters its busy spring building season. In early March, the front-month lumber futures contract on Chicago Mercantile Exchange vaulted above $1,460 per thousand board feet – a premium over the cash market – as the transportation shortage delayed deliveries and fueled more buying. e extent of the rally surprised many veteran traders and analysts but remained below last year's record high. Prices have since dropped hundreds of dollars and the lumber futures market is now in backwardation (when the nearby contract is more expensive than deferred months). is tells us the market expects prices to fall later this year as the contract for September delivery fell more than $100 below the price for May. North America's cash market, as reported by Random Lengths, has quickly dropped to triple-digit discounts below the May futures contract. ese rapid changes have sent some potential buyers into wait-and-see mode with hopes that prices will shrink even more, and the supply-chain bottleneck will loosen further. at mentality comes as the inventory saga of 2021 is fresh in the memories of lumber buyers. Last year, many bought at high prices. By the time the wood was delivered, however, prices had tanked, and companies found themselves holding onto expensive inventory, just as sticker shock set in with consumers and vaccinations enabled spending in other sectors (e.g., restaurants and vacations). (See Chart 1.) Capacity expansions in the U.S. South have mostly made up for British Columbia mill closures. However, wet weather and labor-supply constraints have limited log availability and mill production. We expect soil moisture content will decrease over the winter—with 2021−22 expected to be a La Niña year—which will ease the difficulty of getting into the woods. Labor constraints will be a bit more long-lived, as many folks who left the workforce at the beginning of the pandemic have yet to return, and we expect labor issues will continue to hamper production this year. Capacity additions in the U.S. South, relatively higher inventory levels coming into the year, and weaker residential-improvement activity will all prevent a run similar to what we saw in 2021. Moreover, prices are expected to slip throughout the second quarter as dealers digest the inventories that they built in late 2021 and early 2022. We do expect another round of buying in the third quarter as residential-construction markets remain seasonally and cyclically strong; however, prices in the second half of 2022 will average below the first half of the year as even more low-cost southern pine capacity comes on line. For the year, we expect the RLFLCI will average 817 in 2022. (See Chart 2.) Ultimately, we expect lumber prices will continue to be volatile in 2022 due to a number of reasons, but the main one is the lingering effects of COVID-19. e lack of buying and production in the wake of the pandemic's outbreak in the U.S. drove dealer stocks to historic lows. As demand surged, there was

• Cover