Two New Bullish Signs for Lumber Emerge
Justin Rohrlich October
7, 2010 11:53 AM|
Back in June,
we took a look at the lumber market with Shawn Hackett,
president and CEO of Hackett Financial Advisors, a Florida-based
money management firm with a focus on agricultural commodities.
At the time,
British Columbia was (and still is) experiencing "a
Mountain Pine Beetle outbreak beyond any bark beetle
epidemic recorded in North American history, causing
a widespread kill-off of the lodgepole pine forests--the
province’s most abundant commercial tree species."
80% of the mature pine is expected to be dead by 2013,
leading to consequences to be "felt for decades."
beetle issue is an incredibly bullish long-term factor.
With the crashing lumber market, I’d be buying lumber
even without the infestation. But this is an additional
reason why lumber prices are going to skyrocket,"
Hackett told us. "The weather has created an unprecedented
situation; we’ve never seen this kind of thing in Canada
before. The pine-beetle crisis is an extenuating long-term
supply issue and should create a record bull-market
move for a long, long time."
up with Hackett this morning for an update, and it appears
that two more bullish factors for the lumber market
1) More pine
of acres of pine trees in South Dakota have now been
killed by mountain pine beetles, centered around Mount
a matter of controlling the exponential growth of this
pine beetle," Bruce Weisman, of the National Park
Service, tells NPR. "We've seen this explosion
and it's coming over the ridgeline directly at us right
of lumber demand? The United States hit a trough of
existing new-home construction of 500,000 in 2009, a
level not seen in 40 years.
can hardly get much lower. Worst case scenario, we’ll
hang around that level; it likely will no longer be
falling like it did in 2007 and 2008. At some point
in the future, we’ll see an increase in construction,
and eventually, we’ll get back up to a million or a
million-and-a-half, and any kind of growth like that
that will require lumber supply. However, the pine beetles
will have substantially reduced capacity from Canada
at a time when we’ll be seeing growth in the industry.
Probably not this year, but I’m looking a few years
out. Canadian sawmills will reduce supply further, either
by closing or reducing hours, which will contract the
amount of lumber being produced. Given the barriers
to entry, those mills that got out will take some time
to get back in. And that’s when lumber prices go into
in a letter to clients, Hackett wrote:
elephant in the room from a demand side perspective
in the lumber market is China. I have spent some time
going over this factor and why it should provide a huge
spike in demand in the years ahead against a very constrained
supply as North American sawmill capacity contraction,
mountain pine beetle infestation tree killing effects
and depleting global natural forest reserves meet head
on with insufficient long term timber investments to
spur sustainable replacement supply."
this popped up via the Dow Jones newswire:
lumber futures prices Wednesday bounced higher amid
talk that Chinese buyers had booked some product from
a British Columbia spruce-pine-fir producer. Traders
said the talk was accurate, but that mill orders may
not be particularly deep after the sales. Mills stopped
accepting lower bids from domestic buyers, however,
so the effective cash price went up by about $5 per
1,000 board feet. Futures traders also hoped that the
export sales and the sudden jump in prices would spur
some domestic buying in the next few days, and buying
in the Globex market continued after the close of pit
trading, a broker said. After a two-week decline in
prices, futures traders were primed for something bullish
to trade on, and they got it with the export
sale, a broker said. The Nov contract settled up $4.00,
or 1.85%, at $220.80 while Jan ended $3.40, or 1.42%,
higher at $242.20, and Mar closed $4.70, or 1.85%, higher
looking at lumber as a long-term play," Hackett
said today. "This is a situation where lumber supplies
are going to be squeezed for a long, long time. The
damage has already been done."
that timing an entry into lumber will be a key factor
in the equation.
will be hearing a lot about this Mountain Pine Beetle
infestation issue in the years to come, and I can tell
you that when the media starts telling you how bad the
situation is for future lumber supply, prices will likely
be many times higher than they are today. I expect new
all-time highs above $500/1000 bd. ft. to be achieved
sometime over the next five years."
“waiting for signs that lumber prices are beginning
to make a definitive turn higher” to define your point
see everyone and their mother talking about needing
to buy lumber, it will have doubled or tripled in price,”
he says. “And that’s precisely when I’ll be getting