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Timber! Record Lumber Prices Fall Back to EarthLock Icon

5 min read

The lumber industry is one of the many sectors that have been significantly affected by the economic and social changes wrought by the COVID-19 pandemic.

But the industry appears to be settling into a new normal after a frenetic spring that saw lumber prices surge to an all-time high — so high that lumber executives were often at a loss for words to explain it. Consumers and homebuilders looking to buy two-by-fours or plywood probably had other expressive words when prices exploded.

“I’m not an expert at all because I can’t tell you,” said Steve Anthony, president of Anthony Timberlands Inc. of Bearden. “If I could explain everything that happened, I might be an expert, but I might be making some things up, too. It is so counterintuitive to have a pandemic and then have such a sharp increase, an unprecedented increase, in the price of lumber.”

And prices, Anthony said, went “stratospheric,” reaching an all-time high of $1,686 per 1,000 board feet in early May 2021.

Lumber prices historically rise as spring approaches, and these higher prices typically last through the summer construction season. Prices tend to decline in the fall as demand wanes.

But in the last year, prices began to rise from the $500 range at the start of November, and the increases continued into February when the commodities market price crossed $1,000 per 1,000 board feet. It stayed above that mark for the months of April and May and into June.

On Feb. 18, when the market price first breached $1,000, it was more than $558 more than the price on the same day of 2020.

“A lot of times those things have momentums of their own,” Anthony said. “You start panic buying; if you need it and don’t have it and everybody wants it, the prices reach really silly levels.”

To the relief of consumers, builders and industry officials, the price of lumber has steadily receded from the heights of a few months ago. It closed Sept. 14 at $471.

What Happened Was …

Most industry officials said the price scaleback was predictable because of the cyclical nature of the industry. Builders build in warmer weather so demand and prices are up in spring and summer, but no one predicted such massive increases in the first place.

“I’m going to say over this last year nothing that has happened has been expected,” said Tim Hahn, regional procurement manager for West Fraser Timber Co. Ltd. of Quesnel, British Columbia. “The short of it [is] we certainly enjoyed those really high prices when we had them, but we knew they weren’t going to last. We didn’t want them to last because it’s just not sustainable.”

The quick answer to why lumber prices exploded is that the pandemic forced people to stay at home, where they decided they might as well spruce up the house with a new deck or some other addition.

The remodel market in the United States went from $334 billion in the first quarter of 2020 to $354 billion in the first quarter of 2021. Timber for the construction market had to be redirected to the individual consumer market at a time when many sawmills were reducing capacity because of economic or health concerns

“It was the perfect storm of COVID, decisions made by manufacturers to reduce production in anticipation the world was going to shut down and seeing that it didn’t, and people made decisions to do remodeling projects,” said Max Braswell, executive vice president of the Arkansas Forestry Association. “Most of that production is designed to go into the construction industry, and suddenly it needed to shift to a retail market. The industry was aware — perhaps the consumer wasn’t — of the factors. There was also a tremendous amount of speculation on commodity products.”

Anthony, while acknowledging he doesn’t have a better explanation, doesn’t know how big a factor the remodeling demand increase played in the overall price inflation for lumber. Home remodeling is a small percentage of the overall lumber industry, which is dominated by new single-family home and multifamily construction.

“I guess people will tell you that they flooded the Home Depot and Lowe’s stores for home projects since they were not working or stuck at home,” Anthony said. “It is hard for me to believe that that caused the spike that it did. I haven’t seen a better explanation. The repair and remodel market is relatively [small] compared to the homebuilding market; it doesn’t drive the market nearly as much.”

Tight Operations

Both Hahn and Anthony said their companies cut production when the pandemic hit because nearly everyone assumed there would be an economic slowdown.

For a short while, that was true. When activity restarted — homes still being built or homeowners remodeling — the sawmills had to restart too.

That’s when other factors came into play. The federal government began paying an extra $600 in unemployment benefits in April 2020, which hampered the sawmills’ ability to hire workers to match production demands.

“Everybody did the exact same thing that West Fraser did when COVID hit: We immediately made plans and started taking hours of production out of all of our mills thinking that demand was going to drop,” said Hahn, whose company operates four sawmills in Arkansas. “By the time they got back up and running full speed, demand had taken off. Our federal government came in and paid them more money than we pay them to work in a sawmill to stay home on their couch. That is what has stopped a lot of mills from getting back up to production.”

Anthony also said the unemployment benefits worked against his company. He said Anthony Timberlands usually has 750 employees but is down about 10% because of turnover and lack of applications for open positions; his company has given hourly bonuses and other incentives to fill out its workforce.

“A lot of people would rather make $50,000 a year unemployment than working 50-60 hours a week at a sawmill,” Anthony said. “We are still understaffed at all of our mills and don’t have near the applications we had prior to the pandemic.”

Anthony, laughing, said that he doesn’t make predictions anymore, but Hahn and Braswell said the expectation is that 2021 will be a “normal” year for the industry. Braswell said Arkansas’ timber industry has a bright future because of the high supply of pine trees, which led to an influx of sawmill expansion in the state pre-pandemic.

“Fundamentals in the lumber business are still very strong,” Hahn said. “We expect lumber prices to return to stronger historical levels, maybe a little higher than they are right now. It wouldn’t surprise me to see [a price spike] next year, but not at the levels we saw last year and this year. Overall, we are expecting next year to be a strong, normal year in the lumber business.”

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