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End-Of-Year Purchase Planning – 2019

Posted on November 6th, 2019

Dimensional Lumber PricesThe building sector has yet to slow after a busy summer and we’re hearing from contracting outfits of all sizes that their jobs are booking a month, 3 months and even 6 months out. And while tariff talks have slid from the front page of the news, the building material and lumber markets are still subject to price fluctuations that can transform even conservative bids to a net loss.

Profitable planning drives our business. GR Mitchell often receives bid requests 6 months or even a year in advance of some projects so we need to be able to anticipate demand and pricing. Whether its through tips from our LBM Advantage conferences or straight from the pages of the Random Lengths lumber report, here’s some information that helps us plan and can help you make smart buying decisions, too.

Lumber & Building Material Pricing

After a landslide drop in price from May of 2018 to 2019 (almost a 79% change), the lumber market could have been described as “boring” in Q3 with little, to no, risk. Despite a relatively high number of mill closures, prices have only sluggishly climbed through the start of Q4. As the value began to creep, the introduction of European Spruce into the market had softened some of the impact of mill curtailments in the west and had helped to stabilize pricing.

Meanwhile, the announcement of a permanent closure and temporary curtailment from 2 Oriented Strand Board mills in the south-east US caused a temporary spike for OSB. We’re also seeing the plywood market chase that value up as well. However, this rate of increase is not suspected to be sustainable long term given no further curtailments, purely due to the amount of product still available. Wood is plentiful.

Changes To The Federal Funds Rate

Graphic sourced from FactSet Research Systems, October 30, 2019 via Etrade.com

As winter approaches, the demand for construction materials typically declines, but an eye on futures suggests continued elevation over the upcoming weeks. Prices hit the $400 level last week seemingly simultaneous with the third cut to the Fed Funds rate since July 31, which is likely to stimulate the market for new home purchases and in-turn construction/lumber demand. We anticipate that the slight, yet steady, increase in the price of lumber to continue through the first months of 2020, at least.

What does this all mean? If you have a large project planned for early 2020, buy now.

The same is expected of items outside of the commodity lumber market. It’s somewhat common to receive price increases year-over-year whether they be driven by fuel, labor, material or other operating costs and 2020 will be no different. Included in this list are drywall, insulation, metal, windows, doors and countless other building products.

And while there’s been a pause in their escalation, uncertainty about Chinese tariffs could drive price changes on additional imported goods (including goods manufactured in the US with foreign components). Peace talks between governing officials from both the US and China provide positive signals that future tariff hikes, the next of which is scheduled for December 15th, could be placed on hold indefinitely. However, this would not mean the removal of those already put in place.

Lead Time

Skilled labor shortages. It’s likely impacting how you operate, and many manufacturing facilities are experience a gap as well. Combine that with high demand, and builders are likely to experience longer lead times than you may be used to experiencing. And, as we approach the holiday season, plant closures are likely to further exacerbate the potential for delays.

As you plan for the remainder of ’19 into 2020, look for opportunities to order certain items in a time frame that allows for an additional week(s). Items to consider: doors, custom cabinetry, custom trim packages, etc.

In scenarios when lead time volatility has the potential to skew the schedule of an entire job, be proactive with identifying and addressing risk. The sales team at GR Mitchell has access to a wide network of manufacturers across various product categories that can be used to find a suitable alternative in many instances.  Communicate in advance when a tight delivery window is particularly important so that a contingency plan can be established.

The Takeaway

  • Purchase lumber/sheathing now for projects planned through Spring 2020
  • Building, particularly in the residential sector, shows no signs of slowing just yet
  • Imported materials won’t feel any relief from already-incurred tariffs, but are unlikely to see additional increases for now
  • Lead times are anticipated to be lengthened throughout the holiday season