Lumber Physical Mar '24 (LBH24)

Description

Humans have utilized lumber for construction for thousands of years, but due to the heaviness of timber and the manual methods of harvesting, large-scale lumbering didn't occur until the mechanical advances of the Industrial Revolution. Lumber is produced from both hardwood and softwood. Hardwood lumber comes from deciduous trees that have broad leaves. Most hardwood lumber is used for miscellaneous industrial applications, primarily wood pallets, and includes oak, gum, maple, and ash. Hardwood species with beautiful colors and patterns are used for such high-grade products as furniture, flooring, paneling, and cabinets and include black walnut, black cherry, and red oak. Wood from cone-bearing trees is called softwood, regardless of its actual hardness. Most lumber from the U.S. is softwood. Softwoods, such as southern yellow pine, Douglas fir, ponderosa pine, and true firs, are primarily used as structural lumber such as 2x4s and 2x6s, poles, paper, and cardboard.

Plywood consists of several thin layers of veneer bonded together with adhesives. The veneer sheets are layered so that the grain of one sheet is perpendicular to that of the next, which makes plywood exceptionally strong for its weight. Most plywood has from three to nine layers of wood. Plywood manufacturers use both hard and soft woods, although hardwoods serve primarily for appearance and are not as strong as those made from softwoods. Plywood is primarily used in construction, particularly for floors, roofs, walls, and doors. Homebuilding and remodeling account for two-thirds of U.S. lumber consumption. The price of lumber and plywood is highly correlated with the strength of the U.S. home-building market.

The forest and wood products industry is dominated by Weyerhaeuser Company (ticker symbol WY), which has about $20 billion in annual sales. Weyerhaeuser is a forest products conglomerate that engages not only in growing and harvesting timber, but also in the production and distribution of forest products, real estate development, and construction of single-family homes. Forest products include wood products, pulp and paper, and containerboard. The timberland segment of the business manages 7.2 million acres of company-owned land and 800,000 acres of leased commercial forestlands in North America. The company's Canadian division has renewable, long-term licenses on about 35 million acres of forestland in five Canadian provinces. In order to maximize its long-term yield from its acreage, Weyerhaeuser engages in a number of forest management activities such as extensive planting, suppression of non-merchantable species, thinning, fertilization, and operational pruning.

Lumber futures and options are traded at the CME Group. The CME Group's lumber futures contract calls for the delivery of 111,000 board feet (one 73-foot rail car) of random length 8 to 12-foot 2 x 4s, the type used in construction. The contract is priced in terms of dollars per thousand board feet.

Lumber futures and options are traded at the CME Group. The CME Group's lumber futures contract calls for the delivery of 27,500 board feet. The contract is priced in terms of dollars per thousand board feet.

Prices - CME lumber futures prices (Barchart.com symbol code LB) on the nearest-futures chart in 2023 closed the year up +9.5% at $543.50 per thousand feet.

Supply - The US leads the world in the production of industrial round wood. In 2022, US production was 382.544 million cubic meters (unchanged yr/yr), Russian production was 182.082 million cubic meters (-13.0% yr/yr), and Canadian production was 143.811 cubic meters (unchanged yr/yr).

The US also led the world in the production of plywood in 2022 with 9.254 million cubic meters of production (-4.6% yr/yr), followed by Russia with 3.241 million cubic meters (-28.8% yr/yr), and then Japan with 3.059 million cubic meters (-3.6% yr/yr).

Trade - World exports of plywood in 2022 fell by -6.0% yr/yr to 31.604 million cubic meters. The world's largest exporter of plywood is Russia, with a 6.7% share of world plywood exports in 2022, followed by Finland with 2.8%, the US with 2.4%, and Canada with 2.1%. In 2022, US exports rose by +1.6% yr/yr to 771.000 million cubic meters.

World exports of industrial roundwood in 2022 fell by -17.8% yr/yr to 108.561 million cubic meters. Germany was the world's largest exporter of roundwood in 2022 with a 9.1% share of world exports, followed by the Czechia with an 8.3% share, the US with a 6.8% share, Canada with a 3.5% share, and Russia with a 2.8% share. Russian exports of industrial roundwood in 2022 fell by -79.3% yr/yr to 3.075 million cubic meters. US exports of industrial roundwood in 2022 fell by -21.2% yr/yr to 7.420 million cubic meters.

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