No matter how you look at it, 2021 was anything from ordinary. Many of us are looking at the end of this troubled year as supply chain problems, inflation, an overly hot housing market, and record-breaking timber prices have contributed to making this year problematic. But will the year 2022 be any better?
In terms of lumber pricing, high prices are here to stay in 2022. As per experts, lumber prices are expected to increase in the next year, and if this fluctuation of high price remains, the price will have tripled by 2025. At the moment, the cost of lumber per board foot is $1,024.30. Next year, the price is estimated to reach $1,516.96 per board foot. The cost has risen steadily throughout the year.
In summer Jerome Powell, Reserve Chairman predicted falling lumber prices with inflation easing in coming months. However, that proved to be wrong, with inflation indices reaching 39-year highs. Commodity prices appear to be resuming their upward trend, demonstrating that some of these more esoteric sectors are more difficult to forecast. The main reason for this is the extreme floods in British Columbia, Canada. A recent storm essentially prohibited sawmills from cutting further timber, while flooded roadways prevented freshly cut lumber from being transported to clients. This is on top of the current supply chain issues, which are producing supply buildups across North America.
Here's a look at some of the challenges that are still affecting the lumber industry, as well as how customers may prepare for the next year:
While the majority of lumber supplies come from within the United States, imports from British Columbia sustain a component of the US lumber market. And, in case you missed it, British Columbia was badly damaged by floods and rain earlier this year, which harmed the region's timber economy.
Flooding affected highways and rail networks, affecting lumber and pulp exports. Local forestry officials reported in late November that weekly lumber shipments had dropped by up to 30%. Furthermore, pulp shipments to a major export site in Vancouver were less than 20% of typical.
Local production has been put under a lot of strain since access to this supply has been blocked. The United States imports more than $5 billion in lumber from Canada, accounting for almost 83 per cent of our total imports. As per Alex Williams, a qualified financial adviser and the CFO of FindThisBest “Prices will undoubtedly rise far into 2022 unless supply problems and growing demand are resolved.”
British Columbia has also been devastated by an infestation of mountain pine beetles that have destroyed 15 years of wood supply in the province by 2020.
Mountain pine beetles aren't the only issue confronting the lumber sector as climate change worsens. This past year also demonstrated a large increase in extreme weather conditions such as wildfires as well as a decrease in rain. Fires damaged some of the country's most significant timber districts, putting further strain on the lumber sector.
Labour shortages have swept the country in 2021 as a result of COVID-19 as well, and the lumber business has felt the effects. Sawmills, especially, have struggled to keep up with demand due to labour scarcity. Because many sawmills are unable to provide as much supply as they did in prior years, this has had an impact on wood pricing.Producers are attempting to enhance mill output, but the majority are experiencing labour shortages. COVID-19 outbreaks among manufacturing employees have wreaked havoc. Mills are also having a hard time hiring new employees.
In addition, there has been a long-term shift away from blue-collar occupations. Additionally, mills are often located in rural areas with diminishing populations.Transportation costs and disruptions in the trucking sector.
Transporting lumber will be more expensive in 2021 as a result of increased fuel prices as well as truck driver scarcity. The trucking business, like other sectors, is suffering from labour shortages and has struggled to find competent drivers leading to high wages. All of these pressures are reflected in the cost of timber.
Higher lumber prices are also projected to propel home prices even further. A substantial proportion of American homes are constructed using Canadian timber, and we've already seen how increased prices are simply passed on to the customer by huge builders. With mortgage rates so low, demand for real estate has already reached an all-time high. A scarcity of building materials is likely to drive up housing prices in the United States even higher.
Homebuilders and corporations in the housing sector stand to benefit the most. Corporations have announced record-breaking quarters this year because they simply passed on the increased pricing to consumers. However, that is predicted to change in 2022, as the Federal Reserve has indicated that numerous rate rises are likely in the future. If house demand slows, industrial commodities such as lumber may begin to stabilize once more.
Despite all of these hurdles, timber prices managed to fall significantly from their prior record highs in May and June. However, by September, lumber prices have started to rise again, and this time, experts expect that timber costs will be far higher than they are today in spring and summer.
Lumber futures on the Chicago Mercantile Exchange are approximately $200 per thousand board feet for March and May 2022, or 30% more than they are present, indicating that some traders predict lumber price hikes. There is concern about a huge price increase in the spring of 2022 along with doubling of duties by the U.S. on lumber from Canada does not speak well for the next year.