for the Long Haul
Corner | SATURDAY, December
Sandy brought a surge in futures prices for plywood,
leading insiders to short the futures. But longer term,
in the face of rising demand and shortages, the prospects
prices for lumber have been riding a wave churned by
hurricane Sandy. Quotes for plywood have surged 15%,
to $340 per thousand board feet, since the beginning
of October, propelled by the prospect of rebuilding
in the northeastern U.S. after Sandy's onslaught.
thinking about jumping on lumber for the short term
will likely get wiped out. But those willing to hang
in for the long haul could enjoy a sweet ride.
advertised natural disasters tend to be tops in lumber,
fairly consistently," says Shawn Hackett, author
of the Hackett Money Flow Report. But the hurricane's
impact on lumber prices is expected to fade quickly.
"People who are knowledgeable about this industry
are using this spike as a selling opportunity,"
mid-October, the period immediately before the hurricane,
the net short position of industry insiders such
as lumber merchants and producers swelled 68%, according
to data from the Commodity Futures Trading Commission.
CME Group lumber futures closed up 7% for the
week, at $340.10 per thousand board feet.
QUICK GAINS ARE UNLIKELY,
larger profits await those willing to hold on for a
couple of years, spurred by three factors cited by market
U.S. housing market is poised for a considerable rebound.
Housing starts are forecast to reach 1.15 million in
2014, up from an estimated 730,000 this year, according
to Daryl Swetlishoff, forestry analyst at Raymond James.
That alone equates to a 19% surge in North American
lumber demand from 2012, to 56 billion board feet in
2014, he estimates.
from Asia is strong and likely to remain so. Exports
of softwood lumber from British Columbia to China are
expected to run some 4.5 billion board feet in 2012,
up from less than half a billion in 2007, according
to Raymond James projections. To put that figure in
perspective, Swetlishoff forecasts that total exports
from North America to the whole world will equal 8.3
billion board feet this year.
supply shortage is on the way. Pine beetles are destroying
the forests of British Columbia.
57% of the pine volume in the province will be killed
by 2017," according to a report from the province's
forest service. Given that it takes a decade for pine
to reach maturity, that's a problem that could leave
a deficit for a long time.
higher demand and curtailed supplies mean the prices
of plywood will eventually soar north of $500 per thousand
board feet, according to Hackett.
investors might want to look at stocks rather than futures.
Raymond James rates Rayonier (ticker: RYN), a timber
real-estate investment trust, a Strong Buy. The firm
also rates Canfor (CFP.Canada), a building-materials
producer, Outperform. S&P Capital IQ classifies
Louisiana-Pacific (LP), a building-materials company,