Hackett Advisors in the News

By Tony C. Dreibus - December 31, 2012

Lumber May Fall 25% After Leading Commodities in 2012

Lumber futures may tumble as much as 25 percent from a seven-year high as output increases in Canada, the world’s biggest exporter, according to Forest Economic Advisors LLC.

The price may touch $300 per 1,000 board feet in 2013, Paul F. Jannke, a principal at the Westford, Massachusetts-based consulting company, said in a telephone interview on Dec. 27. In mid-October, he correctly forecast the rally. Futures on the Chicago Mercantile Exchange on Dec. 26 reached $399.50, the highest since April 2005.

“We’re pretty close to the peak,” Jannke said. “The initial spike tends to be the highest, then production ramps up. If the mills increase shifts from a 40-hour week to a 50-hour week, that’s a big jump, and everybody is ratcheting up their work weeks.”

As the U.S. housing market rebounded this year, lumber prices soared 44 percent, the biggest annual gain since 1993. That topped the 24 raw materials in the Standard & Poor’s GSCI Spot Index, led by a 19 percent rally in wheat futures in Chicago.

U.S. building permits, a proxy for future construction, rose to an annual rate of 900,000 in November, the highest in four years, government data shows. That helped boost the shares of lumber producers including Weyerhaeuser (WY) Co. and Plum Creek Timber Co.

Weyerhaeuser’s plants weren’t running at full capacity this year, and the company may increase production to meet demand, Chief Executive Officer Daniel Fulton said on a conference call on Oct. 26. The company is “cautious” on U.S. housing and prospects for demand in China and Europe, he said.

China’s Economy

A leading index for China’s economy rose at a slower pace in November, signaling limits on a rebound. Gross domestic product in the third quarter expanded 7.4 percent, the lowest since the first quarter of 2009.

China, the consumer of 10 percent of the world’s softwood lumber, reduced imports of logs and lumber by 19 percent in the eight months ended Aug. 31 from a year earlier, Wood Resources International LLC in Bothell, Washington, said in October.

Lumber was the top commodity pick for 2013 at Scotiabank Group because rising demand in the U.S. and China will strain tight supplies. “Substantial” mill closures across North America since 2006 set the stage for a multiple-year recovery, the Toronto-based bank said in a statement on Dec. 20.

The average cash price of lumber will be $360 per 1,000 board feet in 2013, up from $298 in 2012, Patricia Mohr, a Scotiabank economist, said in an e-mail on Dec. 27.
‘Tremendous Crash’

Demand from China is ebbing because builders made “regular purchases” in the second half of 2012, Shawn Hackett, the president at Hackett Financial Advisors Inc. in Boynton Beach, Florida, said in a telephone interview on Dec. 27. Rising production from mills in North America will drive prices lower in 2013, he said.

“We are heading for a tremendous crash in the lumber market,” Hackett said. “We’ve gotten way overdone to the upside. This is the time to be a bear.”

Lumber futures for March delivery fell 2.5 percent to close at $375.10 at 1:07 p.m. in Chicago. In the fourth quarter, the price jumped 34 percent, the most in two years.

Shares of Weyerhaeuser, based in Federal Way, Washington, rose 0.9 percent to $27.82. They soared 49 percent this year.

Seattle-based Plum Creek (PCL) gained 1.2 percent to $44.37. The stock climbed 21 percent in 2012.


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