Market Report: Fed Rate Impact on Timber Markets

Are we approaching a typically elusive Fall and Winter market rally? Our product markets have been surprisingly strong over the last 6 weeks. Plywood sales volumes experienced the strongest 6 weeks we have seen this year, and last week was the strongest of them all. Price increases have been gradual, but consistent, and any short-term impression of price discounts have vanished. The Fed rate impact on timber markets has been positive, adding a sense of momentum to the upward trend as we head into winter.

Veneer sales appropriately mirrored the strength of the plywood market with consistently increasing volumes as well. While we haven’t seen a push on veneer prices yet, the additional volumes requested are appreciated and have allowed us to run full-time production from what we had anticipated to be conservative hours as we enter winter months.

Improving markets in November and December are relatively normal for wood products markets, especially when markets are expected to be strong in the coming year. The Fed’s initial 50 basis point drop in rates and the subsequent 25 basis point in November drop are both bullish for our products. The US 10-year bond increased in the face of Fed easing, which is unusual and likely reflects concerns about the Federal deficit. That said, the adage “Don’t fight the Fed” is still valid and most projections indicate mortgage rates will lower soon.

We are currently in a supply-driven market. There has been quite a bit of production permanently taken out of the North American market over the last year. In Oregon, seven mill closures have taken a big bite out of production capacity. A massive amount of production has also been taken out of Canada as they wrestle with available fiber reduction due to environmental restrictions. Production decreases are difficult to reverse and there will likely be wood product shortages as markets try to understand new production levels.

Mass Ply orders are starting to re-materialize after an interest-rate-driven lull. Projects quoted a year ago are returning for new quotes and moving forward in planning and design. Quote volume has increased dramatically as developers indicate banks are beginning to lend again. We are hopeful that the Timber Revolution will proceed and you will see wood replacing concrete and steel in more building types.

We can’t ignore the optimism that has been injected into the market due to the recent election. The potential for deregulation to release creative innovation in markets is profound. The timber industry is one of the most heavily regulated and heavily litigated industries in the country, especially in the Pacific Northwest.

While the wood products industry has been developing for more than a century with commodity products that we all use every day, the potential to manage our forests for health and resiliency, while also creating the products of the future, is enormous. Recognizing that forest management and increased timber supply would spur innovation with the most renewable resources available to us could make the timber industry the new “tech” industry. We hope that future is coming.