The Lumber Market Through the COVID Era
The past two years brought an unparalleled amount of uncertainty for professionals in the lumber industry. Fueled by a global pandemic and compounded by a housing boom and a labor shortage, 2020 and 2021 caught everyone by surprise.
When COVID-19 first started to develop in March of 2020, the supply issues started to develop as well. Supply chain issues started due to the loss of jobs caused by lockdowns. This fueled a national labor shortage. Many small-town mills experienced rolling labor shortages with as much as half of their workforce quarantining due to COVID-19 or close contact at any given time. Ultimately, these factors caused the prices of lumber to skyrocket without an end in sight.
At the beginning of 2019, the lumber market was at its lowest point in the last ten years. “Essentially we went from the bottom of the market to a whole new high,” said Kyle Gillin, owner of Industrial Wood Technology.
At the same time, the U.S. experienced a housing shortage, which led to a housing boom, driven by low interest rates. This provided lucrative opportunities for supplies in the lumber industry. As lumber prices reached all-time highs, mills began to push out as much production as they could, which only increased as labor became more available.
“When this point is reached, the balance gets out of whack so easily due to the fact that production is running so hard. One little bubble on the consumption side created a huge windfall of surplus material on the supply side,” Gillin said. The overproduction was bound to lead to the fall of lumber prices at some point. Lumber prices fell a considerable amount in October and November of 2020, but then began to rise again in December and through the first of the quarter of 2021. Prices started to fall again in the summer of 2021 and fell far faster than they had previously risen. By September of 2021 lumber prices were low by most standards.
Despite its unpredictable nature in regards to pricing, the lumber industry has an excellent supply of raw materials and a substantial demand from the building and construction industry. “ I think it's good, it's a great renewable product,” Gillin said.
As for what happens next, it is important to use the past two years to understand the current state of the lumber industry. We’ve seen unheard of highs that dropped nearly overnight to below average numbers. As lumber prices surge once again, waiting for below average prices to return may not be an option, considering prices could continue to climb for months like they did this time last year. Historic highs also aren’t likely to become the new normal, as we haven’t seen those numbers hold steady, but a rising trend in lumber prices is undeniable given the average price over the last two years and even considering the last five years.