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At the start of the pandemic, sawmills anticipated weak demand and limited production by up to 30%. To their surprise, demand turned out stronger than ever: DIY boom: While the US economy shrank 3.5% in 2020, spending on home improvements and repairs grew 3%+ Low interest rates: In December, US new housing starts hit a 14-year high Despite wood production hitting a 13-year high in February, supply hasn’t caught up with demand — and now ~70% of builders are raising home prices to slow demand down. The result is a $24k+ increase in the average price of single-family homes since April 2020.
(Bloomberg) -- Lumber prices have soared to records. Demand for wood is skyrocketing. The shares of wood suppliers are surging. And yet, trees themselves are dirt cheap in places like Louisiana, where timber supplies are plentiful. The so-called stumpage fee, or what lumber companies pay to land owners for trees, for Louisiana pine sawtimber on March 31 was $22.75 per short ton, according to the latest data from price provider TimberMart-South. That’s the lowest since 2011. An abundance of harvest-ready trees has kept stumpage fees extremely low across the U.S. South, home to half of the country’s production. Meanwhile, lumber futures are up 85% in 2021 because of soaring demand. Sawmills profit from the premium lumber commands over the stumpage fee -- think of it like the lumber crack spread. Those margins are exploding. The spread between futures and stumpage for Louisiana pine, for example, has more than doubled just this year, topping $1,100 per 1,000 board feet.