Future Lumber Prices

[GeneWengert-WoodDoc]

Q.  Where are lumber prices going in the next year (2023) ?  This is asked by a cabinet maker in a medium size firm.

Answer.  Strongly upward.  

I am sure you heard about the derailments in Ohio recently.  Actually, there are about three derailments per day according tot he Federal Railroad Administration (FRA).  Many are low speed.  Although broken rails and the loose spikes are the main cause, railroad ties are a contributing factor.  As a result of recent public scrutiny about railroads, I predict that a reaction is going to be to increase the number of replacement ties.  Last year, sawmills produced 17 million ties, mostly hardwoods, especially red oak.  I'll bet we exceed 20 million this year.

A typical tie will last over 30 years, at which point it is worn out rather than rotted away.  This is because ties are supposedly well treated with preservative chemicals like creosote to prevent rot or decay.  But, we have heard of ties that were not properly treated.  Main rail lines are inspected with sophisticated instruments, sometimes weekly, to detect track problems and fix the issue before a derailment.  It seems to make sense to me that the railroads are going to replace ties perhaps a bit earlier to respond positively to the bad news.  So, perhaps 20 million new ties this year.  From the time a tie is sawn, it is commonly six to nine months before the tie is trimmed, dried, treated and shipped.

Just last week, one sawmill in Alabama reported to me that they sold some ties for $41 per tie.  Sawmills really like producing ties as it means less sawing, so daily log usage (or sawmill proaction) is up, as well as profits.  

What is down when mills produce ties is lumber production.  That is, a tie contains at least the equivalent of 36 BF of lumber.  So, with 3 million more ties this year ties, there will be 100 million BF less lumber produced.  When sawing a log, we typically get lots of high grade, mostly clear and well-behaved lumber from the outside of the log.  So, high grade lumber is still going to be produced. However, lumber from the inside of a log tends to be knottier and more prone to warp, especially cup.  The bottom line is that as we produce more ties, we will have100 BF less lower grade lumber.

So, what does less lower grade lumber mean to furniture and cabinets?  Lower grade lumber is used for pallets...500 million wood pallets per year.  Low grade lumber is used for wood flooring, a $7 billion dollar industry and growing every year.  If these two large industries cannot get low grade lumber, they will pay the extra price to get No.2 Common grade.  THEY WILL NOT RUN OUT OF WOOD AND CLOSE THEIR PLANTS.

So, now it comes to us.  We do indeed use No.2 Common and higher grades.  But with these three big users (ties, pallets and floors) using our grades, this increased demand will raise prices and force us, as small users, to look into using higher and more expensive grades.  Now, add to this that the exports of hardwood lumber rose 12% by June of last year (Woodworking Industry News, September 5, 2022) with prices up 8%.  So, there is pressure from the top grades as well.

Bottom Line:  WE are in the middle and will be getting squeezed from the top and the bottom.  

Solution:  Other than purchasing your own forestland and using a contract sawmill to produce your lumber, our wood raw material is going to require us to pay higher prices.  This in turn means becoming more efficient (waste less) and work more closely with lumber suppliers...we will have large volumes of lumber and whoever pays the most will ge the most.  (I heard that Ikea is one of the largest hardwood forest land owners in the U.S, owning over 600,000 acres,., other than the government.  This looks today like this was a smart move indeed.). Another solution is to use more composite products like MDF.  Or maybe switch to plas....

[SwampDonkey]

Depending on where you are at and what your buying. Up here select rough kilned maple has been high for 10 years with varying degrees up and down. I have not seen 70 cents a foot for 4/4 in over 10 years. As a log, local mills have never paid $500/th for any hardwood logs: red oak, sugar maple, yellow birch. Just checked markets posted by local marketing boards, still holds true. Some prices don't even compete with firewood. Mill offering $43/cord, I'd have to pay $120 for the logs. That type of stuff. Only the desperate or unhinged sell wood at those offerings. :D

Meanwhile softwood 2"x4" prices and OSB have been on a slow decline since August after several Fed interest hikes.

[kelLOGg]

Why doesn't the railway industry use concrete ties as is done in Europe?

[Ron Wenrich]

There's a lot here to unpack.  I've been out of the booth for over 10 yrs, but I believe the sawing of ties is still the same as before.  If tie prices are $41/tie and the alternative is to get 36 bf of lumber if you saw it into lumber, you'll need to average $1.14/bf on that lumber.  That's a tough act to follow.

It is real hard to get pallet prices to that price point.  That means the balance of the lumber will probably be in the $1.25/bf range.  I always found that sawing tie quality logs was a risk/reward situation.  Since lumber grades are on the reverse side of the board, you have to judge what the back side of the board will be.  My experience has been when you get to that level of the log, the backside will drop about 1 grade.  So, a 1 Com face will drop to a 2 Com on the back, as you saw through more defect.  One 2 Com board will most likely make the tie more profitable than sawing into lumber.  Each log is different, but I found that the reward of sawing boards instead of ties was mainly less profitable. 

The RR will be able to pay as much for ties that is needed to supply their demand.  When I sawed, we sawed a lot of 23' switch ties.  The price they paid for switch was high enough to guarantee that if we had a 23' log that made switch, that's how it would be cut.  I also remember sawing bridge timbers where we were getting more than FAS for the posts and beams then if we had sawn it into lumber.

Where does that leave us for the rest of the lumber produced?  Export markets consist mainly of China and Europe.  China has economic problems, so their domestic demand is limited.  Europe is simply out of cash.  Credit Suisse is having liquidity problems.  Energy prices have soared.  The political atmosphere is unstable.  I don't see where those markets have the capacity to increase imports of lumber. 

That leaves the domestic markets.  Housing starts are declining, consumers are already in debt and living paycheck to paycheck, mortgage rates are going up, and inflation is still high.  Where is there room for increased demand?  New housing starts peaked in Apr, 2022.  Jan, 2023 had a market that was 73% of that size.  There's room for growth, but who will buy it?  Existing home sales are as low as the bottom of the Covid era.  US banks have plenty of cash, but few borrowers. 

I imagine the tie market will support a lot of sawmills.  The key is to produce the quality of product they want.  But, I have a hard time seeing where the side lumber will soar higher on consumer demand.

[Ron Wenrich]

Why doesn't the railway industry use concrete ties as is done in Europe?

https://www.rta.org/assets/docs/ResearchPapersArticles/Miscellaneous/final%20creo%20ties%20lca-jtts-apr2013.pdf
A comparison of wood, concrete and plastic ties. 
There's some environmental impact involved in each of the industries.  The ties have less effect on the environment from a production standpoint.  Less fossil fuel, less water usage, and less disposal problems for wooden ties. 
As for life expectancy, wood ties are assumed to be 35 yrs, concrete 40 years, and plastic about 40 yrs.  Concrete does have advantage in heavy use areas, due to their weight volume.  Concrete ties weigh about 700 pounds. 

[rooster 58]

Ties Re currently 42.00 in WV at this time 

[SwampDonkey]

This week SVB was the second largest bank failure in history. Most accounts hold more than the $250,000 limit on deposit insurance. Hope it isn't a sign. Usually a lot of small fish die before the big ones go and none have been reported since 2020. Share prices of the top 5 banks plunged on the news, but they are also a lot more diversified to handle the blow.

[GeneWengert-WoodDoc]

The rail cars for hauling freight in North America do not have springs and shocks.  So every bump is transferred to the cars directly and back to the rail and then the tie.  Concrete would not last very long at all with our rail system, heavy loads, and high speeds.

Passenger cars do have shocks and springs so dedicated rail lines for passengers  can have concrete ties.  Even so, look at the Interstate highways made with concrete...do they have a 35 year life?

[GeneWengert-WoodDoc]

The bank failure this Friday, after closing, is quite troublesome, as usually when this happens, another bank will buy the bank and it reopens Monday morning.  No purchaser for this bank however.

Most banks know how to protect accounts with over the FDIC $250,000 limit.  For instance, on Friday, our bank transfers the money to government bonds for the weekend.  Virtually all banks fail on Friday after closing, so this transfer is great protection.

[SwampDonkey]

Hopefully the businesses with accounts there routinely make payroll deposits on Thursday. But, I fear not, as I read many people never got a pay cheque.

[Southside]

Part of the pay check issue is not with just the companies that bank there, but where the payroll provider banks.  So companies that had nothing to do with SVB, but used a payroll provider - think tech start up - who did bank with SVB can't pay their employees.  Butterfly effect.  

[SwampDonkey]

Yep, that to.

[Nebraska]

Lots of concrete ties on the UP lines western Nebraska / Wyoming.

[Walnut Beast]

Your right Nebraska. They started using concrete switch ties years ago at crossings

[longtime lurker]

All new line has been laid on concrete ties here for years. They only use wood ties in yards and around switches because wood can handle lateral loadings better then concrete. But wood mainline ties are pretty much a thing of the past.


Tie prices may be up but operating costs are still rising too. Higher prices may not necessarily translate across to profits.

[SwampDonkey]

A lot of lines were torn up here in the 80's. Along the river valley it all gone. Been more than 1 train load of fertilizer swim in the river because of erosion and flooding. One put on a bridge as ballast when ice was up against it. :  But any I do cross, as most are in the boonies, it's all wooden ties.

[SwampDonkey]

Hadn't read this until today, as governments have a scrum over the banking fallout with SVB. Regulators announced that New York-based Signature Bank had also failed and was being seized on Sunday. The 3rd largest bank failure in history. First Republic Bank also nearly fell off the edge but managed to bolstered its financial health by gaining access to funding from the Federal Reserve, their shares free-falled 66 per cent before trading was halted Friday. One other bank mentioned, Western Alliance Bancorp, lost 78% in share price.

[Stephen1]

I used to run passenger trains on concrete ties 20 years ago and at 80 MPH and it was like being on a corduroy road. when you got down and sighted down the rail you could see it. I am sure they have either changed the spacing or strengthened the steel but my guess is they are back to wood. I know in northern Ontario they used concrete back in the 80-90's, but they never really worked out. Didn't last as long.
Like I said they may have changed things to make them work , but I still see wood ties going in around where I live .

[Tom K]

The rail cars for hauling freight in North America do not have springs and shocks. 

This is not correct. The vast majority, if not all rail cars do have a coil spring suspension built into the center of the truck. While not great they do have something for cushion. Back when I worked at the RR I used to be able to glance at the springs and tell if a car was loaded or empty. 

[OlJarhead]

With mills like CANFOR in Chetwynd BC closing I'm wondering if it will contribute to rising prices?  Specially because they could produce 1 to 2 million board feet in a day sawing 2x's.  Insane stuff but they shut it down (more I think because provincial government there doesn't want them to saw up trees anymore ;) ).

[air1514]

Well I guess they guessed wrong on this one......red oak prices are so low in my area that the trees aren't worth cutting 

[Ron Wenrich]

My first job as a procurement forester I was told not to buy any red oak.  We sold it casket lumber.  There were simply no markets for it.  Our big seller was tulip poplar.  We sawed from 4/4 to 16/4.  That was in 1976.

Markets broke for red oak when the boomers started to build houses.  Red oak was different from the woods of their childhood - mainly maple or birch.  Those markets got really tough in the '80s.  It was explained that the ring porous and diffuse porous woods run on about 30 yr cycles.  When the oaks are real hot, those maples will be at the bottom.  Then things will switch and the cycle continues.

The cycle will eventually flip back.