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Don’t Forget! You Saw it in the
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July 2021 #13264 Page #110
Lumber Briefs By Matt Layman Publisher, Layman’s Lumber Guide
Through the Rear View and the Telescope Through the Rear View Of all the lumber folk I know, I am the self-proclaimed King of checkers of rear view mirrors. I use the accuracy of frequency of past repeating patterns to give me confidence in making forecasts for the future. The FDP’s have been fine tuned year over year for 30 years in search of the Lumber Market’s Forecasting Holy Grail, and even this year I have made improvements. With the FDP’s, we can identify the beginnings and endings of the lumber cycle’s peaks and troughs. Today I want to emphasize the “Inventory Cushion.” When there is an approaching FDP is decision time. Do we build inventory, liquidate, or sit tight? FDP reversal lows, like the one coming at week #28, are target areas to make preparatory buys. It is vitally important that buyers consider never letting inventory drop below your company’s minimum operating product on hand. For most, that is about 3–4 weeks’ supply. Consequently, the time it takes for new prices to filter in. Even then, only the percentage of replaced inventory is affected. (That is why builders never see immediate $ for $ weekly changes or maximum high or low mill prices to suppliers.) Based upon the accuracy of the previous Forecasted Decision Points, I have great confidence that week #28 will be a pivotal area. Current strategy is to be wrapping up May/June liquidation with some weak inventory spots. It is best to begin inventory accumulation a week or two before the projected FDP for two reasons: • Inventory is already dangerously low. • Best buying times are when the market is at, or just past, peak vulnerability; mill supply is abundant, prices are most negotiable. All we have to do is determine when momentum will shift. This particular FDP is unique in that it occurs at a time when volatility is at all-time extremes. In the rear view, we recall $100 per week rising prices and as of late $200–300 per week price cuts. From those observations, we should expect violent recoil or upwards whiplash in a small window. Specifically, this coming week is time to scale-in buy.
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