Lumber prices have been skyrocketing over the last year, and this week we’re talking to someone who has a unique perspective on how the construction industry got here. For an inside look at what's happening to lumber prices and how it's impacting all of us in the industry, this episode is worth it. Let’s nerd out about lumber, shall we?
More About This Episode
The Smarter Building Materials Marketing podcast helps industry professionals find better ways to grow leads, sales and outperform the competition. It’s designed to give insights on how to create a results-driven digital marketing strategy for companies of any size.
We’re thrilled to have had Stinson Dean on the show this week. He’s kind of a big deal on Twitter, and also the CEO of Deacon Lumber Company. Stinson was recently interviewed by Bloomberg about the high cost of lumber right now, and he took some time to chat with Zach and Beth about the ins and outs of lumber and why it’s such a hot commodity.
The Risks & Rewards of Being a Lumber Trader
Stinson Dean started out in building materials sales but found his way into market consulting through mentors in the metal trade.
He enjoyed consulting in building materials and started learning more about the lumber industry, where his interest has stayed. His background in trade and experience in sales gives him some perspective in the lumber industry. “And long story short, I just felt like I was pretty good at it and I wanted to be able to take my own advice,” Stinson explains.
He eventually started his own lumber business, Deacon Lumber Company, in 2018, which he calls “a pretty wild year at the time.”
Now he’s in the business of buying and selling lumber — an interesting position to be in when prices are sky-high right now. “I put it in storage, I hedge it, and then I hope to bring it to local markets at a higher price than what I bought it for,” says Stinson.
Lumber is a riskier bet than usual these days because of the high prices, especially for Stinson, who owns the lumber he purchases for about three months.
But his tolerance for risk has shifted in the last year because of the price of lumber. “I take price risk on it for 90 days,” he explains. “It takes a while to actually get to me, that's a third of that 90 days. It takes about 30 more days or so for the price to appreciate, and then 30 more days to market it.”
Stinson keeps the lumber in warehouses around the country until someone local needs to buy. “I sit on the wood and I wait for someone to need lumber tomorrow, and I send them a truckload,” he says.
It’s a great time to have a product that’s in such high demand, especially when lumberyards are low on supply or there are complications with delivery. “If there's logistics issues on the rail lines, they'll call me to get a truck in. Then certainly if they're oversupplied, I'm not very busy, but right now that's not the case,” he says. “We're pretty busy these days.”
His customers are lumber dealers across the country, who also have the option to go to sawmills for their product. “But it's part of the market makeup where I'm a liquidity provider for the local market. I have lumber from Canada, but it's onsite and that's where I fit in the supply chain,” explains Stinson. “I'm kind of ‘right place, right time.’”
What Has Caused Lumber Prices To Increase?
The global pandemic and lockdowns here in the States drastically changed the building materials economy. “We all know that COVID has impacted supply chains, from microchips to lumber,” says Stinson.
But for the lumber market, the pandemic had a significant impact that surprised everyone. Stinson explains that “when we saw things falling apart 12 to 13 months ago, everyone got very conservative.” Sawmills slowed production down as much as 30%, according to reports from The Hustle.
Sawmills and lumber dealers were only buying what they needed or selling off what they had — and they weren’t re-upping their supply. “For every two trucks they sent out, they maybe bought one truck to replace it,” he says. Most people in the construction industry have become risk-averse, because of the housing recession of 2008.
But because of that conservative mindset, lumber prices are higher than we’ve ever seen — soaring as high as $1,300 per 1,000 board feet in mid-April. That’s up nearly 260% since April of last year.
“No one wanted to invest in inventory, and it perpetuated the problem, and we haven't been able to catch our breath,” says Stinson. “So that's why there's just a constant shortage of lumber.”
When Will the Sky-High Lumber Prices Drop?
Prices are up, but they will inevitably come down, right? Everyone is wondering when that will be, but Stinson has a different way of thinking about it: “I always reframe that question to, ‘What is the new trading range going to be?’”
If lumber were to drastically drop, even to half the price it is right now, “lumber will still be more expensive than it ever was if we fall 50% from today,” he says.
But our demand for lumber hasn’t let up — and the price hike isn’t, either. Stinson points out that this cost is being passed on, because “the mortgage applications and home completions, stats permits, none of that has slowed down.”
Even though the building materials industry has weathered massive changes (just in the last decade), we can expect another big change in the market. Because as Beth points out, “Lumber is not going to go up forever; housing prices aren't going to go up forever.”
There’s a shift on the horizon. And according to Stinson, the shift will be in how the industry manages risk.
“Right now, the lumber dealer houses a lot of risk on the behalf of the builder. Because of that, they're rewarded,” he explains. “They can make a lot of money if they time their sales and their purchases well. They can lose a lot of the money if they don't time their purchases and their sales well.”
Stinson thinks that risk will have to transfer down the supply chain. “I think we'll start seeing that risk transfer back onto the builder,” he says. “Then, ultimately, home builders will have to do the same thing."
And according to Stinson, builders will be able to increase their prices, “because the demand is there to pay it,” he explains. “Those houses are worth what someone will pay for; it has nothing to do with the lumber cost.”
New housing starts were at a 14-year high in December of 2020, according to The Hustle. Stinson believes that growth will stay consistent — no matter how high the price of lumber might be, there will still be homeowners who can afford a mortgage.
“A thousand dollars per 1,000 board feet, only [adds] $16,000 to the price of a home,” says Stinson, “I mean, how many other commodities can you pay for over 30 years? Lumber is the only one — you can't mortgage your gas purchases and your corn and your food.”
Want Even More Insight?
For those of us in the industry, stay buckled in, because the market will continue to grow, sometimes in ways we might not expect.
“We can all go into Lowe's and Home Depot and see the price of lumber,” says Stinson. “But the reality is, we all keep buying it. And we all keep buying it because the savings rates have skyrocketed, [along with] stimulus and low-interest rates.”
If it’s a lot to keep track of, just know that you’re not alone. “To me, it just seems like a mess, but as a trader, it's a beautiful free market phenomenon that we're in and it's pretty fun to be a part of,” says Stinson.
Get more of a glimpse into the lumber industry by listening to the full episode of the podcast.
If you want to stay in touch with Stinson, you can always find him on Twitter: His handle is @LumberTrading.
Stay on top of the building materials industry by subscribing to the Smarter Building Materials Marketing podcast. You can always reach out to us with questions or ideas for future episodes by emailing us at [email protected].
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