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Old 06.07.2018, 02:07 PM   #4148
Robert Schunk
the end of the ugly
Join Date: Feb 2007
Location: East Coast, USA
Posts: 924
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Originally Posted by !@#$%!
this one was in this morning’s wsj email. this is not a partisan post. i just enjoy looking at trends.

The Breakfast Briefing

The good news for home builders and house hunters is that lumber prices have sold off since hitting an all-time high in mid-May. The bad news: wood prices are still up 66% over the past year, adding thousands of dollars to the cost of each new house.

The historic run-up in lumber prices--attributable to a trade dispute with Canada, wildfires and limited rail capacity--comes as U.S. home builders are already struggling to meet demand amid shortages in buildable lots and labor.

Lumber futures at the Chicago Mercantile Exchange closed at $586.80 per 1,000 board feet on Monday, down 8.2% from the all-time high of $639 reached May 17 but still sky high in a market in which prices have only occasionally eclipsed $400 over the last three decades.

“We’ve never seen anything like this,” said Deb Maples, risk management consultant at futures brokerage INTL FCStone Financial Inc. “It’s been unprecedented.”

For a generation setting off to start families in the suburbs, pricier construction materials are another hurdle to homeownership, on top of rising borrowing costs and competition from institutional investors, who are gobbling up homes to turn into rentals in some of the country's hottest markets.

Lately there have been signs that the housing market is slowing as prices push beyond the reach of some buyers. Housing starts, purchases of newly built single-family homes and residential building permits, a sign of how much construction is in the pipeline, each declined in April, according to the Commerce Department.

Surging softwood prices aren’t entirely responsible, of course, but they offer a glimpse into how the Trump administration’s protectionist trade stance might ripple through the U.S. economy as tariffs are imposed on other raw materials, such as steel and aluminum.

The housing recovery was already pushing lumber prices higher last year when forest fires tore through western Canada, where loggers harvest about a third of the lumber consumed in the U.S. The blazes exacerbated shortages following wood-boring beetle infestations that wiped out millions of acres of North American timber.

Then, later in the year, the U.S. levied tariffs on Canadian lumber of around 20%. Without enough domestic lumber to meet demand, buyers have mostly had to pay up.

“Lumber shipments from Canada to the U.S. are higher than ever, but the price of lumber went up in excess of the duty,” Jean-Jacques Ruest, interim chief executive of Canadian National Railway Co., told investors at a conference last week. “So what they did is create an inflation and there was no impact in the trade because housing starts are strong.”

It just so happens that I've been following the softwood lumber dispute for nearly twenty years now, so let me explain what's going on:

Canadian lumber companies pay to harvest softwood lumber on Crown lands according to a stumpage fee system, which means they pay a fixed fee per unit of timber harvested. In the US, American lumber companies purchase the rights to harvest on Federal lands at competitive auctions. About 20 or so years ago, a Crown commission ruled that the American system would serve the Canadian taxpayer better by raising greater revenue than the stumpage fee system, but no change was made as international rulings had favored the Canadian side of the dispute. The bottom line is that the lower stumpage fees charged by the Crown arguably constitute a subsidy of softwood lumber, which, in turn, constitutes the gravamen of dumping.

In other words, this is a long-standing dispute which does not fit neatly into the argument over Trump's tariffs. Other commentators have referred to price hikes in avocados and Mexican beer if we bail out of NAFTA. Let's just see how it comes out in the end.
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