2/15/2022

Build and Cultivate: Thoughts on 2021 and 2022

Yesler Co-Founder and CEO Matt Meyers weighs in on volatility and forecasting in the market.

Without a doubt, the abrupt shutdown of 2020 started a chain of events. We feel that shutdown still, as 2021 moves into the rearview mirror and we look ahead in 2022.

Here’s my quick take on how we got to where we are today, in early 2022:

Weather in the winter of 2019/2020 was relatively mild, leading to higher than normal housing starts and lean supply chain inventory. Then, with the advent of the pandemic, the increase of time spent at home became a call for remodeling homes and an increase in demand for secondary residences. The ensuing high demand could not be quickly resolved and constraints became evident immediately. Lumber was a leading example of supply chain limitations, resulting in historic commodity lumber shortages and price volatility.

These challenges carried into 2021, with demand remaining high and another year of historic price volatility. The complexities of the supply chain for meeting a high level of home building demand are on full display. How does this bode for 2022? It is similar, but different. November and December 2021 were mild like 2019. Flooding in British Columbia impacted lumber transportation and production. The combination of high demand and supply constraints have combined to drive an increase in lumber prices heading into 2022, in a season where prices are not typically high.

In 2022, it is possible that there will be moderating influences on demand - interest rate increases could throttle back demand, the continuation of the pandemic may stifle optimism, and the arrival of snowy winter weather may put a crimp in construction. But with supply already constrained, one can reasonably predict that supply chains will remain tight unless these issues have rather dramatic impacts to reduce demand.

The onslaught of supply chain challenges across many industries beckons for innovation and enterprise. The LBM industry is no different. This effort must start with companies shifting from speculation to facts. The combination of innovation and enterprise starts with data. Commodity lumber markets have been volatile with commensurate risks, but most LBM industry information about markets is rhetorical, speculative, and opinion.

LBM organizations have systems full of data, but storing data is not the answer - it’s using the data to make better decisions and create advantage. Our advice? Structure data with software tools so you can use it. Data such as forecasts of inventory needs by week, SKU, and location; market pricing trends; frequent quotes from multiple suppliers for lumber and panels, etc. Use that data to make informed purchases.

Optimize your buying operation to reduce working capital requirements and minimize commodity price risk. And use data to minimize the noise of rumors from traders or sellers trying to sell you something today. In the end, using data to make better decisions will lead to increased profits for your operation. Finally, start thinking about markets based on data and how market moves impact company profit, not based on rumor from traders or sellers.

What is our forecast for 2022? Expect markets to remain volatile in 2022, but don’t believe in a “new normal”. The long-term dynamics of supply and demand will eventually bring prices back down. Even if these times are exceptional, volatility has always been the normal in lumber. Someday we will get back to the old normal of seasonal and cyclical volatility and away from pandemic-driven supply-chain panics. Just not in 2022.

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Matt Meyers is the co-founder and CEO of Yesler, a marketplace for the LBM Industry built by experienced veterans of the industry. Yesler is the culmination of 23 years of operational experience and innovation across all aspects of in the lumber and building materials supply chain. In 2014 he became Director of Marketing for Weyerhaeuser's Trus Joist brand of engineered wood products. By 2015 he was leading $3.5 billion in revenue across Weyerhaeuser’s lumber, panels, and engineered lumber as vice president of sales, marketing, and supply chain.