Who is Getting Rich Off of High Lumber Prices?!?

welcome back to diy with dave um i made a video a few months back where i talked about uh the price of lumber and i've really learned a lot from the comments that you guys have listed about the the industry about um you know prices where you are and what you're seeing so keep those comments coming because i think they're really interesting but there were a few comments that i got that that kind of puzzled me that that didn't seem to make sense like this one at first i couldn't really make sense of what people were saying you would think that if prices were high that everyone in the supply chain would be benefiting in some degree but that's not what's happening and in this video i'm going to tell you what is happening and we're going to get to the bottom of who is getting rich off of high lumber prices [Music] so it takes a lot to get lumber from a tree in the forest to a board in your local big box store trees first need to be cut sawn dried packaged shipped and then picked up or delivered in that whole supply chain you have landowners you have loggers truckers sawmill operators retailers and others now with wood prices so high again you would think that everyone's benefiting but they're not so the big question is what is happening so let's start with the little guy you've got loggers you've got truck drivers you have sawmill workers most of these people are paid hourly and while there may be more overtime available right now none of these people are getting rich off of high lumber prices now there is a lot of demand for trucking right now and so trucking companies may be making more money and that may be passing on but it's nowhere near enough to account for the huge spike in increase in lumber prices that we've seen recently so what about retailers like home depot or lowe's well retailers make their money off of margin and what that means is they buy a product as a certain at a certain price they mark it up say five percent and then sell it to consumers they have expenses along the way they've got you know employees they need to pay they have transportation costs they have store costs and that all comes out of that margin plus a little bit of profit so if the price increases they may make slightly more but it's again nowhere near enough to account for the huge increase in lumber prices that we've seen so while those retailers you know the lows and home depots of the world may be the face of high lumber prices they're not the ones that are making money hand over fist so what about land owners i'm talking about timberland owners the people who own the land where the trees and the logs come from you would think that if lumber prices were so high there would be a huge demand for logs and those people would be making a killing right no they're not they're not making a lot of money and the reason for that is really pretty interesting so stick with me here while i explain what's going on so to understand what's going on here we need to go all the way back to the 1980s and in the early 1980s there was a farm crisis and this farm crisis really drove a lot of farmers out of business farms were being foreclosed on rural rural communities were being destroyed and it was a huge problem for the country as a whole so this the farm crisis was terrible for a lot of reasons uh one of the biggest things was that it uh depressed rural economies you had farmers who were being foreclosed on you know business in in farming areas that was just was just you know being lost family farms that had been in families for generations were being lost and it also impacted prices uh commodity prices and and food prices and it was it was a real big problem that had a rippling effect throughout the economy and so this prompted president reagan to sign the farm bill in 1985. thank you all for the herculean effort you put forth on behalf of america's farmers this legislation will help put america's farmers back into a competitive position in world markets america's farmers are the most productive in the world this bill will help unleash their enormous productive capacity and will help america reclaim lost markets now there was a lot in this farm bill but one of the provisions was called the conservation reserve program or the crp now the crp was essentially a subsidy program now it was designed to take some farmland out of commission and that would help stabilize some prices the idea was that farmers were going to get paid to convert their farmland from farmland into forest land or timberland now it was originally meant to be a short-term program that would convert farmland into timberland uh thus you know helping stabilize farm prices also helping you know the the environment all that land for the most part when the european settlers first came was timberland they had been cut and used for you know ships and homes and things like that and so it was really kind of getting back to nature is going to have environmental benefits it was going to have benefits for the economy as a whole so while it may have been a great program at first and accomplished a lot of the goals that it set out to accomplish it went on for far too long so under that program over 22.6 million acres have been converted from farmland into timberland and over 50 billion dollars have been paid out to landowners since 1986. so now fast forward to today there are millions more acres of timberland today than there was 20 30 years ago now it sounds like that would be a good thing for lumber prices right it seems like there would be tons of supply of timber of raw materials to increase the lumber supply and reduce prices right but that's wrong in fact timber raw timber prices in the southeast of the us are the lowest they have been in decades so as an example to illustrate what i'm talking about i have put together this graph of stumpage prices of raw timber prices from north carolina while there was a kind of a big spike in uh stumpage prices and raw timber prices in the early 2000s since then it's really been down and in looking at this graph you can see that the prices today are about the same as they were in the late 1990s now the that is in real dollar terms but you know a dollar isn't worth today what it was in the 1990s and so if you adjust for inflation which i've done in this graph right here it's even worse and the prices today are the lowest they have ever been now those graphs are for north carolina um but what we see in those graphs there for north carolina are is happening all across the south so you may ask you know what about that government program that's been paying billions of dollars to land owners for decades right well to take advantage of that program you you had to convert farmland into timberland so if you already had timberland you're not getting any of that benefit also what tends to happen with a lot of these government programs as they continue over time the people that take advantage of them are the ones who are sophisticated enough to know how to take advantage of them and they tend to be the people that don't need them in fact the guy who was responsible for getting the crp put into the farm bill said this about it like everything else in government that starts out with honorable intent the crp gained entrenched political support then turned into a crony capitalist welfare system for well-heeled farmers okay so again you've got just tons and tons of raw timber right tons and tons of of raw materials that can be used to make boards and or lumber goods sheet goods that sort of thing so you know i still haven't really answered the question why doesn't that decrease the price of lumber well lumber is a cyclical industry uh it has its ups and its downs um and a lot of those ups and downs are tied to construction in the housing market and so in 2007 2008 you had the housing crisis and building just dropped off a cliff and you can see that here on this graph so lumber prices fell off a cliff and they haven't really recovered until now and so part of the problem is that no one is going to go out and invest in a big sawmill when lumber prices are so low there's just there's not enough money to be made and a lot of the new sawmills uh cost millions of dollars and take months to set up and so they're not going to be built out building sawmills when there's not a demand for lumber they would just lose all their money and so what's happening now today is that there aren't enough sawmills while you may have tons and tons of raw timber there's not enough sawmills to process that rock timber to get us uh the lumber that we really need to supply um everyone out there who's using it mostly again in the home building also today's lumber mills are far more efficient than lumber mills were in the past which means that they actually use less raw timber to get the same amount of boards as what they did before so i know that was a lot but the point of all that is to say that timberland owners the the people who own the raw timber the land the the rock timber the rock trees are on timberland owners are not making any money in fact they're making less money than they ever have made before so if it's not timberland owners it's not retailers it's not loggers or truck drivers or sawmill workers who is getting rich from high lumber prices well that really only leaves us one option and that is the big sawmills and the big lumber producing companies so by some estimates there's around 3 000 sawmills or lumber mill companies in the united states most of those are very small operators um that that you know specialize in certain types of wood and they're not the ones who are who are milling all the lumber that's used to build homes the companies that are really milling all the lumber for homes consist of large corporations and the five biggest in the united states are these uh weyerhaeuser georgia pacific west fraser sierra pacific and interfore so uh georgia pacific and sierra pacific are both privately held companies um either by families or by you know large investors so they don't publish publicly available financial information but the three other companies are public which means that they publish financial statements so i had a look first at weyerhaeuser's financial statements and what i found was that their their sales from 2019 to 2020 increased by about 15 percent another interesting thing was even though their sales were up by about 15 their costs were not up significantly at all less than one percent so they had much more in sales but their costs stayed about flat the most interesting thing however was that their net income was up from 2019 when they lost about 76 million dollars to 2020 where they had a gain of 797 million dollars so that is an increase of three quarters of a billion dollars that they made in 2020 and again that was with a good portion of the year where they had some some loss so who knows what their what their income is going to be in 2021 with lumber prices as high as they are and that really reflects into their stock price looking here at a graph of their stock price their stock price is up from about 15 a share last year to almost 37 a share today and that's an increase of about 147 but that's actually pretty small stock price increase compared to a couple of the other companies west fraser their stock price in the same time has risen uh 279 percent and inter for their stock price has risen by 459 percent from nearly four dollars a share a year ago to 22 dollars a share today so who's getting rich off of high lumber prices it's not the loggers it's not the truck drivers it's not the workers it's not even the retailers it's definitely not timberland owners the people that are getting rich off of high lumber prices are the large sawmill and lumber mill companies they're the ones that are making all the money so if you want to direct your anger don't direct it to home depot don't direct it at timberland owners don't direct it anyone else direct it at those companies or hey buy stock so when is that going to change uh when are lumber prices going to come back to normal i'm working on a video right now that's an update to my video from last november talking about what's really driving lumber prices today and when we can see that change so be sure to subscribe to my channel so you can watch that video once i come out with it also if you like this video be sure to hit that like button again subscribe to my channel and also let me know your thoughts do you work in the lumber industry are you seeing some of the things that i'm talking about or do you have an experience that's different do you have something to share please add a comment below and let me know and thanks again for watching and we'll see in the next one [Music] you

Channel: DIY with Dave

Views: 1,199,708

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Keywords: Diy with dave, high lumber prices, lumber prices, lumber prices 2021, lumber, taking advantage, greed, corporate greed, wood, wood prices 2021, who is getting rich, when will lumber prices come down, why is wood so expensive, economics, markets, lumberjack, lumber mill, sawmill, mill, osb prices, obs cost, plywood cost, plywood prices, expensive, economics, uneducated economists, conspiracy

Id: TKdnSPZfI4k

Length: 13min 46sec (826 seconds)

Published: Fri Apr 09 2021

Reddit Comments

[u/geneullerysmith]

Great data! Thanks for breaking this issue down. For months everyone has just been shrugging their shoulders and saying “probably something to do with covid?” Clearly the recent uptick in demand driven by super low interest rates combined with tight supply is the culprit. It seems that as long as demand is high we’ll be dealing with steep prices.

[u/brntuk]

UK here. My local timber merchants tell me that they have been having problems getting timber from European sources, not because of Brexit, but because the US has been buying it up. This is mainly Scandinavian countries but also virgin Russian timber.