 When I was an outsider to lumber, you just make these assumptions about how it works and how many trees are available in the U.S. and the articles you read about the glut of logs, and it doesn't make sense. Welcome to the Smarter Building Materials Marketing Podcast, helping you find better ways to grow leads, sales, and outperform your competition. Alright everybody, welcome to Smarter Building Materials Marketing, where we believe your online presence should be your best salesperson. I am Zach Williams, alongside my co-host Beth Popney-Glove, and we are talking about lumber today. I am so excited about today's show. Before Beth introduces our guest, I want to just preface all this by saying I have incessantly pestered our guest to come on the show. I've harassed them on Twitter, and so just a little preface to today's show, I'm really, really going to geek out, because I think it's going to be exciting. I mean at this point it's weird that we haven't talked about it in like a couple of weeks, so it is a very timely guest. We are really excited to welcome Stinson Dean. He is the CEO of Deacon Lumber Company. He also has got a pretty hot Twitter feed on all things happening in lumber right now. Stinson, thanks so much for responding to Zach's insistent pestering. We're really glad that you're here. I'm happy to be here, Beth. Zach, thanks for being persistent and excited to talk to more lumber. Awesome. So we've got basically nothing but a thousand questions, and I'm pretty sure our email inbox just blew up with all of the questions our listeners want to follow up with you about. But before we jump into that, why don't you tell us a little bit about who you are. Tell us about the Deacon Lumber Company and how you became to be a lumber guru. Well, I don't know about lumber guru, but I've kind of dumbed into like most of these situations that I find myself in. I started in the commodity world at a company called FC Stone. They recently changed their name to Stone X, and that's where I was introduced to commodities. I used to be in business, the business sales, and they wanted to bring on folks who could sell consulting services and then they would teach them the book smarts. And I think I just kind of latched on to the book smart side more than the sales side at the end of the day. And I learned under some of the very best grain, energy, meats, metals, traders on the planet. They all approached the market from a risk management side. So I eventually started consulting in the lumber industry. I felt like that was an underserved niche from a consulting side. 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. And I learned under some really, really special cash market traders, folks I would consult. They brought me on to work for them. And I was just unbelievably blessed to work for the folks that I have in my career and really have put together a pretty unique background to now approach this market both from a cash and futures perspective. So I eventually launched Deakin Lumber Company right in time for all this chaos, 18, 19 and 20, not 21. 2018 was a pretty wild year at the time. Yeah, so I buy lumber from producers, from sawmills. 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. Okay, so just for layman terms, you buy lumber. Like you personally, you go and you buy the lumber and then you say you hedge it. Like are you holding that somewhere? Like you're holding your backyard, like your giant portfolio of... I'm not going to tell you where I keep it. I'm not going to tell you that. Security risk, man. Well, yeah, so I buy it and I own it. I take price risk on it for 90 days. So 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 kind of market it. And that's constantly done buying and selling every day. So yeah, I keep the lumber in warehouses across the country. Lumber is largely stored outside. Some of it's in a covered warehouse. But unlike whole-sailing lumber where you buy a rail car and then you sell it really quickly to a customer and the rail car goes to the customer, the rail car actually comes to me. And then I sit on the wood and I wait for someone to need lumber tomorrow and I send them a truckload versus if they need lumber and they call a sawmill. It's six weeks away. Gotcha. So you're capitalizing on demand. I need it today. Right. Fill-in trucks is a common word you'll hear just in time inventory. I make sales when the biggest lumber yards are under budgeted on lumber because they're going to make these decisions months in advance. So it's not hard to imagine they don't have all the lumber they needed come two months later. So they need some trucks to fill in. If there's logistics issues on the rail lines, they'll call me to get a truck in. And then certainly if they're oversupplied, I'm not very busy. But right now that's not the case. So we're pretty busy these days. And who are you selling to? Like which lumber dealers? Yeah, so I sell the lumber dealers. I don't sell the home builders. And the biggest lumber dealers in the country, builders first source, 84 lumber, BMC, which is now builders first source. Those are common names that folks in the industry would know. So those types of contractor lumber yards. So I'm a trader too. So that's kind of the core of what I am. So those customers also buy from the sawmills. They don't have to go through me, 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 on site. And that's kind of where I fit in the supply chain. So part of the reason why I was really excited to have you on the show is understanding what in the world is happening with lumber. Like I imagine right now, since in for you is like, if you're a weather person and there's going to be three feet of snow, like it is your time to shine. Like, you know what I'm talking about? Like the local weather guy, it's going to be a massive storm. And he is so excited because everybody wants to hear from them. Is that like the life you're living right now? Is it basically like an absolute rockstar because people from, I mean, you were interviewed recently on Bloomberg. Right. Yeah. It's been bizarre. Like I have nothing to sell on Twitter, on social media. I don't sell consulting or newsletter, which is fine. But I guess I just kind of do it for the attention. But at the end of the day, those are really valuable resources. And I've learned so much from those communities, but it's given an exposure. I mean, my social media name has lumber in it. And it's literally the hottest commodity in the world right now. So I'm kind of right place, right time. I know how Twitter feed works. And that's really where I've gotten some exposure. And it's been interesting because when I was an outsider to lumber, you just make these assumptions about how it works and how many trees are available in the U.S. and the articles you read about the glut of logs. And it doesn't make sense because we have a shortage of lumber, but a glut of logs. So it's been nice for me to be able to explain to folks the real mechanics behind lumber and how the Pacific Northwest and the U.S. and Canada as a whole have a much bigger impact on our lumber supply than I think folks realized. So yeah, I've been busy and it's been a lot of fun. Lumber's full of just really, really good people. And I always just hope I represent the industry well. So we'll see. So what is causing the increase? Oh, man. Short stories. There's more buyers than sellers. And I always like... Same story, different day, right? We can go. But I'm a pretty simple guy. You know, I don't have an economics degree and I got to really start elementary. I literally start from that. And when prices are this extreme and these moves are this extreme, like why are there so many more buyers than sellers? And it's from kind of a medium term outlook. We all know that COVID has impacted supply chains from microchips to lumber. And I've been arguing that in lumber particularly, when we saw things falling apart 12 to 13 months ago, everyone got very conservative. So any inventory they had on hand, they got rid of it. They only bought what they needed. Sawmills did the same thing. They would have excess inventory on site to kind of fill in gaps and holes. If there was a hiccup in the supply chain, hiccup in a production run, they would have a pile of lumber to kind of fill things in and keep everything going smoothly. Well, they sold that pile. It's gone. Downstreamed lumber dealers sold their pile. Didn't replenish. For every two trucks they sent out, they maybe bought one truck to replace it. So that kind of risk off behavior in the lumber industry, we get there very quickly just because of what we went through in the recession. And as we started to turn up and lumber prices were at 450, 500, 550, no one really wanted to believe it. Me included, like, oh, we're going to fall. The highest price we've ever seen in the history of lumber, if you use lumber futures as a proxy, is 655. So we got to 650. Like, there's no reason we should be up here. This is an absurd number. You know, we've only seen this one time in history. So no one wanted to believe it. And then we went 750, 750, 850, 950. And then everyone waited too long. Producers couldn't catch up. And it was just game on. And that we've been up here 900 plus for six months. And I think it was just because of the cautious nature of our industry. No one wanted to invest in inventory. And it perpetuated the problem. And we haven't been able to catch our breath. And so that's why there's just the constant shortage of lumber. And I don't know how it gets fixed outside of maybe some seasonal pauses and some production increases. But ultimately, we got where we are today at $1,300 lumber prices. Because simply none of us thought we could ever be here. And it's kind of a self-defeating behavior that we all engaged in by staying. So it's kind of a risk off. It caused the supply chain to stay too lean and way too volatile. Do you see prices coming down at all? If you do, when is it going to come down? Oh, well, I'm not going to tell you that. Never. Yeah. That is for the paid subscription that I don't have. But yeah, prices will come down. I always reframe that question what is the new trading range going to be? This is still a commodity. It's going to go up and down. And the up move right now is huge. The down move will be huge. But if we fall 50%, we're still higher than we've ever been in the history of lumber and the history of the world. Lumber will still be more expensive than it ever was if we fall 50% from today. And I think we will have a much higher floor. So I don't think we'll fall 50%. I think the fact that we've been up here for six months and salespeople have been able to pass these costs long for six months. The housing data and the mortgage applications and home completions starts permits. None of that has slowed down. It's been a very nice steady, even more than steady clip, double-digit growth. So that tells me that these costs are getting passed along. So if you think we had a good Q1 housing data outside of the big Texas freeze, then you've got to think that $900 lumber is very profitable. $1,000 lumber is very profitable because these lumber prices were passed forward. And now we've blown past that. And people who sold forward at $1,200 are kind of upside down at $1,300. But if they sold forward at $1,200, they're very, very profitable at $1,000. So the fact that we've been up here for so long, it's starting to normalize these prices. So I think the price range will be up, you know, 100% higher from the old high. And maybe we'll kind of tap that 650 on the bottom. That's being a much higher trading range than we've been in the past. So, Stinson, you mentioned when we very first started talking about your business model, you're basically used to fill in gaps from lumber demand. Have you had to shift your model at all because all there is is lumber demand now. All there is is gaps. Yeah. So typically when you trade, you buy dips and sell rallies, but there has been no dips. So you've had to change your mindset to buy a rally and then sell a higher rally. Wow. Totally wild. It's very difficult. Yeah. It's just like Dogecoin. That's right. It's very similar. Well, it's just against your instincts, right? So no one wants to buy the rally, so nobody does. And you wait and you wait. But at some point you have to buy lumber. You can't run out, so you chase it. And everyone kind of gets in sync on those buying cycles and we get these big jumps. So yeah, I've had to change my risk tolerance quite a bit if I want to participate in the market. My typical risk parameters, if I stuck to those, I would have not bought lumber for six months because lumber has been so expensive. But eventually once I kind of adjusted to this new paradigm, I started buying ridiculously high lumber prices and eventually selling it for, you know, insanely ridiculously high lumber price. And that shift, you've got to be early making that shift. If you're late making that shift, sometimes that burns you up. But, you know, that for me, that's what I've had to change is my risk tolerances have had to widen. Do you like when prices go up or down? Me personally, I like volatility. So I like both. I don't like price going up every day. For the reason I just talked about, that's hard to trade. So yes, the answer. I like it when I go up and I like it when I go down. And the problem with market is they've only gone up. In fact, until today, we went almost a month in lumber futures without one down day. Every day was green. Every single day for almost four weeks until today. And that's hard to trade for those reasons I talked about. So I, you know, I like it to go up and down. I think my customers are the same way. So you can sell a rally and buy the dip. When it only goes up, it's a very hard market to trade. You mentioned something interesting, which is it's not about going back. I feel like that's, no matter what the topic is, that's what the conversation that we all have started to have is like, we're not going back. But where, where is this ship going to land? Cause it's not just going to, like lumber is not going to go up forever. Housing prices aren't going to go up forever. But I just want to see if I'm understanding what you're saying. It sounds like what you're saying is we're just moving towards a general shifted increase in the cost of construction across the board. Home starts are going to start like that foundation, that basic level of this is where if you're doing a new home build, it starts or a new building construction project. That whole level has shifted. Yeah. Yes. The whole range of possibilities has just shifted up, which makes it riskier. Again, from my perspective as a trader, prices used to go from 300 to 600. And like that was, those were big moves. Now we're going from 900 to 1300 back to 1100 back to 1200, like in back to 700. So we have $500 swings. So it makes risk taking much more difficult. So yes, I think the floor of prices is permanently raised. And we could slow down. Housing could slow down. Interest rates could go up, which to me is the quickest and only lever at this point is interest rates going up, colliding with higher home prices at the same time. It'll cool the market off, which I think we all need. I don't think there's any chance of a crash or a bubble in housing. We're so grossly underbuilt. But to me, the big shift is going to be how the industry manages risk. Right now, the lumber dealer houses a lot of risk on the behalf of the builder. And because of that, they're rewarded. The risk and reward is equal. They can make a lot of money if they time their sales and their purchases well. They can lose a lot of money if they don't time their purchases and their sales well. And I think we'll start seeing that risk transfer back onto the builder. So price locks are not as aggressive or contingencies about changing bids and bids are only good for so long. And if prices change, we have the right to, you know, we'll eat the first 10% than anything over that. We're going to pass along to you and then ultimately home builders will have to do the same thing. That's what I think is coming is how and where the risk is laid off. And builders, I think for a long time have been spoiled by risk taking vendors. And I think the model is likely going to have to change because the risk is way too high for vendors to warehouse the risk figuratively and literally with no way to pass price increases on to their builder. One thing I want to get your take on Stinson is the cost of labor. I was talking to a manufacturer right before our show about this very same thing, just the cost of lumber. And he was sharing with me, you know, one thing he's heard from different mills that he speaks to is that when lumber was at $400 or $500, it was really difficult for the individual who was out in the forest or wherever it might be to cut down or cut wood and actually make a living. Like there wasn't a lot of margin for that individual to make money. But when I went to 7, 8, 900 plus, there's actually a room to make money. And so what it's doing is it's pushing people into the industry who may not otherwise have thought about it because there's actually money to be made. And so I'm curious to hear from you. Are you hearing the same thing about, you know, from these mills who are like, this is actually helping us to fulfill demand because people can make money? Or is that just a temporary thing that we're seeing and really is not the case at all? No, I think I'd agree with that conceptually. Saw milling has, for the past 10 years, it hasn't been a very profitable business. You've seen saw mills consolidate. Now there's just a handful of names that own the majority of lumber production. And I think that was because these smaller operations, it was just tough to operate in a commodity market with slim margins for the past 10 years. And now things have changed. And it's a tremendous business to be in, obviously. But there's only a few survivors left, especially coming out of the recession. And then now 10 years later, after a pretty, I mean, if you look at some of these mills that are publicly traded, their results are steady, but not tremendous companies from a profit perspective until now. So with more profits comes reinvestment, CAPEX, rising wages to meet the backorder and the backlogs and the demand. The problem with lumber, the lumber that we use in the U.S., most of the lumber behind drywall studs and plate material comes from Canada and the Pacific Northwest. And there's just structural limits of how much we can produce because of the availability of trees in those areas. The Canadian government has made decisions of the past few years to reduce the pace of logging in the interests of the long-term health of their forests. I'm not going to argue with them in that decision, but that's not going to change. I learned recently the length of time it takes to grow a tree. This spruce tree in Canada is 80 years. I thought it was 30. So they've had to make some very tough decisions about how much supply is going to be available to be turned in the lumber. So there's not much CAPEX that will fix that. So I think that's what's my main driver behind the thesis of hire for longer. It's just going to be a limited capacity coming out of Canada because of log supply. One thing I've heard from a few people since and I want to get your take on this is, is this increase in pricing just a greed game, meaning are we seeing artificially inflated prices because you just said it a minute ago, mills to this point, it's been very slim. The margins are really slim. And they're going, shoot, look, we finally have leverage. I look at it like I was listening, if I just parallel this to the housing industry, I was listening to a number of home builders talk about the cost of lumber and how that's impacting their pricing. And somebody asked them, hey, are you going to produce your price after lumber goes down? And they're like, no, not a chance. Why would I? There's so much demand. Right. So as a mill, you're like, I can actually make good money. Why would I reduce my price? So is this artificially inflated? Is it a bit of a greed game, if you will? No, not at all. And I'm rooting for the mills. I think it's great, good for them that they're able to charge as high as price as they can because the buy side will buy as low as they can when you're in the most precarious situation. And that's what makes the market. That's fine. Blaming lumber prices for why you're increasing homes is convenient. But the reality is that those prices increases would be happening anyway because the demand is there to pay it. Those houses are worth what someone will pay for it has nothing to do with the lumber cost. But it's convenient to say as much. And I certainly couldn't lower their price. But if they did lower their price, they would have an excess supply of homes and less lumber would be bought, and that's how the market works. So no, it is not greed. It is not artificial. To me, it's just the market sorting itself out. And if you look at the NAHB last fall, $900 to $1,000 lumber, to be clear, these numbers are FOB Canada, not delivered. It's another $100 per thousand, basically, to get it anywhere in the United States via rail. So $1,000 per thousand board feet only added $16,000 to the price of a home. And I just thought that's not that much. I mean, how many other commodities can you pay for over 30 years? Lumber is like the only one. You can't mortgage your gas purchases and your corn and your food. So all of a sudden, I think we found there's a lot more any elasticity in demand with lumber price, and lumber maybe should have been higher this whole time. Or it had room to run, clearly. So I think there are more homes getting built every month. So it's not like we can't find the wood. It's not like we can't find the labor. The data says we keep building more homes than the year before. More people buying homes. Consistent growth in the housing market. So to me, it's working as it should. We need more homes, no doubt. But until we tap out of buyers that can afford a $350,000 plus home, prices of homes are going to stay up there. Lumber's going to stay up there. And all the things that go along with a home price. I feel like this is the exact opposite of what anybody thought was going to happen. Like, if you look at the reaction when COVID started, everyone was like, shut it down. We're headed to a recession. Meanwhile, 2021 was just sitting there being like, wait until you see that everything is three times as expensive. Yeah, that's right. Well, that's exactly what happened. I was quoted in the Wall Street Journal in April saying, no one's thinking about buying a home. That's not happening in quote. And like, I was right for 30 days. We had a very low print in April. But, you know, we were all thought that and that was kind of the self-fulfilling cycle that everyone went risk off. No more inventory than we need. No more production than we need. And then off, off, off we go. And then no one was a believer, too. As prices went up, no one wanted to believe that. No one wanted to invest and put risk on until it was too late. And now no one can keep up. That's exactly what happened. So this has been so incredibly helpful. I know we haven't exhausted all of the questions, but we do have to try to keep it at least under four hours. We have, we have more questions. So my last question is like, what have we not asked you? What do you wish people would talk about when it comes to lumber trading, lumber prices, lumber futures? Give us your best. I mean, is that kind of touched on it, like this idea that it's greed or something? Like none of this stuff is personal. It's just the market. And prices are what prices are. And if you don't like the price, then don't buy it. And it'll go down. And, you know, it's a hot topic right now. We can all go into Lowe's and Home Depot and see the price of lumber. But the reality is we, we all keep buying it. And we all keep buying it because savings rates have skyrocketed and stimulus and low interest rates. So to me, it's just a, seems like a mess. But as a trader, it's kind of a beautiful free market phenomenon that we're in. And it's pretty fun to be a part of. That's great. Stinson for our listeners, if they want to follow you or connect with you online, what's the best way for them to do that? I am constantly on Twitter. My handle is at lumber trading. A lot of folks message me from folks that are just building their own house to large real estate developers. It's pretty interesting spectrum. Yeah, they couldn't reach out to me there. Send me a message or DM me. And I'm always happy to give my two cents, as you can tell. That's great. Yes, Stinson is an incredible follow. Lots of good comedy too, right? I appreciate that. Yeah, I cooked those up and I think about it. Yeah, I appreciate that. Are you up late at night thinking about what's my next lumber meme going to be? Yeah, I'm like, I'm vetting it. I'm vetting it through my much funnier brothers. And what do you guys think, how should I do this? Yeah, I'm just trying to earn my keep on there. So that's a lot of fun. That's cool. Well, again, thank you so much for coming to the show. And for our listeners, if you like this content, make sure you go to ventvio.com slash podcast. Until next time, I'm Zach Williams, alongside Beth Popney Glove. Thanks, everybody.