 Yeah. So within Lumber, you know, you've got hundreds of items that are called commodity lumber. They all move differently. Welcome to the Smarter Building Materials Marketing Podcast, helping you find better ways to grow leads, sales, and outperform your competition. All right, everyone. Welcome to another episode of Smarter Building Materials Marketing, where we believe your online presence should be your best salesperson. I'm Beth Popnickola of Your Host, and today we are revisiting lumber prices because we know we haven't gotten enough of what is happening with that world. So we're excited to bring on a couple of the team members from Sherwood Lumber. In the studio with me, I have Steve Lopener. He's the VP of Commodities and Risk Management. I also have Josh Goodman. He's the SVP of Forest Products, Sales, and Supply Chain for Sherwood Lumber. Guys, thanks so much for your time, and welcome to the podcast. Thanks for having us. Thanks for having us. So before we dive in to the volatility of the lumber pricing market, why don't you guys take just a few seconds and introduce yourselves and introduce Sherwood Lumber for our listeners. Well, thanks again for having us, Beth. So just a high level about Sherwood Lumber. We are a family owned business, third generation coming into our 70 years in business. I am in third generation family member. We have about 20 distribution centers around the country. Our largest facility is in Palmer, Massachusetts, which is around 70 acres, and that is solely owned by Sherwood Lumber. We have about 40 lumber panel traders. Our three main office locations, Portland, Oregon, Melville, New York, and Tampa, Florida, and then we have remote offices around the country. This 90% of our business is focused on commodity sticks and lumber and panels. A big focus that we've been growing over the past couple of years has been the specialty business, and that's mainly in the northeast, and that is solely focused on exterior building products. So anything you see outside of your house from siding to decking to railing, we're in it. So that's a little bit about Sherwood Lumber. About me, I just quickly said I'm third generation family member. I've been in, I've been here at Sherwood for now, roughly about 13 years. And once I came into the business after graduating Syracuse University with a finance and accounting degree, I really started from the ground up, unloading rail cars, loading trucks, then moved into the office with our CFO, doing the accounting skills that I really practiced in school. And then did logistics work, worked on a lot of marketing and IT, implemented a whole new computer system. And so that was the whole back end of the business. And since 2017, I focused on the front end, so on the buying and selling. And that's where I sit right now, managing all the buyers and the inventory around the country alongside sales and working hand in hand with Mr. Steve Lobner. It's great segue Steve what about you why don't you tell us a little about yourself. Okay, I've been in the industry, about 20 years. My background prior to that it's a little bit unique for the, for this industry I was an options floor trader stock options that traded in San Francisco, the Pacific Stock Exchange and then later on at the Chicago Board Options Exchange in Chicago. So my background is in financial derivatives, which has been sort of a great segue into into my current role here which is managing, you know risk management forward pricing, which is a, you know, something sure with numbers going for. I'm in Portland, Oregon. We have a sales office here with 10 traders. So I run that. Josh mentioned on just commodity lumber panels, two by four, two by six is, we don't really get too involved in the specialty side of things out here. You know, so our day to day is basically talking to the sawmills across North America selling and talking customers buying and selling for for inventory, out of our inventory, doing direct trading and managing the features. So before we get into talking about lumber prices, because you both, you know, you've leaned really hard and transparently into, you know, we're into commodity selling, you know, we are into sticks and lumber. And that's something that comes up quite a lot in our conversations with manufacturers and dealers is the fact that a lot of the products maybe even the majority of the products in the building space are technically commodities. And Steve and I were chatting before the podcast and just talking about some of the unique ways that sure word lumber goes to market and some of your unique business models. I'd love to know how you're differentiating in a commodities market. That's not just a race to the bottom. Yeah, that's a great question. I mean, Josh, I can probably take this one but I know that our owner Andy, he always says that we try to take the commodity out of the commodity, you know. It's not a race to the bottom if you're solely competing on price, you know, ultimately you're not going to, you know, you're not going to be in business that long. Josh, you want to you want to kind of kick that off in terms of what we do from a distribution standpoint. Yeah, like Steve mentioned, you know, we try to take the commodity out of the commodity and we're trying to provide the, you know, the ultimate best service for our clients. Yeah, so what we're doing is bringing in bulk material and we're facilitating from the logistics standpoint from the credit standpoint to servicing the customer either directly to their yards directly to specific job sites to just making it as easy as possible from a mixed truckload, you know, specification versus in large quantities and really delivering exactly what they need when they need it and provide if it's credit. You know, that's what we do. I would add that provides sort of a myriad of different services that our customers can use so it's anywhere from from the mixed truck small quantity distribution customer that might be a smaller, you know, independent guy in a big city that has tight space to we're also doing with the largest, you know, dealers in the country that have you know 100 acre, you know, yards where they can store 300 cars. So they can so customers can come to us for the small mixed loads, they can come to us for their bulk shipment needs and also where we really I think differentiate ourselves as in the risk management that features long term pricing space, where we're essentially providing customized risk management solutions for customers all around the country to help them mitigate their market risk through all these crazy, you know, ups and downs that we've experienced certainly last couple years. So it makes a ton of sense. When you think about, you know, where your product fits, and then what are the pain points kind of on either one of those ends and the way that you're differentiating yourself is solving, not just for hey we have like need product have product, but what's leading up to that product point making sure that they're getting the right product and then getting it all the way through to the job site I think that's, I mean that's a huge differentiator for sure and solves a lot of the frustrations and kind of complications that we know exist within our, within our industry so I love that and see you, you started to mention, you know, about some of your risk management and future so I'm going to loop us back around to our original conversation is we were tying up 2022 lumber prices we're starting to get back close to pre pandemic prices where we're at least getting within the realm of normalcy. So I started to see a small uptick in January and February, I think a small considering trend as we go into March. I'd love to hear from your perspective. What you think is contributing to that in where you all are anticipating lumber prices going this year. I know that's a bit that's a big ask right because there's still, there's eight months left. So we need to scrap the whole episode because we just all missed it that's I have no problem doing that. It's been a while then you know the old adages like if you don't like the weather just wait a week and it'll be different so I think you could really say the same thing about lumber pricing. The past, you know, years just been just wild so we came off the extreme highs. To your point we sold off to some sort of pre pandemic normal quote normal levels. We had a large rally about three to four weeks ago, followed by an epic collapse now we're starting to climb out of that but I think when you when you kind of step back from all that I think what we're doing is, we're trying to figure out a new kind of long term sustainable range for lumber and our feeling is that that range is probably higher than the, you know, pre pandemic normal input costs, log supply in Canada there's a lot of things that have changed and evolve over the past few years so we think lumber should be higher than than what it used to be. We certainly don't expect to return to the crazy days of you know two years ago and when a car lumber was a quarter million dollars for car two by four see we don't think that's going to happen, but. So I think we're in the early stages of that process of fleshing out like what new what reality is and what and the sustainable level is, which most likely, if I had to guess is probably going to be, you know, 50% plus over kind of the old historic ranges, which is sort of give or take depending on the item. So you're expecting we're going to even out kind of about where we are give or take. Just now today we're starting we're starting to rally again over the past few days after extra you know, pretty epic sell off. So I think you know we probably can be higher than we are right now. Yeah, but I wouldn't say, like, we're not going to be double, you know, futures right now are in the low fours. I would, I would expect a realistic range for futures maybe 400 to 600. If I had to, you know, if I had to just make a guess, and that certainly be volatility around that but that's kind of our feeling for kind of long term sustainable where the mills are able to make a little money. The customers are happy, you know, a good middle ground it makes sense. There'll be a lot of ups and downs and in between all that though. One other point to add is, you know, on this extreme volatility over the past, you know, it's been past couple years but I think right now as we've seen housing starts come off over the past, you know, six to nine months, and it's stabilizing here. Right now we're in the process of right sizing the supply side. And that's just only a matter of time to right size what we've heard and seen over the past 3060 9020 days between permanent shutdowns curtailments reduce shifts. So how that all affects and you know what is brought into the marketplace to the current, you know, right sizing the supply to the demand and, you know, that's, that's where we're at right now. We recently saw like some q4 earnings announcements from some of the large Canadian mills, and they were, you know, these guys were losing quite a bit of money. This is based on this is based on the q4 pricing which was higher than where we are right now. And these are levels mind you that are, you know, fairly high relative to price levels fairly high relative to historical norms and they're still losing a lot of money so, you know, law costs might adjust, you know, there's going to be some fluctuation in that but basically lumber prices have to be higher than they used to be in order to be sustainable. Yeah, and I think that's I mean that's what we're hearing from categories across the board right for some it was deceptively low, maybe even lower than it should have been so we're just seeing everything kind of come up across the board. Nobody loves that just building a house costs more builders don't love it homeowners don't love it. But it's, it doesn't seem to be like there's a significant reduction, other than places where it was significantly inflated like lumber was in, you know, 2020 2021. I mean that makes a ton of sense. As you're talking to your customers about lumber futures and the lumber futures market and risk management. What are some leading indicators you're monitoring from your side that you're, you know, either pushing to them or raising flags for them in those conversations. Each customer based on the business segment that they're in has its own they have their own unique like risk profile. So I think those conversations really are sort of tailored to, to the, you know, is it a sawmill, you know, the where their risk is to the downside is it a multifamily developer where their risk is to the upside so what we try to do is, you know, first and foremost, just get an analysis of where they sit in the space and what their risks truly are and from that we help them craft a risk management solution to mitigate what their risks are. And that could be futures it could be fixed pricing future physical delivery it could be financial swaps is a lot of different things we do but they're all really custom tailored to the profile that folks were talking to and so I guess the indicators we would look at would be based on, based on what's going on. Of course, you know, we're now we're in the futures market very heavily timing things and, and a lot of technical sort of data we can look at to help us in terms of when to implement trades. But big picture, it's really, it's about helping customers initiate the proper long term plan to, you know, to smooth out their earnings volatility. As you're looking at, you know, the back end and the data that you need to have in order to be able to create these risk management profiles or risk management statuses for your customers. Is there a topic or a category or something that you're seeing or that you find yourself elevating in conversations that maybe isn't quite on the radar for everyone the way that you would think that it should be. I would say, you know, just kind of based on my background the financial markets that I would say risk management and futures in general, in the lumber industry is dramatically underutilized. I'm always just sort of shocked and blown away by the amount of risk that a lot of entities are willing to take when there's the perfect product that is sits that's available to help mitigate that so I, you know, I just think it's a space that everyone in lumber talks about futures they watch futures but there's, I would say the actual percentage of market participants that are heavily involved in a sort of risk management is very, very low. And, and so I guess my overall comment would just be that and that it's underutilized and that it's not and I would say that the industry could probably benefit from a little more sophistication in terms of utilizing some of these tools that are available. Josh, do you have any, any thoughts, I miss anything. No, I think you hit it now on, I think, you know, what you discussed earlier was, you know, the range, you know, of, let's just say 400 to 600 and when you're talking to various different customers is understanding, you know, where the risk is at where it is and if we're at the bottom end, we would, you know, suggest obviously to cover up as much as you possibly can and at the higher end of the range is, you know, what, you know, the comfort for each customer is different of how much risk they want to take. But, you know, that's definitely something to look at and then another tool that we use that is probably not well used in the industry is just looking at specific items, as far as what's undervalued and what's overvalued to the current market of the data that we have for the past. I don't know what is it Steve, 30 years. Yeah, so within lumber, you know, you have hundreds of items that are called commodity lumber they all move differently. And so, you know, like what Josh is, you know, mentioning is sometimes some of these items might be dramatically, they might be very cheap relative to historical relative to everything else and that might be item we would advise our customers to hey, buy six months worth of this stuff there might be something else that's, you know, extremely high relative to its normal relationship and these things tend to come back in line over time so that's analysis that that's pretty instrumental in not only guiding our customers but certainly in guiding our inventory purchase decisions and how we run our own business as well. I love that I think that's a great point also is just the variation and the specifics within even just lumber futures and lumber pricing in itself, and understanding where's their risk where's their over value that's a really great highlight Josh I appreciate that I want to go back Steve to your comment of really just your the amount of like your surprise that utilizing something like this risk management service isn't more common in the industry is there a particular obstacle that you think stands in the way maybe it's just but if it's not if it's not awareness, you know what's the conversation that you find you have to have or the the aha moment you have to create. I think there's a few things. You know a lot of companies have done it the way they've done it for a very long time, and they've had a lot of ups and down volatility along the way but in the end of the day they've made money so it's like why would I, you know, why would I change if what I'm I think it's like, okay, I mean if you want to make, you know lose 60% of one year and you know. So I don't know but but that's one obstacle the other I think is just the, you know, specifically with the futures market I think it scares people I think the financial. You know the ups and downs and the cash flow and margin implications that they come along with that that are inherent with futures is something that a lot of people do shy away from, because those swings can be pretty significant. People tend to look at, you know, one of the things that we're good at it sure what is, we have a very large futures position but we also have a very large cash position and we look together how that marriage together for your total P&L versus a lot of people to view them separately like they're two separate things it's like no you put these things together so a lot of people have a hard time making that mental jump. But I will say that the folks that the folks that do recognize the value, you know, to be gained from risk management that partner with us. These are people that are with us day after day week after week, you know, year after year. And so once they sort of get it and they initiate that into their business and they recognize that, you know, particularly in these volatile times, you know, reducing that that earnings fluctuation is so valuable. You know, a consistent return of 15% is better than this crazy up 50 down. You know, so, so it's very powerful once people kind of buy into it and we help them navigate how to do it. Before I let you go I've got one question we're asking a lot of our guests as we're at the beginning of the year, other than lumber futures and lumber pricing. What's one prediction you have for the building material sector in 2023. What are you expecting to see. I'm not saying it all along with my customers. I think it's pretty obvious. It's coming into 2023. It was doom and gloom recession depression. It is well better than expected business. Things are shipping out quicker than, you know, expected. So I think just a better than expected than what, you know, we thought coming into this year. I would say the same thing. I mean I think the multifamily space is extremely busy, super robust. I mean we're record shipments and record not near record backlog of orders so that's that part is strong single family. It's challenged but there's also, you know the supply, Josh mentioned supply lumber supply earlier well there's also like housing supply it's not that high. And this stuff is going to work itself out quicker than people think and so I think people could be surprised it could be better than expected. People don't want to get to down the dumpster. My opinion. That's so it's so interesting that's both of your responses so when we were at the builder show at the end of January. We often we always get asked, you know, what are people saying about the economy or what do you think is going to happen and without fail every single situation I had or have had over the last four months has been exactly this, where whoever I'm talking to that whether it's a manufacturer dealer their responses basically like, I know that I'm supposed to be worried and I know that things are supposed to be bad. And maybe they're bad for everybody else, but for us we seem to be doing really well. And it's not all eggs in that basket and we're all a bit more cautious these days just naturally coming out of everything that's gone on and all of the volatility and change and the expected change that we've gone through the last three years I don't think anybody's saying it in a presumptuous or prideful like we've hacked it kind of way, but just in the like, is it okay that I'm okay because like we're okay. So I mean I just love hearing that because I think that's been the the consistent cadence is like cautious optimism, but with reason to be optimistic. Yeah, I think cautious optimistic is exactly where we stands but you know it's like Steve always mentioned it business isn't going to come as easy as it did the past two years it's going to be harder to conduct but there's plenty of business out there. 100%. Is there anything that you all have had to pivot or find yourself doing as a result as you know 2023 business isn't going to be as easy to come by as it was the last two years any specific strategies you've put into place to continue to see demand walk through the door. I think just leaning on our overall value proposition that we sort of alluded to earlier in the cast. Just really, you know we have to provide value to our customers, you know, otherwise there's no reason for us to be here so with between the just in time deliveries and just all the different business models that we run. We just have to I mean that's where we're going to find our success. It's not like shooting fish in a barrel anymore I mean the markets we're back to normal we're going to have to work for it. But I think you know I think there's a lot out there and I think you know that navigate that well are going to do just fine. Frankly, not shooting fish in the barrel but also not smoking mirrors I love that we're just going to deliver value. Yeah, I mean what else is there. Well, thank you both so much for your time. If any of our listeners want to get in touch or ask more questions after the episode what be a good way for them to get in contact with you. Our email addresses. Josh at Sherwood lumber.com and s slowbner at Sherwood lumber.com. Yeah, great. We'll make sure to link those in the show notes thank you both again for your time this has been awesome for our listeners. If you want more great content like this head to venvio.com slash podcast to subscribe until next time. I'm back.