The end of the year is quickly closing upon us. With this, another year is in the books, and we now must look back upon 2017 as a measuring stick of sorts. For this reason, 2018 looks interesting.
A couple thoughts we have on the state of lumber and shavings at the moment:
So what does this mean for our customers going forward?
Prices will have to increase on wood shavings going forward. Longer term, we believe that the cost of shavings will see a slow, steady rise over the next 3-5 years. There are several factors for this price increase, and we will discuss them in length now.
To start with, the US economy is doing really well over all. The Federal Reserve continues to slowly increase interest rates, but they are not raising rates fast enough to stave off inflation. Prices in all commodities have stabilized since the "Great Recession". Oil, gas, and lumber have all seen a steady increase in demand with no major suppliers being added to the market. This pricing pressure is beginning to show it's face in the form of higher prices on some commodities.
Additionally, the housing recovery is putting lumber mills back to work full time. While this would normally be a good thing for shaving supplies, the current market has inflated housing prices so that a lot of sellers have made substantial gains on their real estate holdings. The current state of our "service economy", which encourages people to telecommute and work from home, has added more brokers and shavings dealers to the selling mix. Lumber mills are now limiting how many loads of shavings are sold (and to who) each week of production. They are rasing prices to the current brokers as they are consistently selling through all their production. This cramp on supply means that all brokers and lumber dealers are having to raise prices to their current customers as well.
Finally, there is not any new suppliers coming on the market at this time. Lumber is a commodity. There is only so much of it to go around. There is also only so many mills to refine logs into lumber, shavings, and sawdust. The cost of bringing a new sawmill to market is tens of millions of dollars. Until companies can be assured that the economy is going to perform well for a long time, they are just not going to spend that kind of money on building new mills. When they do decide to build, there is often a 24-36 month lag between announcing building plans and the mill coming into operation. The next 24-36 months represents this lag time currently.
2018 will force some smaller operations out of business. If things are still not recovering in your area, or you are not seeing growth again, then chances are your operation will not survive the long term. We are already starting to see the consolidation of farm and feed stores as more and more are being bought out or sold. Retail is a really rough business right now.
Is There Any Good News?
If there is any silver lining right now, it's that most consumers are already seeing prices increase (or sizes decrease) in their other purchases at home already. Also, it is still not cost effective to ship 40 pound bags of feed or shavings direct to their door via UPS or FedEx. For this reason, bulk suppliers of seed, feed, and shavings are going to continue to do well selling these products, even with deflated margins. Volume will increase as the economy continues to pick up steam and move forward.
Traditional retail is a real struggle right now. If you are a retail farm and feed store, our suggestion is to keep your inventories lean, keep your supply lines open, look for different and new products to sell, and push volume out the door. Margins will continue to be tight in the short term, but the consumer has more money in their pocket to spend. The upcoming tax refunds (March & April) and the new tax bill should also bring more money into the stores long term.
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