Inflationary Pressure Coupled with Extraordinary Demand will Push Lumber Prices to New Highs

Shortages are popping up across the supply chain as the pandemic messes with crop harvesting, shipping, zigzagging demand vs. choppy supply and all the other levers of the global economy. For example, the Wall Street Journal reported last week, that major restaurant chains, including KFC, Buffalo Wild Wings and Wingstop, started complaining about overpriced wholesale chicken, as suppliers are having trouble keeping up with demand because of “difficulties employing waged workers”. Some restaurants even removed chicken tenders, nuggets and seasoned chicken items from menus because of limited supply, WSJ also reported.

Corn, wheat, soybeans, vegetable oils: A small handful of commodities form the backbone of much of the world’s diet and they are also dramatically more expensive. Bloomberg’s Agriculture Spot Index — which tracks key farm products — surged this month the most in almost a decade, driven by a rally in grains and beans. With global food prices already at the highest since mid-2014, this latest jump is being closely watched by top oversight institutions because staple crops are a prime factor of influence on retail price tags and availability — from bread and cereals to meat and soft drinks.

But one item stands out of the crowd. Since the COVID-19 pandemic began, the price of lumber has gone up dramatically. Lumber futures have soared by as much as 316% from the start of 2020 as the COVID-19 pandemic progressed. According to the U.S. National Association of Home Builders, the sharp continuous rise in lumber prices has added $36,000 to the cost of a new U.S. home. The spike in prices was also at least partially responsible for the sharper than expected 9.5% decline in housing starts in April.

According to Forest Economic Advisors, North American lumber prices will continue to rise this year as massive home construction for "post-Covid refugees from overcrowded cities" and a tide of nationwide renovations and rebuilding of existing homes (for both owners’ needs and in preparation for home sales in the secondary market), the demand for wood will exceed production volumes for a long time.

The main instrument for investing in the continued growth in this market is the shares of the ETF iShares Global Timber and Forestry ETF (WOOD), which prices for the year rose from $50 to over $90 as of today and in the very near future will easily pierce $100 mark.