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Wood production hits 13-year high—but lumber prices are still up 171% since COVID started

Loggers are busier than usual. They're working to chop away at the nation's pandemic-spurred timber shortage, while also cashing in on record lumber prices. And they're making progress: U.S. wood production just hit a 13-year high.

The U.S. industrial production index for wood topped 134 in January and 132.5 in February, according to the Board of Governors of the Federal Reserve System. That's up from the depths of the economic crisis when it was at 111.6 in April 2020. The strong rebound puts the January figure at its highest level since Dec. 2007—when the country was in the midst of an unsustainable building boom that was absorbing masses of timber.

"Wood products output will continue to rise, particularly as some of the disruptions from the pandemic subside, and sawmills are better able to ramp up production to take advantage of record lumber prices and profitability for the industry," says Dustin Jalbert, senior economist at Fastmarkets RISI where he specializes in wood prices. "But that ramp up in production will take time and we are only just getting back to pre-COVID levels of output. Meanwhile, we’ve had a step change in wood demand this last year, so the supply side still has some catching up to do."

While wood production is at a 13-year high, the cost of lumber remains at record levels. As of the week of March 25, the price of lumber per thousand board feet is at $1,032, according to Random Lengths. That's up 171% since the onset of the pandemic when the price was $381. The all-time price record was set this month when the price hit $1,044.

Why hasn't the surge in wood production translated into lower lumber costs? It comes down to scarce inventory. While production has ramped back up, the demand from builders and home remodelers continues to outpace supply. That supply still hasn't caught up from the state issued shutdowns which halted production last year.

"Wholesalers and retailers are now really thin on supplies, wood is not close to the final end-users, lead times are longer, and thus buyers are desperately bidding up lumber prices as they try to keep up with very strong demand. That is also accounting for much of the record breaking volatility we are seeing in the market today," Jalbert told Fortune.

The demand for lumber remains strong. At the onset of the pandemic, quarantining Americans set-off a home renovation and DIY boom that is still keeping places like [hotlink]Home Depot[/hotlink] busy today. Additionally, low interest rates and tight existing home inventory have more home buyers looking for new construction. Indeed, in December housing starts hit their highest level since 2006.

The National Association of Home Builders (NAHB) calculates that current lumber prices are adding at least $24,000 to the price tag of a typical new single-family home. That additional price tag doesn't include the pandemic spurred surge charge on other building materials like copper, concrete, and steel.

Robert Dietz, chief economist at the NAHB, tells Fortune that home builders have absorbed some of these additional costs, however, will pass more of it onto buyers this year. While Dietz doesn't foresee lumber prices going much higher, he thinks they'll remain elevated throughout this year.

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