Why Minnesota lumber prices are going through the roof

A do-it-yourself home-improvement and construction boom has sent the price of lumber skyrocketing, as sawmills and strand-board manufacturers, including in Minnesota, scramble to keep up with surging demand.

It's one of the odd business wrinkles of the pandemic. Future prices for random lengths of board are $834 per thousand board feet, triple their April low and about double the typical price in recent years.

"When COVID hit, everything bottomed out real quick. A lot of mills took downtime, and that reduced supply," said Mike Birkeland, executive vice president of the Minnesota Forest Industries and Timber Producers Association. "Then as people stayed home, that do-it-yourself market just exploded. Mills came back on line, but they haven't been able to catch up."

The squeeze is driving up the cost of home construction and causing scarcity for building products. It is not yet benefiting Minnesota loggers, who must contend with slumping demand at paper mills. Shares of lumber firms are rising as investors perceive a profit spike on the horizon.

Much of the lumber produced each year is used to build houses, and home construction has soared this summer. July new home sales in the U.S. rose 36% compared to last year — the highest level since 2006, the Census Bureau said. In the Twin Cities metro, sales of new homes in the same month rose 17%, according to a monthly sales report from the Minneapolis Area Realtors. For single-family houses, the median new home price was $426,000, slightly more than last year.

Sunny Bowman, whose family owns Dakota County Lumber in Farmington, said they are low on plywood and a similar product called oriented strand board. They are also out of three-quarter-inch tongue-and-groove wafer board used for roofs and siding. When she calls mills to ask for more, they say no, they can't even fulfill orders they already have.

"Dad said he's never seen anything like this before," Bowman said. "We've got a recession and housing bubble and huge demand, but with increasing demand people being home and not spending money on other things. Everybody wants to do a project right now."

Minnesota has six big plants that turn trees into building materials, including Potlatch Deltic and Norbord outside Bemidji, Louisiana Pacific in Two Harbors, Hedstrom Lumber in Grand Marais, Savanna Pallets in McGregor and Bell Lumber & Pole in New Brighton.

The National Association of Home Builders said the increase in lumber prices adds about $14,000 to the cost of a new home and builders will pass the costs along to home buyers.

"That's not helping affordability," said David Siegel, executive director of Housing First Minnesota. "And that prices an awful lot of people out of the market."

It's also a challenge for builders. A large contractor who buys lumber in bulk ahead of time may be able to manage the price fluctuations, but small or beginning homebuilders are likely to end up eating the sudden run-up in the cost of a 2-by-4. They quoted a home at one price and now it costs more than $10,000 more just for the lumber.

"They're the ones who are getting stuck in the middle," Bowman said. "With smaller builders, by the time they've dug and built a foundation, their prices have gone up considerably."

Despite the recession and rising unemployment rates, remodeling spending in the Twin Cities has been on the rise too as people spend more time at home.

Beth Malmberg, who handles business development and client services for Vujovich, a Twin Cities design-build firm that specializes in high-end remodeling projects, said suppliers, lumber companies and others are sending e-mails about delays and price increases. The other day she received a message that roof trusses, which normally take two weeks to arrive, could take 10 weeks.

"That's a wild number," she said. "Everything is minute to minute right now."

She said the company works on a fixed-fee basis so that customers are never surprised by unexpected price increases, and volatile lumber prices make bidding a job difficult: "If there are radical things happening [with pricing], it's on us."

On the other end of the supply chain, in Minnesota forests where loggers chop down trees, the rise in the price of lumber hasn't moved prices.

Dale Erickson runs a logging outfit near Baudette, up by the Canadian border, with between 15 and 20 employees.

"No, it hasn't reflected in my end price. It typically takes awhile, if ever," he said.

He paused for a moment when asked why the price of a cord of wood from one of his crews hasn't risen in response to the higher lumber prices.

"I don't have a short answer to that. It's probably due to the cyclical nature of it. The price won't stay high on their end," he said.

"The market doesn't react that quick. If it stayed up there, I believe it would probably show up, but it would also show up in your expenses, because I have to pay more for the timber," referring to what he pays the state of Minnesota for the right to log a portion of land.

Part of the problem is that the pandemic is slamming paper mills. Sappi in Cloquet, UPM-Blandin in Grand Rapids and PCA-Boise in International Falls are historically large customers of Minnesota timber producers and they are under pressure. The closures of the Verso paper mills in Duluth and Wisconsin Rapids, Wis., earlier this year were blamed on declining demand for print advertising thanks to COVID shutdowns.

"This has hit the paper sector very hard," Birkeland said. "They are weathering the storm and making adjustments as necessary."

Tina Hegg, a vice president at Hedstrom Lumber, said the paper industry's struggles are a "huge problem for lumber mills." Typically about a fifth of the wood cut down on a plot of land in northern Minnesota can be used for lumber. Much of the rest goes to paper mills, and when one closes, the lumber mill loses an important market for its byproducts. Meanwhile, lumber mills are short-staffed, so it's difficult for them to ramp up to meet demand.

"There just aren't enough people to work up here," Hegg said. "Also foreign temporary workers aren't able to come here right now."

Hegg said she expects lumber prices to stay high through the fall at least.

About three-quarters of the timber Erickson, the logger in Baudette, harvests goes to paper mills and the rest goes to make oriented strand board or cut lumber.

"It's not easy," Erickson said. "We keep losing mills in Minnesota. I'm sure there's a combination of reasons for that ... but we need more mills."