In this guide to understanding random length lumber as a commodity, we’ll explain why it’s valuable, describe how it’s produced, and list what it’s used for.
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Main Uses of Lumber
Lumber has far too many uses to list, though these three categories describe the most common general uses of processed wood:
|Uses of Lumber||Description|
|Construction||Lumber is used in a variety of residential construction projects: |
|Furniture||Many home and office furnishing items are made from lumber including chairs, desks, beds, tables and nightstands.|
|Flooring||Lumber is used in constructing indoor flooring and outside decks.|
What Is Random Length Lumber?
Lumber is wood that has been processed into beams or planks of varying lengths. It is a key commodity for many industries, including homebuilding, furniture manufacturing, wood flooring, and kitchen cabinetry.
Wood construction precedes written history. In a site near Nice, France, archaeologists discovered a hut constructed with wooden supports that were built more than 400,000 years ago.
How Was Wood Processed In The Past?
Early craftsmen used iron axes, saws, and chisels to cut wood. However, by around 375 AD, sawmills – facilities for processing wood – began operating in Northern Europe.
Today lumber, which is also known as sawn wood or timber, has a global market trade of almost $40 billion.
With demand for lumber expected to quadruple over the next three decades, the commodity will play a vital role in the international marketplace.
The Two Types Of Lumber
Loggers use two categories of trees to produce lumber – hardwoods and softwoods. The majority of lumber comes from softwood trees.
Both hardwood and softwood lumber receive grades based on the quantity and types of defects in the wood.
Defects include knots, holes, splits, and missing pieces on the corners or edges.
Here is a head-to-head comparison of hardwood and softwood lumber:
|Description||Produced from flowering trees that usually have broad leaves. Hardwood trees shed their leaves in the winter||Produced from trees that don’t produce flowers or fruits and usually have needles and cones. Softwood trees don’t shed their needles and remain green throughout the year.|
|Uses||High-quality furniture, decks, flooring and higher-end construction projects including paneling and trim work.||Windows, doors, lower-end furniture, medium-density fiberboards, paper, Christmas trees and construction including wall studs, rafters, beams and posts.|
|Examples||Alder, balsa, beech, hickory, mahogany, maple, oak, teak, walnut||Cedar, Douglas fir, juniper, pine, redwood, spruce, yew|
|Growth||Trees take longer to grow||Trees grow more quickly|
|Length Availability||4 to 16 feet||4 to 24 feet|
How Is Lumber Graded?
Lumber designated for non-construction uses such as boxes or paper may be given other grades to classify its quality.
Here’s a summary of how lumber is graded:
|First or Second||The highest grade and reserved only for grading some hardwoods. First- and second-grade hardwoods have very few defects and are used in projects where appearance is important (e.g., trims and moldings.)|
|Select||The highest grade for softwoods and some hardwoods.|
|Common||The lowest grade wood. Common-grade woods are used in projects where the wood will be covered and defects won’t be noticed. Common-grade woods are further classified by number in descending order of quality (e.g., #1 common, #2 common, etc.)|
How Is Lumber Produced?
The lumber manufacturing process takes place in several steps:
- Debarking and bucking
- Drying (Seasoning)
- Grade stamping
What Is Lumber Felling?
Loggers visually inspect trees and designate those ready to be cut down. Most felling takes place using gasoline-powered chainsaws. Workers make two cuts at the base of the tree to control the direction of the fall.
Once the tree has fallen, loggers trim the limbs with chainsaws and cut the tree into pieces for transportation.
Diesel tractors or self-propelled yarders drag the tree pieces to a cleared area where they are loaded on trucks for transportation to lumber mills.
Debarking and Bucking
Sharp-toothed grinding wheels or high-pressure water jets remove the bark from the tree pieces. Chain conveyors then carry the pieces into the mill where they are cut into predetermined lengths.
Sawing The Debarked Lumber
Millworkers saw the log pieces in one of two ways depending on the size of the logs.
Logs larger than two to three feet in diameter are clamped into a movable carriage and scanned with optical sensors. These sensors determine the optimal cutting pattern to maximize the lumber yield from the log.
What Kind Of Saws Are Used To Cut Lumber?
A vertical band saw called a head-rig saw makes a series of cuts. The first cut produces a piece of wood known as the slab. This piece is usually discarded and ground into paper pulp.
Subsequent cuts produce logs of varying sizes.
Band saws process the logs smaller than two feet in diameter by cutting them into one-, two to four-inch-thick pieces with one cut.
Lumber Is Re-Sawed
Chain conveyers move the large pieces cut by the head-rig saw.
Multiple-blade band saws then cut these pieces, which are known as cants, into predetermined sizes and trim the outside edges into squares.
Why Is Lumber Dried & Seasoned?
Kilns or air dryers remove moisture from the cut pieces. The pieces are stacked in covered areas with space between each stack to allow air to circulate.
Air-dried lumber typically retains about 20% moisture while kiln-dried lumber retains less than 15% moisture. Interior floors, molding, and doors often require kiln-dried lumber since its lower moisture content means less shrinkage.
Grade Stamping Prior To Selling
Mechanical or manual inspectors then grade each finished piece of lumber and stamp this information on the lumber along with the identification number of the mill and the moisture content.
Workers then bundle the pieces with steel bands and load them onto trucks for shipment to lumberyards. Lumber yards then sell the products to consumers.
Global Lumber Production
The Food and Agriculture Organization of the United Nations keeps statistics on forestry products based on these categories:
- Industrial Roundwood: Logs used for purposes other than energy. This includes pulpwood, sawlogs, and veneer logs as well as round logs used for telephone poles, fence posts, and electricity poles.
- Sawn wood: Planks, beams, boards, laths, etc. that exceed 5mm in thickness.
- Wood-Based Panels: Veneer sheets, plywood (including blockboard), particleboard, Oriented Strand Board (OSB), and fibreboard.
- Fibre Furnish: Fibre used to manufacture paper and paperboard.
- Paper and Paperboard: Graphic papers (newsprint, printing, and writing paper) and products such as wrapping and packaging paper, household and sanitary paper, and other miscellaneous paper products.
- Wood Fuel, Charcoal, and Pellets: Roundwood used as fuel for cooking, heating, or power production including wood used to make charcoal and pellets.
Top Exporters of Sawn Lumber
In 2018, these countries were the ten largest exporters of sawn wood:
What Drives Lumber Prices?
Lumber plays a huge role in construction, therefore the construction industry and lumber prices strongly correlate.
Specifically, these four factors most directly drive its price:
- Construction and Housing Data
- Trade Policies
- Availability and Price of Substitutes
Construction and Housing Data
Lumber is, by far, the most important building material used to construct new homes.
On average, a new home contains 15,000 board feet of softwood. In addition, new home buyers typically purchase furniture and accessories made from both softwoods and hardwoods.
Lumber traders carefully monitor housing starts and construction data for clues about future demand. A surge in new home starts could mean a tight supply for the commodity and higher prices in the near- and intermediate-term.
More generally, macroeconomic data such as nonfarm payrolls and GDP can also impact future lumber demand.
Trade Policies On Lumber & Commodities
However, the United States is unable to meet its demand through domestic production and relies heavily on imports from other countries.
The imposition of tariffs and quotas in the United States can have a major impact on lumber prices. Similarly, the extent to which Canada and other exporters subsidize lumber production can also impact prices.
Availability and Price of Substitutes
Wood competes with other building materials such as plastics and metals. The demand for each of these materials will fluctuate mostly based on price and availability.
If manufacturers can source alternatives at a lower cost than lumber, then they will usually substitute those materials for wood.
Of course, if lumber prices are significantly lower than other materials, then builders might increase their demand for wood as a building material.
These changes in demand can impact lumber prices.
Threats To Global Lumber Supply
Forest loss and forest change are two factors that can influence the supply of trees and, ultimately, the price of lumber.
Forest loss, also known as deforestation, occurs when people clear forests in order to make land available for industrial uses.
Fears of deforestation can also lead countries to impose restrictions on logging and limit the availability of land allocated to the industry. Ultimately, deforestation can lead to higher prices for lumber.
The surge in renewable energy use also means that firewood demand dropped and will continue to do so, although this is a minor factor in comparison to construction lumber.
Expert Opinions On Lumber
Experts are generally ambivalent about the direction of lumber prices.
In the view of one National Association of Home Builders (NAHB) economist, a pattern of devastating natural disasters in the United States, including wildfires and hurricanes, should fuel demand for lumber as homeowners rebuild.
However, this demand may come at the expense of lumber demand for new construction:
“Across the nation, there typically is no persistent impact [on lumber prices] over the medium-term. One of the reasons is that construction activity during the rebuilding process will oftentimes partially offset the decreased demand for lumber in new-home construction.”Robert Dietz, NAHB Chief Economist
Another NAHB economist believes more time is needed to assess the effects of natural disasters and new trade policies on lumber prices:
“Other factors are also at play right now, which further complicates things. The wildfire outlook is uncertain at this point, and duty rates on Canadian lumber are being reevaluated.”David Logan, NAHB Economist
Where Can I Trade Lumber?
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CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. <b>Between 74%-89% of retail investor accounts lose money when trading CFDs.</b> You should consider whether you can afford to take the high risk of losing your money.
Will lumber prices fall in 2021?
Lumber prices were especially high in 2020, and by observing the current lumber market, experts assume that lumber prices may not reach the same highs in 2021. Should lumber prices fall in 2021, the potential reasons for it can be restrictions on lumber supply due to environmental health, post-pandemic stagnation in global construction, and alternative energy source preferences.
What are the main differences between softwood and hardwood?
The main differences between softwood and hardwood are that hardwoods are produced from denser, flowering trees that take longer to grow. Hardwoods also cost more than softwood and are used for higher-end furniture and wood products. Softwoods are easier to work with and are cheaper to produce. See this in-depth comparison of hardwood and softwood.
Want to learn more about lumber, other commodities, and even trading them? See these guides on:
- How to trade random length lumber
- How to trade agricultural commodities
- How to find a commodity broker
Credits: Original article written by Lawrence Pines. Major updates and additions in Jan 2021 by Marko Csokasi with contributions from the Commodity.com editorial team.