Last year, timber became the surprise superstar of the US economy when it briefly outperformed bitcoin, gold and the S&P 500 to become “the hottest commodity on the planet”.

Now it’s happening again. Yesterday the market closed at over $1,200 per thousand board feet, a price spike with only one precedent in the decades-long history of the lumber trade. Last year, I wrote about the role climate change plays in lumber volatility. Its effects now seem even more pronounced. “The timber price story is really a climate change story,” said Stinson Dean, a Colorado timber trader, recently. tweeted. He argued that climate change has virtually dictated the continued rise in prices, going so far as to call the price of timber “climate price”.

To find out more, I spoke with Dean, who sells to lumber yards from New Jersey to Texas. Friday was “the busiest day of the year to sell lumber”, he said. Our conversation has been edited for length and clarity.

Robinson Meyer: Can you start by describing exactly what a timber trader does?

Dean Stinson: I buy wood from producers and own it for three or four months. Much of that time is spent producing it and transporting it on a railcar from Prince George, BC to Dallas or Atlanta. And I make money when someone needs spruce inventory tomorrow.

Traditionally, a lumber yard is my client. But with the madness of these markets, you know, people are looking for wood everywhere. So if you need to buy it, chances are I’ll sell it to you.

Mayer: Can you update us on what has happened in the timber markets since the start of the pandemic?

Dean: We set a new historic record [for lumber] in August 2020 – it just wasn’t making headlines yet. Then we started a climb from Thanksgiving 2020 to May 2021. The price of lumber kept going up and up and up, until it topped just over $1,700 per thousand board feet. I would seriously equate this to $17 [a gallon for] gas.

But then it all fell apart in the summer [last year]. It took less than three months for it to fall. We briefly dipped into the 400s, but quickly rebounded and somehow cut into the $500-$700 range. It started to rise again the week before Thanksgiving. And now… we are within reach of the absolute record again. We are trading at $1,300. It’s crazy, crazy, crazy.

Mayer: What had been the historic price? On average.

Dean: Four hundred! The old rule of thumb when I got into the business is: you buy below $300 and you sell above $400.

Mayer: It was a really weird time for markets around the world – with the labor shortages, the variants, the supply chain issues. Why are you so sure that climate change is playing a role here?

Dean: In the industry, we call this fiber sourcing. It’s the lack of fibre, of wood fibre, in Canada.

The vast majority of homes in the United States are built with Canadian lumber. And British Columbia, Canada, is the top producing region.

So in 2009, 2010, the deadly beetle infestation—the mountain pine beetle—devastated Canada’s forests. The beetles come back every year, but it hasn’t been cold enough for long enough, too many years in a row, and too many have survived. Beetle-kill wood has a blue stain. For a time, almost every two-by-four seemed to have the blue spot. You can google it – “blue stain” has been a decorative theme for a while, because it looks pretty cool.

You need to harvest beetle-killed trees before they rot, so they’re still viable to be a legit piece of structural wood. So the Canadian government opened up logging aggressively, and — this is an important vocabulary word — opened up the annual allowable cut, the CAP. The AAC has impacted what we are currently going through more than any government policy, including federal interest rates.

So they felled aggressively to capture all the trees killed by the beetles. Much of that lumber went to China – China was the greatest demand of any commodity coming out of the recession. It’s not like we could have left the trees standing and waited for the housing market to recover.

But you can’t cut down all the trees, so now there’s a huge fire hazard. There are forest fires every year in Canada. It’s planned. But the fire season in 2017 and 2018? Together, these two fire seasons burned more hectares in British Columbia than in the past 20 years combined.

Mayer: And were they killing the beetles?

Dean: The death of the beetle made the situation worse. It was like kindling.

Mayer: What happens to AAC now?

Dean: AAC is the reason the timber prices are higher because the Canadian government owns 99% of the land there. The annual allowable cut has therefore been reduced below levels prior to the beetle destruction in 2015. And since then, Canadian mills have coalesced – there’s not enough wood for them all to survive.

When I entered the industry 10 years ago, Canadians kept telling us, “We can’t support housing starts in the United States. And I kept thinking, These are the Canadian sawmills talking about their position. If we get to prices of $500, $600, there’s a lot of wood there, and you’re going to start chopping it down, because those are great yields.

Softwood lumber producers are not disciplined. Every time we went over $500 they would turn it on and we would go back to $400 or less. Like every time. So in August 2020, we were all waiting for this – it’s going $500, $600, $700, and I’m looking around, Hey, guys, where’s the production? And we’re going to $800, $900.

So I started tweeting: It’s a supply side problem. It’s unlike any market any of us lumber traders have ever known where sawmills have always had the ability to simply overproduce. I have become convinced that these factories are operating at full capacity.

Mayer: Did you mention that climate change has also contributed to the current rally?

Dean: Thanksgiving week BC had an atmospheric river. Usually it’s snow. But there were torrential counter-seasonal rains in Vancouver and the timber-producing region. And when you have fires, you don’t have soil control, so now you have erosion—and when it rains, you have mudslides and floods.

And that’s what sparked the second lumber rally. I think the second lumber rally was inevitable, but it started early. You can identify the bottom and price reversal on the flood images and headlines. It didn’t destroy the trees, or the sawmill operations, but the infrastructure needed to get the timber to market.

And that’s a problem if you’re in Atlanta. Because you bought that wood expecting it to get to you in six weeks, and now it’s stuck. Things that were purchased in November and supposed to ship in November, I get shipping notifications instantly. So we are 10 weeks late.

However, British Columbia is not the only timber-producing region. Other regions have been able to take advantage of its difficult situation. But there just isn’t enough wood to replace British Columbia, which is completely cut off from the market.

So I said on Twitter, the price of wood is a climate price. And the story of the price of wood is a story of climate. If we still had beetle-killed trees and our railroad tracks weren’t washed away, the sawmills would be able to service that market like they did in 2006. The price would never go over $500, because they have all the skills they need.

I think the best comparison is how many houses we’ve completed at the top [of the last housing boom] and how much we finish now. In 2004, 2005, we completed 2 million houses per year. Today we complete 1.3 million homes a year. The price of wood has tripled, but we are producing 40% fewer houses. Something is wrong.

Mayer: The classic explanation for inflation is that too many dollars chase too few goods. Usually we say, okay, the Fed should raise interest rates and take a few dollars out of the system. But if climate change causes a shortage of goods, will raising rates help? Are there any policies that would be helpful?

Dean: Rising interest rates will blunt housing demand, no doubt. But if you blunt demand enough to drive down timber prices, you destroy the economy. For us to have lower wood prices, we can only build one million houses a year. Do you really want to do this? No. Raising rates does not grow more trees.

So the problem, when I look at it, is how do I increase the supply? Well, let’s look at sustainable forestry practices, logging, opening national forests to strategic logging. We have natural resources in the Pacific Northwest that we haven’t exploited since 1993. And we need to exploit them sustainably; it’s actually dangerous not to. We have an overabundance of southern yellow pines that are not being used to build houses. Can we improve the way we process southern yellow pine so that it [can be used for home building]?

If we are so dependent on Canadian wood, what can we do on the sidelines to change the building codes for the wood we To do have? Building codes require wood of different strengths. The further north you go, the stronger the trees become, because it is colder and the tree rings are tighter. Can we look at some Canadian species other than spruce? Can we use ponderosa pine from Washington? Building codes are local, so it’s a big decentralized issue.

Finally, we impose a tax on Canadian softwood when it crosses the US border. I don’t think if you eliminated the tax tomorrow the prices would go down. But it would allow prices to fall when wood is cheap.

Mayer: Thank you very much. Anything else we should talk about?

Dean: Volatility is what makes markets. Extreme volatility, which we are experiencing, is breaking markets. It’s broken the supply chain. You can’t predict [prices]. When it comes to lumber, climate change has manifested itself in extreme volatility, a lack of supply, and a paradigm shift in the way timber markets have behaved for decades. Lumber prices are the second highest they’ve ever been, today, right now…never. And it was precipitated by mudslides, which was precipitated by burning, which was precipitated by beetle destruction. There is an infrastructure story in there. There is a climate story.