North American hardwood markets face a big test this winter—especially if log supplies improve—as it appears production levels will drive market prices for at least another 4 months.

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With export markets down and domestic flooring plants buying at only replacement levels, sales of most grades and thicknesses of Red Oak and White Oak will remain depressed. Domestic and overseas lumber buyers either don’t think lumber shortages will occur, or they don’t seem to care if they do. That puts mills in every region at risk, and should encourage production restraint. We still, however, expect a quick and strong return of hardwood lumber sales in the spring, especially if mill inventories don’t grow too excessive in the meantime.

Furniture markets will similarly remain subdued for the next 6 months, followed by stronger sales in the second half of 2012, though import growth will outpace growth in domestic shipments.

Price increases in Sel/Btr and #1 Common unfinished strip flooring have stalled, which will delay the return of flooring plant interest in #1 Common lumber as well as the return of aggressive #2&3A Common purchasing. Even with sawmills shifting grade lumber production into ties and timbers, those markets will remain generally undersupplied. Pallet cant and cut stock are the only low-grade items under short-term threat of becoming oversupplied.