Q4 2020 PotlatchDeltic Corp Earnings Call
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Good morning, My name is Christian and I'll be your conference operator today at this time I would like to welcome everyone to the potlatch they'll take fourth quarter 2020 <unk>.
Conference call all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
He would like to ask a question during this time.
Please press Star then the number one I'll get telephone keypad, if he would like to withdraw your question press the pound key.
I would like to turn the call over to Mr. Jamie of Richards, Vice President and Chief Financial Officer for opening remarks, Sir you May proceed.
Thank you Kristen good morning, and welcome to Potlatch dealt Inc. Fourth quarter 2020 earnings conference call, while he's a familiar face to you. This is Eric <unk> first earnings call as President and Chief Executive Officer.
This call will contain forward looking statements. Please review the warning statements on our press release on the presentation slides and in our filings with the SEC concerning the risks associated with these forward looking statements.
Also please note that a reconciliation of non-GAAP measures can be found on our website at www Dot Potlatch Delta Dot com.
I'll now turn the call over to Eric for some comments and then I will cover our fourth quarter results and our outlook.
Thank you Gerry share. He mentioned this is my first earnings call as the company's Chief Executive Officer, I want to start by thanking Mike Covey, who retired after being our CEO for 14 years and is now continuing with the company as our executive chairperson.
I don't think is a very different company today due to his leadership.
Over that time, we converted two of REIT, we spun off our pulp and paper assets, we improve the performance of our core businesses and we completed a very successful merger with delta of timber.
Today, we have high quality assets of winning strategy that is well aligned with industry fundamentals and investment grade balance sheet, and a strong commitment to increasing shareholder value over the long term through disciplined and opportunistic capital allocation decisions.
I worked very closely with Mike and of 14 years that I've been with the company.
He was an excellent mentor and our philosophies are well aligned.
Do not anticipate any significant changes to our strategy going forward.
Now turning to our 2020 results.
2020 was a phenomenal year by virtually every measure.
We generated adjusted EBITDA of $382 million in 2020, which is of record since we elected REIT status in 2006.
Furthermore, all three of our business units posted record profitability in 2020.
I want to thank our employees for their performance flexibility creativity and continued focus through the Covid pandemic.
Our outstanding 2020 results are a tribute to of group committed to operating at the highest level.
Our wood products segment generated $176 million of adjusted EBITDA in 2020, our employees strong resolve and focus on operating safely allowed us to take advantage of robust demand and historic lumber prices.
In fact, both of our Bemidji, Minnesota, and our Waldo, Arkansas saw mills had stellar safety performance going incident free in 2020.
On the operational front, we shipped just under $1 1 billion board feet of lumber and completed virtually all of our capital projects on time and under budget. Despite the challenges presented by the Covid pandemic.
Safety and managing the risks presented by the pandemic remain our top priorities.
Our timberlands segment generated $183 million of adjusted EBITDA in 2020.
Index, Idaho saw log prices hit record levels in the second half of the year and our southern team did a good job catching up the harvest shortfall caused by customer mill curtailments in the second quarter.
Timberlands harvested 6 million tons for the year, which was our plan at the start of the year and as a new annual record.
Our real estate segment generated adjusted EBITDA of $87 million in 2020. The team successfully closed the sale of 72000 acres of Minnesota to the conservation fund for nearly $48 million our partnership with the Conservation fund has been of catalysts, which will ultimately can serve approximately 200000 acres of Minnesota.
For various conservation purposes.
Fourth quarter sale is a significant milestone in our long term strategy to settlement of soda land at a meaningful premium.
On the development side of our real estate business sales activity in our <unk> Valley Master planned community in little rock fared much better than we expected when the Covid pandemic began.
We sold 138 residential lots of <unk> completed a commercial sale during the year.
Looking to 2021 housing fundamentals remained stronger than at any point since the great financial crisis.
This has created an exceptional lumber demand environment, and we expect that lumber demand will continue to grow in 2021.
U S housing starts increased to one 6 million units on a seasonally adjusted basis and total permits exceeded one 7 million units in December.
Single family starts were 134 million units in December which is the highest level since September of 2006 on an unadjusted basis single family starts in December increased 30% year over year.
This is important to lumber demand is it more than made up for a decline in unadjusted multifamily starts because each single family home utilizes three times more lumber than does of multifamily unit.
Many industry pundits, including some on the call today are using the phrase super cycle to refer to the current single family cycle and associated lumber demand and frankly, we concur with that view.
Massive under building since the great financial crisis record low inventories of homes for sale historically low mortgage rates and millennials entering their prime home buying years set the stage for this fundamental improvement in the housing cycle.
Additionally, a shift from urban to suburban living appears to be positively affecting housing demand.
For Homebuilders reported order growth of 35% on average last week toll brothers one of the country's largest homebuilders recently said that this was the best housing market they had ever seen.
These factors all suggest that housing construction will remain robust for the foreseeable future.
The repair and remodel segment is also expected to continue to grow that view is supported by the age of the U S housing stock, which is now 42 years on average high levels of home equity the work from home trend and positive demand signals from the big box home supply stores like home depot and Lowe's.
Underlying lumber demand remains strong and lumber inventories are estimated to be at the low end of their historic range, while lumber prices could moderate later this year, we expect lumber prices to remain higher than long term averages.
This is particularly important to potlatch delta given our leverage to lumber.
We remain very optimistic about the set up heading into the 2021 building season.
Turning to capital allocation.
We returned $123 million of cash to shareholders on a form of dividends and share repurchases in 2020, we.
We are committed to growing the dividend sustainably and we increase the dividend two 5% in the fourth quarter.
So of discretionary mill capital projects represent some of our highest potential returns we plan to spend just under $30 million in our saw mills in 2021 with average expected returns on discretionary projects of 32%.
Liquidity of $631 million provides a strong platform as we consider additional investments in our existing mills or accretive acquisitions. We are interested in acquiring timberlands mills or a combination of the two near our current operating areas.
We are currently working on our 2020, environmental social and governance report and we plan to publish the reported May Potlatch Delta has a very strong ESG story and we are committed to do our part to mitigate climate change and continue our legacy of responsibility across the ESG spectrum.
To wrap up my comments Potlatch Delta is very well positioned to take advantage of very favorable industry fundamentals and our strong balance sheet and our liquidity provides a high degree of flexibility as we seek to maximize shareholder value.
Now I'll turn it over to Gerry to discuss fourth quarter results and our outlook.
Thank you Eric starting with page four of the slides adjusted EBITDA increased from $135 million in the third quarter two of $164 million in the fourth quarter, beating the company record that was just set last quarter.
Higher index, Idaho log prices and a bulk land sale of Minnesota of more than offset seasonally lower harvest and lumber shipment volumes.
I will now review each of our operating segments and provide more color on the fourth quarter results.
Information for our Timberland segment is displayed on slides five through seven.
The segment's adjusted EBITDA was $62 $5 million in the fourth quarter compared to $59 $7 million in the third quarter.
We harvested 378000 tons of saw logs in the north in the fourth quarter. This was down seasonally from the 555000 tons of we harvested in the third quarter.
Northern saw log prices were 37% higher on a per ton basis on the fourth quarter compared to the third quarter.
The increase in saw log prices was primarily the result of significantly higher prices for index saw logs.
In the South we harvest of $1 1 million tons in the fourth quarter.
This volume exceeded our expectations and was slightly higher than our seasonally strong third quarter.
As Eric mentioned, our southern Timberlands team did a really good job, making up the shortfall that occurred earlier in 2020 due to customer mill curtailments.
Our southern saw log prices were 1% higher in the fourth quarter compared to the third quarter.
Turning to wood products on slides eight and nine adjusted EBITDA was $70 $3 million in the fourth quarter compared to $81 7 million in the third quarter.
Our average lumber price realizations decreased 1% from $637 per thousand board feet on the third quarter to $629 per thousand board feet in the fourth quarter.
As a reminder, we had a record order file at the end of the third quarter.
This move locked our lumber prices at significantly higher levels than spot prices in October.
In addition, we benefited from a regional sawmill diversification as strong western dimension and Lake States stud prices muted the effect of the correction southern yellow pine lumber prices in the quarter.
To provide context. It is helpful to look at our lumber prices by month, our average lumber price realizations per 1000 board feet were $711 in October $564 in November and $575 in December.
Lumber shipments decreased from 291 million board feet on the third quarter to 274 million board feet on the fourth quarter.
We had fewer production hours in the fourth quarter due both to higher COVID-19 infection rates in our operating communities and more holidays.
The lower production hours negatively affected fixed cost absorption.
Higher index log costs in our Idaho Mills also affected margins.
Moving to real estate on slides 10, and 11, the segment's adjusted EBITDA was $56 5 million in the fourth quarter compared to $13 $4 million in the third quarter.
We closed the previously announced 72000 acre of Minnesota transaction in the fourth quarter in.
In addition resident residential lot sales were strong and we closed a $3 $1 million commercial sale in the fourth quarter.
Shifting to financial items, which are summarized on slide 12, our total liquidity remained strong at $631 million. This amount includes $252 million of cash as well as availability on our undrawn revolver.
We did not repurchase any shares during the fourth quarter. As a reminder, we have of <unk> one plan in place.
This reflects our ability and commitment to repurchase our shares at attractive prices as part of our broader capital allocation strategy focused on increasing shareholder value over the long term.
We refinanced $46 million of debt in December 2020.
This reduced our annual interest expense run rate approximately $700000 beginning in December.
Capital expenditures were $14 4 million in the fourth quarter.
Note that the amount I just mentioned includes real estate development expenditures, which are included in cash from operations on our cash flow statement and it excludes timberland acquisitions.
I will now provide some high level outlook comments the details of presented on slide 13.
We expect of harvest about 6 million tonnes in our timberlands segment in 2021 with approximately 70% of the volume in the south.
Harvest volumes in the north are planned to be comparable in the first quarter relative to the fourth quarter.
We expect northern saw log prices in the first quarter to be flat compared to record fourth quarter saw log prices.
Harvest volumes and solid prices in the south are expected to decrease slightly in the first quarter due primarily to seasonally less hardwood saw logs in the mix.
We plan to ship approximately one 1 billion board feet of lumber in 2021 in.
In the first quarter, we plan to ship 260 to 270 million board feet of of lumber.
Our estimates reflect uncertainty associated with the potential for the COVID-19 pandemic to continue to constrain operating hours in our sawmills.
We currently estimate that our average lumber price will be 20% to 25% higher in the first quarter.
Having said that recent lumber prices are more volatile than I can recall seeing in my career.
As a reminder of $10 per thousand board foot change in lumber price equals approximately $12 million of consolidated EBITDA for us on an annual basis.
Shifting to real estate, we expect to sell approximately 20000 acres of rural land and approximately 145 show on all valley lots in 2021 of.
Additional real estate details are provided on the slide.
Our interest expense will be lower than normal in the first quarter because that is when we receive our annual patronage payment from the farm credit banks.
We estimate that interest expense will be $4 million on the first quarter and $8 million to $9 million per quarter for the second third and fourth quarters of 2021.
Our capital expenditures are planned to be in the range of $55 million to $60 million excluding acquisitions in 2021.
Overall, we expect of post very strong results again in the first quarter.
We anticipate total adjusted EBITDA will approximate the levels that we kind of in the fourth quarter.
Despite no repeat of the large Minnesota Rural land sale that we closed last quarter.
We remain bullish on industry fundamentals and we believe that our integrated operating model and leveraged of lumber prices are aligned with those fundamentals.
We are well positioned to continue growing shareholder value over the long term.
That concludes our remarks Christian I would now like to open the call up to Q&A.
Thank you, Sir ladies and gentlemen, if you have a question at this time. Please press Star then the number one on your telephone keypad again that is part of what.
Your first question is from Kitan Montara from BMO capital markets. Your line is open.
Thank you congrats on a strong quarter.
First question, maybe I want a stock of the capital allocation priorities balance.
Balance sheet is in a very good shape your net average us down to one three times.
Q1 is looking very strong can you talk about sort of what are your priorities.
You touched upon on M&A, a little bit, but just sort of discussed.
Between sort of share repurchases and M&A.
How you think about debt.
Yes, thanks, good morning, Hayden well, returning cash to shareholders in the form of a sustainable dividend quite frankly, it's our top priority and we analyze and review of capital allocation options regularly.
And what I would suggest to you is that our options generally from most like it of lease lease likely are as follows so regarding the dividend. We just increased two 5% in December.
And as you know the board typically doesn't in depth review of our dividend in December of each year.
So we just hike it so we feel good about where the dividend is.
The next.
Capital allocation item that we give consideration to wood products capex.
As Jerry mentioned in his opening remarks, we're going to spend just under $30 million on discretionary mill projects in 2021. The average return that we expect to get for those projects of 32%. So we're constantly looking for projects to invest in our mills because they typically have very high returns.
So that's the second highest priority for capital allocation I would say third is M&A.
We're interested in acquiring timberland mills or a combination of the two.
Generally in or near our current operating areas. The one caveat is that we're only going to pursue M&A. If it creates shareholder value quite frankly like the delta merger debt.
So M&A is generally third on the list fourth might be debt repayment.
It's hard to get too excited about paying debt down today, given where we're at with the historically low interest rates and frankly, we've got on under leveraged balance sheet.
As we sit here today and then the last item in terms of list of priorities is share repurchases.
Share repurchases are opportunistic.
We want to buy low when we do repurchase shares and it seems most of the market gets that wrong, but.
But we have to reserve cash on the balance sheet and be very opportunistic when we see of dislocation in our share price.
And right now, we're we're not buying back shares because we think our stock is.
As of as approaching NAV.
So does that answer your question.
It does thank you just a couple of follow ups on that.
The discretionary.
On Capex you have on what products can you touch up on maybe a couple of key projects that you all are doing.
Yeah sure. So for 2021, we've got really seven key discretionary projects that we're pursuing again costing about $30 million.
We're putting in a new stacker at our Ola sawmill down in Arkansas to improve production volumes roughly 10 million feet.
We've got a new auto greater going into our Bemidji mill, that's going to improve grade yield and lower costs.
Got a new optimized log in feed system going into our St Maries mill, which is going to improve recovery.
And we've got a new plywood scarf line going in and out of our St. Maries plywood mill that is going to improve product mix and lower costs.
So all of these projects collectively of got that 32% return on average, but they run from anywhere from I think 14% on the low end all the way up to 41% on the high end.
Just a great a great set of projects that we're really excited about.
Got it that's helpful and then.
I was on a little surprised in on.
Looking at your FY 'twenty, one lumber shipment volume was one one which is essentially kind of flat with what you had in 2020.
Given what you're seeing with housing is EBITDA of.
Conservatism in these numbers are maybe talk.
Can you talk about of differently, how much headroom do you have from a capacity standpoint.
To increase the of production.
Well, we're going to we anticipate increasing shipments roughly 15 to 20 million feet.
21 versus 2020.
We've got a little bit of conservative conservatism built into our numbers simply because of Covid is still with us on.
On Covid is costing us anywhere from five to 10 million feet of quarter.
But I think one of the things you have to recall is that in Q4 of 2019, we did not ship well. We finished 2019 with relatively high inventories and a lot of that inventory got shipped in Q1 of 2020.
Bottom line is 2020 was was relatively inflated because we shipped a lot in Q1 that was produced in the prior year.
I think theres, a little bit of conservatism built into our numbers I think it's fair to say that whenever we've got margin.
We're running our mills as hard as we can running as many hours as we can.
Certainly that's the case today.
But generally speaking we've got an increase in shipments plan of 15 to 20 million feet and hopefully we can we can beat that.
Got it and just one last question before I turn it over coming back of the dividend you talked about on your all in.
Please it at the end of December.
Is there any sort of change in in part around kind of.
On the approach to dividend given how strong cash flows on looking on the lumber side of things and I know you've said you don't want to push it too much given all of that as volatility and what part of that's EBITDA, but given how strong they are looking at right now.
Is there any change in approach in terms of on whether there is some sort of of base load per dividend and then.
The remaining would be linked to EBITDA from our number.
Yes, I appreciate the question Katy.
I would say there really has been no change in our philosophy around the dividend.
<unk> mentioned, our focus is on growing sustainably over the long term and we always pin that dividend to our state of more stable part of our cash flows. When you think about lumber price driven another volatile cash flows that's what provides the discretionary capital.
We can then go look for returns to drive shareholder value over the long term. So again dividend is based on stable cash flows.
And there tends to be a bit of conservatism I think served us well through the early in 2020, when the Covid pandemic first hit our dividend was not under pressure.
Very comfortable level and the flip side is we certainly have a fair bit of capital available to deploy and as Eric mentioned that you kind of walk you through our priorities and we couldnt be more excited about the opportunities to deploy that cash and put it to work to drive shareholder value for the long term.
Got it very helpful. I'll turn it over good luck on in 2021.
Thank you.
Your next question is from Paul Quinn from RBC capital markets.
Great. Thanks, Good morning, guys maybe.
Maybe a couple of questions on your outlook.
Looking at the on the Timberland side, just a flat pricing in the north.
Why do we expect that to be flat.
The starting point for that flat pricing falls, we had record saw log prices in the fourth quarter.
And then also the other element that plays into it as timing of price resets.
Historically, it's been about a six week lag between a move in western lumber prices and the move on our.
Idaho saw log pricing and certainly youre going to see that timing effect play out in the first quarter as well so.
When we were flat quarter over quarter record prices Thats still really strong levels.
The other thing I will take an opportunity to point out is in the past we've talked about having these indexed agreements on an evergreen basis for three years at the end of the year, we actually negotiated with key customers and those are now of five year arrangements.
So we've lengthened the time and then number two that six week lag that I. Just mentioned now is four weeks, so youre going to see more current.
On a more more of a kind of frequent update in the pricing that we realize and the other the other key element that I should mention as well as on.
Our logs get seasonally denser in the first quarter two of the tune of about 5%. So it's a little bit of a drag of a headwind on the quarter over quarter price realization comparison.
Yeah.
Okay.
That's helpful. There and then maybe just on the real estate side of it I see your guidance on.
Sort of.
On the development side.
50 lots of in Q1 on 145 total just yet.
I would expect that a lot of that development of lot pricing to be.
Be flat or increase over time, just seeing what we're seeing on the marketplace, but youre going from.
95000 per say 80, 85 of which areas are of mixed shift in and those lots of do you expect yourself on a bit balance of the year.
You are correct Paul It is a mix shift there is actually a wide range of price points that are reflected in our share novel development.
That range from lower end kind of an entry level.
Portion of the project that sells at a much lower price point, all the way up to.
Premium golf course lots, so that's nothing nothing more or less than just a shift in mix.
Okay, and then just just overall I mean, you had great results, obviously the market wasn't it wasn't it wasn't that impressed.
Shares came at 20%.
Last year, but theyre down 5% this year, what do you guys have to do debt.
<unk>.
On your share price moving in the right direction.
Well Paul all we can do is really focus our energy of running around running the business as best as we possibly can we think we've got a phenomenal track record we've.
We've got a great record here of capital allocation smart capital allocation decisions on the.
Stock market stock market and stock price will take care of itself over time. So we're optimistic the market will recognize the value of the company over time.
Alright, Thats all ahead, thanks, guys.
Thanks, Paul.
Your next question is from John Babcock from Bank of America. Your line is open.
Hi, Thanks for taking my questions starting out just on the lumber side I was wondering if you might be able to provide your current than average realizations there.
Yes, so on.
Current realization is about 40% higher.
Then where we were in.
In the fourth quarter on average so plus 40%.
In our.
Quarter to date pricing is up about 33% compared to where we were.
In the fourth quarter.
Okay. So you are basically expecting some taper and thats, how you get to the 20% to 25% guidance.
We expect a little bit of softness in March very hard to predict I mean, we've got really strong order files are pretty much out through the end of February. So we have really good insight on those prices and it's hard to know like Jerry mentioned.
Pricing volatility is unprecedented.
But we're thinking of markets could get a little soft in March.
Okay.
And then.
Next question is more with regards to the timberland side of things.
Obviously in the U S prices have generally been for saw logs pretty flat over time.
I was wondering if you're starting to see any signs of the market's Permian there and then also if you can provide some sort of indicator of whether its level of housing starts or any other indicators of that might give us some indication on what it would take to get those markets to firm.
Yes. Unfortunately, John we continue to see relatively flat saw log prices in the U S. South and that continues to be our view going forward at least for the foreseeable future of at least for the next few years.
We will see movements from time to time as we saw in 2019, when wet weather constrains supply and Youll see a little bit of of lift but it doesn't it doesn't last at times. When you see of New mill open up you might see a little bit of of lift, but again that really doesn't last at least on our wood baskets.
And just the excess standing supply is so large that we think it will take a period of time.
So that situation to work itself out and to give a couple of other pieces of information and as a reminder, we're net short on saw logs on the south we actually consume more logs on our three southern saw mills than we sell off of our timberlands in the region.
The other data point is recently there was of <unk> put out of study that suggested that across the south broadly not just on our wood baskets that theres enough fiber available to support another 50 to 40 to 50 sawmills above and beyond what's in place today. So just to give some anecdotes that.
We think it will take time.
Got it on and then just last question before I turn it over I was just wondering.
With lumber prices at historic levels right now is this having any.
On your channel mix overall.
Also recognizing that the market's incredibly tight right now.
We are making shipments as you can and as the product actually is available.
No I wouldn't I don't think it's impacting our channel mix at all we've got a really good stable group of customers that have been with us for many many years.
We continue to produce and sell to the same customer base. So I think the answer is no.
Okay. Thank you.
Your next question is from kind of Qunar from D. A davidson.
Yes, good morning, everyone and thanks for taking my questions.
When it's done.
Investment side, you've outlined some high return opportunities.
But I'd be interested to hear how you guys think about the potential for some larger greenfield type of investments relative to acquisition opportunities. Obviously, there is still uncertainty related to COVID-19, but housing backdrop is very favorable as is the pricing environment yet to date there hasn't been.
A whole lot of new capacity announcements made so just wanted to get your guidance thoughts around the risk associated with that and why.
It might not be higher on the priority list.
Yes, so we look at the economics of Greenfield mill construction from time to time, and historically spending our capital on discrete projects in our existing mills, so either increase production lower costs of improved grade yield.
They tend to have much higher returns and are therefore more attractive investments.
On the current environment it costs, roughly 650 Bucks per thousand unit of capacity to build of new mill.
It takes about a year and a half to get it built.
And then you've got.
Operating challenges getting the mill up and running <unk> got staffing challenges, there's a very lengthy startup curve. So I think it's fair to say our preference is simply to go the low risk high return route and make incremental improvements to the existing mills versus pursuing of Greenfield mill expansion.
Okay, Yeah that makes a lot of sense.
And then just lastly could you just talk about how youre thinking about supply chain inventories right now I know you talked about.
Those being I guess, historically low, but any more color there and in terms of.
Any abnormal seasonal buying patterns, you're seeing or expecting in maybe differences between some of those more R&R oriented home center customers versus the new residential side.
Yes, the only thing I would say is that customers are scrambling trying to procure of lumber inventories are at very very low levels.
No prices ran up as you know in the fourth quarter third quarter fourth quarter of last year and now into the first quarter.
So nobody wants to buy lumber when it's 900 Bucks per 1000 Bucks of thousands just viewed as too expensive and they think of oil prices are going to come back down. Meanwhile, you've got unprecedented demand. When you look at where housing starts of played out over the past couple of months look at how strong repair and remodel markets are home depot on Lowe's or the home centers of Poe.
<unk> comps in the plus 20% plus 30% kind of range just really strong demand. So I think the entire supply chain has been caught off guard without enough inventory.
Now, we're going into kind of the spring season, where people need to start restocking, especially the treaters.
And everybody's been behind on buying lumber because they think prices are going to come down.
So.
Our view is that inventories are very lean.
And the reason we're seeing these prices because demand is insatiable.
Got it okay. Appreciate the color and good luck here in the first quarter.
Thanks.
Your next question is from Buck Horne from Raymond James Your line is open.
Hey, Thank you good morning, guys.
I want to follow on Greg's question, there just add a little bit about the stall mill capacity debt.
That's in your wood baskets are you seeing any.
Third party capital any any other players that are taking the opportunity to get new Greenfield sawmills.
Under way in your particular wood baskets are you seeing any.
Any signs of that starting to pop up.
Well there have been a number of announcements here lately.
That are in or around our operating areas.
Idaho Force group announced a new mill in Lumberton, Mississippi, it's probably too far away from <unk>.
From our timberlands in Mississippi for us to supply them, but they announced a new.
A new mill Beware of lumber announced a new mill in Winona, Mississippi that ones.
Frankly in our backyard I'm sure, we'll be supplying them with saw logs.
As they get up and running.
So there are a number of mills that are in and around our operating areas, but as Jerry mentioned these mills when they start up.
On the initial impact is maybe a little bump in saw log prices, but then of quickly quickly receipts.
So.
That's kind of how it seems to play out just excess excess amount of standing timber out there.
Mhm.
And I guess.
Transitioning maybe a little higher level of and I certainly want to agree with the housing outlook you guys laid out and we certainly believe that the demand should remain pretty robust throughout 2021 for single family New home sales. So I guess part of the concern or the question is.
I think theres, a natural bias to be conservative net debt today is the lumber prices. These OSB prices are naturally going to taper off into year end.
But is there a scenario of.
I don't I Wouldnt say like 900 is the new normal but.
Is there a scenario that we're still just being too conservative with this expectation of that prices are going to meaningfully drop by year end.
Yes, I mean, that's really the million dollar question, but maybe even more than $1 million, but so so we think what's happened in the marketplace is that housing starts of really surprise to the upside here. These latest numbers the $1 six $1 7 million.
Those are really strong numbers, if those housing starts numbers stay with us through the remainder of the year. Our view is that lumber prices are going to stay elevated if they come down to where people expect housing starts to come down to say around the 1415 kind of range you could you could see a little bit of of taper in lumber prices now that being said.
We still think lumber prices are going to stay relatively high, especially given the COVID-19 backdrop, where it's costing us in any given quarter five to 10 million feet of production take that 10 million feet across four quarters, that's 40 million feet out of a 1 billion board feet that we produce at 4% so if everybody across the industry.
As having to deal with Covid and its costing them, 4% of capacity, while that's going on that's just kind of tightened industry conditions, even more than it would be otherwise. So there is a scenario here where prices don't don't taper in.
And certainly we're seeing that here in Q1.
Yes, that's great. That's very helpful guys. Thanks, Congrats that's all from me. Thank.
Thank you.
And at this time I'm showing there are no further questions I'll now turn the call over events of Mr. Cambrian retreats alright.
Alright, Thank you Christian and thank you everybody for your interest in Potlatch Delta avail.
Available the rest of the day to take your modeling questions and I hope everybody has a good day and stay safe.
Thank you.
Ladies and gentlemen. This concludes today's conference call. Thank you for your participation and have a wonderful day.
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