Wood and insects. WTF is this?

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I'm going to guess it is a bee or some type of beetle. Something that is approximately the width of that hole. Maybe something was brought in with that stuff from outside. I would take the stuff back out and maybe spray it down, and look around the shed while it is empty for something that size. It is probably trying to lay eggs. I have a railing on my deck outside that occasionally gets sawdust under it. It is a lower rail that I built and so happens the underneath part I didn't paint because it is unnoticeable. I've read if I paint it, it will stop the occasional burrowing. You may want to try that. I guess insects are less likely to dig where something is painted over.