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SOUTHERN STUMPIN’ By David Abbott • Managing Editor • Ph. 334-834-1170 • Fax: 334-834-4525 • E-mail: david@hattonbrown.com
Highs And Lows ou might have heard that lumber prices have been high. That’s bad news for people buying lumber and good news for those making and selling it. In its June 2021 issue, Timber Processing (another Hatton-Brown publication, like Southern Loggin’ Times) presents the results of its annual survey of sawmill owners. In his column, our editor-in-chief Rich Donnell writes, “Never…have softwood lumbermen and hardwood lumbermen in the U.S. expressed at the same time as much optimism for the immediate future. That’s not a surprise, given the tsunami of record lumber prices.” What’s causing these high prices? It can’t be attributed to any one thing; it “has been driven by several factors,” Rich says, pointing to supply chain logistics and supply-demand imbalance, “specifically a supply that has yet to catch up with demand dating back a year ago to the pandemic, as home repair surprisingly boomed...” When many found themselves stuck at home in quarantine, they decided to busy themselves with home improvement projects. Now that most are out of quarantine, many are buying or building homes. In his presentation of the survey itself, Donnell adds, “In April 2020…U.S. softwood lumbermen were feeling down in the dumps.” Now, just over a year later, some sawmill owners and managers call this the best market they’ve ever seen. “This upbeat expectation stands in stark contrast to how they felt when this survey was conducted a year ago, right after the pandemic hit and the building products industry was temporarily put on hold,” Rich writes. At that time, most respondents to the survey predicted poor markets for the foreseeable future. What a difference a year makes! It’s not just building supplies. In a June 9 article on the Woodworking Network web site, author Robert Dalheim indicates that lumber prices have been a factor (along with trucking problems and high demand) in a looming worldwide shortage of wood pallets, which will make them cost more, too. This, like supply chain issues plaguing other industries, appears to stem from economic resurgence as the pandemic seems to be dying down. Consumers are more active and retailers are struggling to catch up with increased demand for all products. The question is how long it will last. As Rich puts it, “The market and prices eventually have to slow down, right?” And, when that does happen—if it hasn’t happened already—what will the new normal be?
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Not So Fast? Some think we’re already there. In a June 11 post on Bloomberg.com, Marcy Nicholson reported, “Lumber futures posted their biggest– 6
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ever weekly drop, extending a tumble from alltime highs reached last month as sawmills ramp up output.” According to Nicholson, “Lumber has now dropped almost 40% from the record high reached on May 10. Sawmills appear to be catching up with the rampant homebuilding demand in North America that fueled a monthslong rally, bringing some relief to a market beset by supply shortages and price surges.” Similarly, in his June 16 Forest2Market blog post (under the headline “Lumber Prices Plummet; Is the Roller Coaster Ride Over?”), Mike Powell reported that southern yellow pine lumber prices were continuing a weeks-long sharp decline, reaching their lowest level since midApril. “Forest2Market’s composite SYP lumber price for the week ending June 11…was $979/MBF, a 7.8% decrease from the previous week’s price of $1,062/MBF,” Powell wrote. “Other price trends observed over the last several quarters in what has become the most chaotic lumber market in recent history include: l 3Q2020 Average Price: $728/MBF l 4Q2020 Average Price: $595/MBF l 1Q2021 Average Price: $946/MBF l 2QTD Average Price: $1,041/MBF “As some of the air is now being bled out of the inflated lumber market, the obvious question is: Going forward, where will prices settle… if at all? No one knows where the ‘new normal’ price of finished lumber will settle, but the futures market may provide some anecdotal guidance.” If Powell is correct that lumber futures do offer insight, then a Business Insider article by Emily Graffeo from June 27 may be of interest. Graffeo reports that traders believe lumber prices have hit bottom, going as low as they’ll go for now, and will likely hold steady at a level double the historical average for a long time to come. “After an intense run-up in the beginning of the year, lumber has fallen nearly 50% from May’s record high of over $1,700 per thousand board feet,” Graffeo writes. “It means that supply and demand are normalizing, and an equilibrium is being found.” Forest2Market’s Powell continues, “The combination of strong (and surprising) lumber demand and pinched supplies from manufacturers resulted in a tremendous gap in the market, and the supply chain is just now beginning to rebalance.” Nicholson quotes Scott Reaves, forest operations director at Domain Timber Advisors, as saying that “We’re at a new normal” in terms of sustained housing demand and the consequent lumber price floor. Reaves expects prices above $500 per thousand board feet. Meanwhile, according to Stinson Dean, CEO and founder of Deacon Trading, “The new normal is going to be significantly higher than the old normal,” and he
“expects lumber to trade above $1,000 for potentially the next three to five years,” Graffeo reports, adding that the historical average is around $400. Bloomberg’s Nicholson cites Domain Timber Advisors LLC, a subsidiary of Atlanta’s Domain Capital Group, in reporting that the lumber industry has responded to all this by ramping up output to the tune of 5% in the last year, with another 5% increase, roughly a billion board feet, expected on the horizon. Multiple companies— including Resolute, West Fraser and Canfor— have announced multimillion-dollar investments aimed at expanding production capacity. Bottom line appears to be this: as supply gets in balance with a demand that does not appear likely to diminish for a while, prices won’t remain sky high, but will be higher than normal.
What About Logs? The general public knows lumber is high, but if you’re reading this magazine, you might have noticed that log prices haven’t necessarily kept pace. A lot of people have asked me why that would be. Always eager to defer to those who know more than I do, I refer them to an analysis from Brooks Mendell on the Forisk blog, posted on April 7, entitled “Why Are Timber Prices Low.” Mendell writes: “Consider the disparity between sky-scraping softwood lumber prices and the pedestrian prices received by forestland owners in the U.S. South for their logs. I hear from folks in forestry who are convinced that the failure of timber prices to rise during this frenzied lumber market is evidence that ‘something is going on,’ that Canadian firms ‘infiltrated’ the South, that the lumber industry is ‘over consolidated.’ While multiple reasons may help explain the dynamics of timber prices by local market, the bottom line remains that, in the U.S. South, we are swimming in wood.” So, as is often the case in the free market, however complex it may sometimes be, it still comes back to the basics: supply and demand. While there has been an undersupply of lumber relative to increased demand, it appears that logs are generally oversupplied. Mendell cites years of studies, going back as far as a decade ago, indicating that timber supply has long exceeded demand. He continues, “Twenty years ago, the South averaged 14 years of pine grade on the stump on private timberlands. Now, the region averages 26 years, even as billions of board feet of new, cutting-edge sawmill capacity has come online. Demand is still chasing supply…it takes time for forests to cycle and for mills to get built to bring SLT back balance.”
JULY 2021 l Southern Loggin’ Times
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