By: Vincent Corrao, Northwest Management, Inc.
Growing trees and selling logs has not been high on anyone’s list since late 2008. Interest in logs by the mills did perk up a little at the end of the first quarter 2010 and beginning of second quarter 2010, but quickly dissipated as lumber prices softened. Lumber and ultimately log prices are tied to the housing market which has been as much as 50 to 70% below the peak period and remains slow and non-responsive.
Key indicators to the housing recovery are unemployment rates, the number of foreclosures and financing opportunities. The unemployment rate remains high with some economist’s claiming it is at the peak, while others claim it is still rising. As more home owners lose their jobs, it appears more homes enter the market and there is less of a demand for new home construction. Financing a home today with the new bank regulations is a difficult and long process with many hoops and guarantees being required that just 3 years ago were not being considered. The current situation points to a slow recovery and one that previously was hoped to be stronger and recovered by 2011 is now looking like a 8 to 10 year period before housing starts and the timber industry could see activity near past levels.
In the U.S. many homes were built during the past boom period and some feel that the “good old days” may be behind us with housing starts in the U.S. hanging around one million homes or less. Lifestyle changes, savings, personal wealth or lack of it and a projected decline in the U.S. population growth will affect the size and number of new homes.
With a slow recovery and soft lumber markets, what can a family forest landowner do to make some periodic income and continue to invest in tree growing? Growing trees is a long-term investment, one which provides other amenities while the trees are growing. As many studies have shown family forest landowners own forest land for a variety of reasons including wildlife, aesthetics, recreation in addition to growing timber. Trees can be stored “on the stump” until such time the landowner chooses to harvest, and the reasons to harvest may be price, insect damage, forest health or income generation.
As the market strengthens or as we saw during the 1st and 2nd quarter 2010, where a good increase was seen in lumber and logs, the landowners who were willing to move quickly and deliver the log products the mills needed were able to take advantage of the higher pricing and improve the management on their properties. Following NMI’s Log Market Report, evaluating species and products, and watching lumber futures can aid in when and what type of harvest fits best for your situation. If thinning is needed on your property, then a pulpwood/chip harvest may be the best alternative. If you have larger timber particularly cedar or Douglas-fir, there are specialty markets that can provide higher returns than the dimension lumber market.
The lumber and log market fluctuates and during the past 40 years has peaked approximately every 12 to 15 years, then takes a deep dive and slowly recovers. Wood use in the U.S. continues to increase at about 3% annually and is expected to continue. The Inland Northwest will continue to produce high quality dimension and building products and as the market improves, the demand for our species and products will follow.