This newsletter is my first since 9/11. Much has happened in the world since then and it’s time to update you with my perspective on the forestry scene. Forest management, like all other aspects of our lives, requires us to hold a steady course based on our beliefs of what is good and right for us and for the world. Awareness of what is happening in the world helps us to adjust our expectations and to act in our own best interest.
The economy has retained strength in the building sectors, primarily through low interest rates. The forest industry owes much to Alan Greenspan for his quick and deliberate attention to adjusting the short-term rates. Interest rates for housing are less than 6%. The South accounts for most of the housing starts with Atlanta, Houston, Dallas and Orlando being hot spots. Analysts predict housing starts to be around 1.63 million in 2003 (about 3% less than in 2002). That is still extremely healthy. Any time the building industry is over 1.5 million we are having a decent year.
The U.S. lumber industry cranked up production in 2002 to over 36 bbf, an increase of 5.3% over the previous year. Canadian imports of lumber into the U.S. rose 2.3% in 2002 to nearly 19 bbf despite duties of 27.2% that went into effect in May 2002. Canadians sent us nearly 2/3 of their total lumber production of 30 bbf. Non-Canadian lumber imports increased dramatically to approx. 1.8 bbf, of which over 1 bbf came from Europe. Our lumber exports dropped again and are less than half the amount we exported six years ago. The record amount of lumber available for sale in the U.S. (nearly 56.5 bbf) explains why prices for lumber are at or near ten year lows and why forest industry incurred widespread low earnings in 2002.
Plywood and OSB production is also high and rising. Two new OSB plants are under construction in North American and others are on the drawing board. Producers have a wary eye on Brazil’s capacity to import even more plywood into the U.S.
As a result of low lumber and panel prices, several local mills have closed, some temporarily; others indefinitely. These measures may be necessary before we see an improvement in prices. We’ve also seen an increase in industry land sales and mergers. The forest industry is going through some repositioning and changes in order to be more competitive.
In general, I see the forest industry focusing their attention and efforts on producing products. They believe the timber base will be there for them, no matter who owns the resource. Therefore, there has been a shift to sell timberland for cash. They trust that they can purchase the timber at market prices, rather than tying up money owning and managing the resource.
Forest landowners in the South enjoyed significant stumpage appreciation during the 1990s. However, I don’t expect increases in stumpage prices in the foreseeable future. There is an abundance of wood in the South and throughout the U.S.- sustainable forestry is a concept already realized in managed forests.
As we state repeatedly, profits for landowners growing timber will be greatest for those who use the best science and management techniques to maximize production. Those who utilize professional timber marketing services from consulting foresters have consistently realized the highest prices from timber sales. That is unlikely to change.
So what is the small private landowner to do in our current situation? Forest management planning is probably the single most important action a landowner can take. A periodically updated written forest management plan is an excellent asset that is under-appreciated by most landowners. At a minimum, a written plan should provide you with information about your current forest conditions, recommendations for improving growth, and generating income from timber sales at specific times. After a plan is written, you can review it periodically, and change or adjust the plan as needed. Without a plan, however, you might be missing opportunities. Forest management is a long-term affair, but like our other long-term relationships, neglect leads to ruin. Attention to the process of forest management brings many rewards.
We desire to share information, our expertise and efforts to help you maximize the benefits that are possible from your forest. Please call us to discuss our strategy for helping you reach your forestry objectives and goals.
Prices for pine sawtimber were firm throughout 2002 and steady through the first quarter of 2003. Pulpwood markets appear to be somewhat improved over last year. Even if pulpwood prices aren’t great, there is a possibly of getting that needed thinning done this year. Hardwood sawtimber and pulpwood markets are fairly strong. We expect prices to be good throughout the summer for hardwood timber.
It appears that current discussions with the Canadians may lead to voluntary movements towards market-based reforms on stumpage and a lessening on employment quotas with specifics to be adopted by each province. Lumber imports from Canada are a fact and will realistically be a significant part of our pool of lumber for many years.
There is reason to believe that a significant amount of lumber and plywood will be needed for building military bases in Iraq. Additional wood products will certainly be used in the rebuilding of Iraq. The U.S. military intends to give preference to domestic suppliers. Demand for wood products is healthy. However, high production and high imports will continue to have a dampening effect on prices in 2003.
A comparison of the average quarterly lumber, panel, and pine sawtimber stumpage prices for the last four years appears below:
* Compiled by Templin Forestry from Random Lengths
** Templin Forestry
Stumpage prices in Louisiana are relatively strong when compared to the weak lumber and panel prices. However, several mills plan to concentrate their timber harvesting on their own land this year because of recent acquisitions. So, is this a good time for you to sell your timber? If you are on a plan where you sell timber on a fairly regular basis, then I see no need for you to change your plan. If selling timber is something you do once every ten years or so, then you may want to consider timing your income when it will do you the most good. Also consider the biological consequences of selling or waiting. Forest growth and health are important considerations. Often timber sales are needed for forest renewal.
Stumpage price fluctuations will continue to occur in the markets based on individual mill supply and demand considerations. Weather, markets, and characteristics of the timber to be sold all play a major part of the price you get for your timber. One thing you can control is how your timber is marketed. Getting the best possible price for your timber while ensuring that the sale is conducted in a manner that protects your long-term goals is something you can control. Letting your consulting forester handle the details of your sale is the best way of ensuring you get the best price for your timber. Remember, forest industry has a strong desire to buy your timber at the lowest price possible. A certified consulting forester who has no interest in buying your timber can consistently get you the best price.
The average timber prices our clients received as compared to the reported averages in Louisiana for the last year and a half are shown below:
* Published by the Louisiana Office of Forestry
During the last two years, our clients received an estimated average of 17.5%
more for pine sawtimber than the average stumpage rates reported by the
Louisiana Department of Agriculture and Forestry for the state. This report is
excellent proof that using our professional marketing assistance ensures top
dollar for your timber.
There is a real probability that wood will begin to be used to make diesel and ethanol within a short time in the U.S., and perhaps locally. Imagine a new fuel source that is easily incorporated into existing engines, is renewable, has little or no pollutants made in the manufacture, and is competitive with oil and gas prices. Technology has improved over the corn-based ethanol that uses sugars to create ethanol. A much-improved product can be made with higher BTU content through a process of gasification and then synthesizing ethanol or diesel using ester chemical bonds in their creation.
High yield pine plantations can grow from 5 to 10 tons of biomass per acre per year, as compared with 1 to 2 tons of biomass grown in natural stands. Providing a competitive market with pulpwood, owners may expect approximately $8/ton for stumpage for timber that is used for fuel. This would make for attractive returns from short-term high yield forest management in some cases. In other cases, it would provide an additional market for initial thinnings of plantations.
The time has come for this use of wood. Pilot plants are being built and strategic plans made for production facilities are in the works. How fast and how widespread will this be? Fast…and as widespread as there are trees and roads, and the desire for renewable energy. I urge all environmentalists to get on the timber bandwagon and promote the use of wood.
There are a number of forest industry land sales on the market right now. Most of them require several million dollars for a package. Much of the land is in productive, high-yield pine plantations. One might consider investing in a hard asset of timber that actually grows a few percentage points per year. Timberland investments are desirable now because the high amount of land on the market is lowering the bare land values, and because the cost of borrowing money is so low. I believe that investors, who purchase highly productive land where markets for timber are varied and strong, stand to fair well in the long term. Major shifts in landownership occur every ten or fifteen years or so. Conservative and informed buyers have opportunities available to them at this time.
If you are interested in increasing your timberland assets, we’re interested and available to give you our best efforts in assisting you make an informed decision about your next timberland purchase.