When will sawtimber prices start to recover? Many of our customers in the South– both buyers and sellers--have asked this question.
Of course, the recovery in sawtimber prices is linked to the recovery in the lumber market, which is further tied to the recovery in the housing market; this link is undeniable. There is another link to this equation, however – pent up sawtimber inventory.
In the South, sawtimber harvests have been depressed since 2007. This trend will likely continue for the next 2-4 years. How much “extra” sawtimber is growing, and how many years after a recovery will it take to cut through this extra supply?
Forest2Market recently performed an analysis of this topic that I would like to share with you. Assuming that the housing market slowly recovers over the next few years and tops out at 1.2 million housing starts by 2014, the US South will have built approximately 80 million tons of softwood sawtimber inventory over and above the 80 million tons currently being harvested.
If this trend continues, there will be little pressure on the South’s sawtimber resource, and thus little pressure on price.
US South lumber producers manufactured about 11 BBF of in 2011. Traditionally, this number ranges from 12-16 BBF. So, let’s ask ourselves the following question: based on the harvest level required to satisfy current demand and factoring in the harvests required to satisfy a projected housing start level of 1.2 million units by 2014, how much extra lumber production could sawtimber resources in the South sustain?
The answer, it turns out, is quite stunning. The following chart depicts the incremental lumber capacity that could be supported by the sawtimber resource (given no other constraints, such as lumber capacity or demand).
By 2014, F2M expects housing starts of 1.2 million. Considering, the US South’s share of the market – and other uses, such as treated lumber – total US South lumber production will be 14 BBF by 2014. Given this scenario, the extra sawtimber resource that has been growing on the stump will be able to support an additional 15 BBF of production (29 BBF in total). Or two southern lumber industries. I think this bears repeating: If we simply harvest at a rate that gets us back to 1.2 million housing starts by 2014, the southern landowner will still have grown enough trees to support a lumber industry twice its size.
And this takes us back to my original question: when will the sawtimber market recover to back-to-trend-line pricing? In all honesty, based on the inventory levels revealed by this analysis, we might be looking at the new trend line right now.
(For more on the sawtimber pricing trend line for the US South, see Daniel Stuber’s post on stumpage price trend lines.)
More of a question - is the sawlog supply utilizable in chip and saw mill and how does this i.e. larger diamention logs impact on lumber production economics and product mix /market demand balance considering that SYP lumber has limitations in terms of stress bearing applications.
It seems the unit of measure for the graph titled Potential Incremental Lumber Production is incorrect. Isn’t 1BBF= 1,000,000 MBF?
I am not surprised by conclusion that supply has outstripped demand as we have been adding significantly to the standing inventory for some decades in the Souteast. I believe this is true even after deducting out the timber grown on land no longer considered to be timberland due to development and other reasons.
Does F2M have any way of forecasting increased demand from the rising economies such as China and India? Do you project that this will have any effect of Southern Timber prices? I supect that the vast majority of any fiber demand from India and China will be filled by sources other than the Southeastern US but this might mean that less wood is available to the US markets from those sources.
I am also wondering about sawmill capacity given the large number of sawmills closed in the past few years. Is this likely to affect the demand for sawtimber in the Southeast or will enoungh new capacity be brought on line to handle any level of demand? I am not sure that financing will be available for new sawmills given the significant difficulties in the industry over the past five years.
Thanks, Wayne. I updated the chart.
Yes, most of the material can be used in cns mills or certainy sharp chains. By limitations in stress bearing applications, I suspect you are referring to the grade rule changes. The larger the tree, the more likely lumber from it will meet higher stress ratings. So, this trend to older and larger trees will likely position the southern lumber industry more competitively, not less.
Many 15 to 20 year old stands are being clearcut for pulpwood currently. This will have a impact that everyone is ignoring.
How many sawmills are currently operating in the southeast ?
What effect will biomass consumption from new facilities like Kior, have on the availability of dimension lumber in the in the next 10+ yrs. ?