Economist: Outlook Bright for U.S. Timber Growers

By Allison Floyd

Monday, August 12th, 2013

Southeastern timber growers who held on through one of the worst lumber markets since the Great Depression will see prices climb over the next few years.

“There is a really bright future in the industry,” said Lynn Michaelis, the former chief economist for Weyerhaeuser and now a private consultant for timber companies and wood products manufacturers. “Those people who held on to their timber will be very happy.”

While the overall U.S. economy slid into recession in late 2007, the timber industry fell into more of a depression, said Michaelis. Wood prices dropped to a level not seen since 1982. Adjusted for inflation, that means wood in 2009 was bringing what it did in the 1930s.

While some Southern landowners were considering the opportunity costs of keeping their land in forest rather than converting to row crops, others seemed to see little reason to cut their trees. Inventory in the Southeast is up 29 percent over the past few years, Michaelis said.

Demand will take up that inventory, while pushing up prices over the next few years, he predicted, surpassing 2006 prices by 2016. Lumber prices fell to $300 per 1,000 board feet in 2012, but will be back up around $550 in three years.

Several factors are driving the upswing.

The residential real estate continues to recover, with housing starts steadily growing by 25 percent a year in 2012 and 2013. The national total dropped below 500,000 new homes a year in 2009, but should be back up around 1.5 million housing starts by 2015 or 2016, Michaelis predicts.

Meanwhile, beetles have killed off a large part of pine forests in British Columbia and are making their way east. The mountain pine beetle has claimed more than half of the western province’s mature pine trees.

Timber demand from China also remains strong in the West, while pellets are creating a growing market for small pulp wood in the Southeast. As European governments restrict coal-burning, wood pellets have become an alternative, and some experts estimate that U.S. production will more than triple over the next few years, mostly in the Mid-Atlantic and Southeast.

The increased demand and limited supply is good news for timber growers, particularly in the Southeast.

Industry leaders pay attention to Michaelis’ forecasts, including one of the nation’s largest timberland investment companies, Plum Creek, which holds 6.4 million acres of timber-producing land.

“We are certainly looking forward to increased opportunity,” said Kathy Budinick, Plum Creek’s communications director.

But we aren’t there yet.

“The biggest potential spoilers (for the positive forecast) would have to be if something got in the way of the housing recovery, if the euro plummeted and caused another crisis there, or if China were to have a major drop in demand,” Michaelis said.

Lumber prices may be volatile, but the general direction is up, he concludes.