UGA timberland investment conference: Impact of housing market recovery on timber markets not yet clear, as timber prices in US South remain at pre-recessionary lows, sawtimber lackluster relative to solid wood products
March 21, 2013
(Forest Economic Advisors LLC)
– The impacts of the nascent recovery in US residential construction markets are beginning to appear in North America’s solid wood product markets. In 2012, softwood lumber consumption rose 11%, boosted by strong growth in demand for residential construction and residential improvements. Even though demand levels remain well below pre-recessionary levels, prices have surged. Why is this? The strong increase in prices is a result of the contraction in operating capacity during the downturn. Since 2006, nearly 200 softwood lumber mills have been closed or idled, resulting in a 10% decline in North America’s timber capacity.
Looking forward, higher product prices and improved profitability will spur capacity expansion. The greatest capacity growth will occur in regions with available timber supply, chiefly the US South. As a result of the mountain pine beetle epidemic in the interior region of British Columbia and reduced Annual Allowable Cut levels in Quebec due to sustainability concerns, Canada’s share of North American capacity will decline.
The impacts of the housing recovery on timber markets have been less clear. With the notable exception of the western sawtimber markets, where strong growth has bolstered demand and prices, sawtimber markets are lackluster relative to solid wood product markets. This is especially evident in the US South where timber prices remain at recessionary lows. Why haven’t we seen a greater response similar to what has occurred in the product markets? It is because demand levels remain weak, and in contrast to product markets, where capacity has adjusted lower, timber supply remains elevated. In other words, despite the improvement in demand, we are still only harvesting enough timber to build less than one million housing units while the timber resource can support much higher levels.
When can we expect to see improvement in timber markets? Given the depth and duration of the downturn, it will take years for demand to return to their previous levels. As residential construction markets continue to improve, demand for sawtimber will continue to increase and sawtimber prices will move up from their lows. By mid-decade, growing demand for sawtimber in the US South to support an expanding solid wood product sector will push harvest levels back above growth and support significantly higher timber prices.
Rocky Goodnow's full conference presentation is attached in PDF form.
More than 500 delegates from 16 nations attended the timberland investment conference at the Amelia Island, Florida Ritz Carlton, organized by the University of Georgia Center for Forest Business on February 27-March 1, 2013. The theme was 'The Timberland Asset: The Long-Term Investment for The Bright Green Future.' Among those represented were investment funds, high wealth individuals, family offices, REITS, TIMOs, consultancies, forest products industry, risk managers.
More coverage on selected conference presentations can be found on Industry Intelligence Inc. For more information about the 2013 Timberland Investment Conference, visit: http://www.ugacfb.com/timberlandasset/