Lower prices for timber, forest products ripple throughout state's economy
by Becky Gillette
Published: November 20,2006
Timberland owners in Mississippi and the surrounding region are getting hit with a double whammy right now.
“The markets are still flooded with timber from Katrina and Rita,” said Dick Molpus, president and owner, The Molpus Woodlands Group, Jackson. “Secondly, the drop in demand for housing is reducing the demand for lumber and hence timber. My only counsel to timberland owners right now would be to hold. Store their timber on the stump, let it continue to grow, and look for the better days that always come in this business.”
Molpus said selling now would be most likely a below-market opportunity. He expects that in a year to three years the oversupply of timber from the hurricanes will be gone.
“We have 226,000 housing units to rebuild along the U.S. Gulf South,” Molpus said. “I think there will be at least a stable housing market in the years ahead. The future looks good, but right now we are in a downward cycle. The woodyards are filled. The inventory is high. We have just seen this enormous surge of timber since Katrina and Rita hit. It is just about to work through.”
Lower timber prices have a wide ripple effect in the economy of Mississippi, as traditionally timber is either the top or number two valued commodity in the state. The impact is particular strong in rural communities.
“If landowners feel prices are too low and won’t sell timber, timber doesn’t get cut and severance tax is not paid,” said Bruce Alt, executive vice president of the Mississippi Forestry Association. “If mills aren’t running at full capacity, then they don’t need loggers supplying them. Loggers are small business men with a huge economic impact in small rural communities because they employ people, buy parts and supplies, and fuel. Some loggers are so highly mechanized they are spending more than $1,000 per day just on diesel fuel. They burn hundreds of gallons per day. So they have to lay their people off and stay home. They are not contributing to the local economy.”
Alt said the lower prices are really hurting the lumber manufacturing industry. Many mills in the region have shut down most of their pine lumber manufacturing operations. They have eliminated a shift, are running fewer days per week, or are taking downtime because prices are so bad they are running at a loss.
“How that translates to the landowner is these mills can’t afford to buy the landowners’ timber if the mill can’t be run at a profit,” Alt said. “So it is going to cause stumpage prices to fall. That is the price per ton or per thousand board foot for the trees the mills need. So it all ripples right down the chain of supply to all the forest landowners who want to sell their timber. It doesn’t happen overnight. It isn’t like stock market. But it ripples through the system causing lower demand and prices for our landowners.”
For people trying to sell into a market that for last year that has been glutted because of hurricane salvage timber, it will cause prices to be even lower. Alt said the real hardship is landowners who lost timber in the hurricane, and want to sell some of their timber to pay for replanting what was destroyed.
“Now they have even less to reinvest in the replanting,” he said. “It takes capital to site prepare land and plant trees. People don’t have that kind of money in their savings account. They need to take a portion of proceeds, and reinvest it in the next forest.”
Some forest owners in South Mississippi might not be affected that much more by the low prices now because they had already lost their stands.
“I don’t know that price decline is necessarily going to hurt them that much more,” said Dr. Andy Londo, assistant professor of extension forestry at Mississippi State University. “It certainly won’t help. But I don’t know it will hurt them that much more.
It is a fluctuating thing to begin with. Prices go up, and prices go down. It is hard to say in the long term whether the prices are good or bad. For the short term, those trying to sell timber right now, it is going to be bad.”
Londo expects the price of trees to go down for a little while, but to come back up as the pace of rebuilding on the Coast picks up. That would be true of trees used for saw timber, but not pulp wood. Only a wet, miserable winter would be expected to increase prices for pulpwood.
“Wet winters affect the logger’s ability to get out in the forest and harvest the material,” Londo said. “A wet Mississippi winter could also boost forest prices by making it more difficult for loggers to reach the trees.”
One of the largest timber manufacturers in the state, Weyerhaeuser, currently doesn’t have any of its three Mississippi iLevel lumber operations scheduled for market downtime at this time, although all three—McComb, Philadelphia and Bruce—are taking previously scheduled maintenance downtown around the holidays in December, which will reduce lumber inventories for that time period.
“Weyerhaeuser is taking market downtime at lumber operations in other areas of the country at varying times during the next two months,” said Jackie Walburn, Weyerhaeuser Company public affairs manager, Mississippi and Alabama. “The residential housing market has weakened more quickly than expected which, in turn, is significantly reducing the demand for some residential wood products. Consequently, inventory is building at Weyerheuser’s mills and distribution centers. We will continue to fulfill customer requests in an efficient and timely manner.”
Walburn said changing their operating posture at some iLevel mills better positions Weyerhaeuser for the market down cycle. The company that employs 1,700 people in Mississippi is the largest producer of pine softwood lumber in the world.
Forests cover about 60% of the state. So what happens in forest markets has a big impact on the state. But what is bad news for the forestry industry is a welcome respite for homebuilders and home buyers in the state.
“For rebuilding on the Coast, it is good news,” said Marty Milstead, executive vice president, Homebuilders Association of Mississippi. “It goes right into the cost of your home. Frankly, we don’t see too many products that go down in price. Anything helps. Any time that you see any building material price go down, that is good for the consumer. It means the builder is able to have less expense on the home so he will be able to pass that along to the buyer, particularly in this competitive market. It is a buyers’ market.”
Milstead said lumber is a significant factor impacting the cost of a home. Land costs not going down. Labor costs are not going down, and neither are costs for concrete, steel, electrical and plumbing supplies, etc.
“None of your other building supplies are going down,” Milstead said. “So, yes, lower prices for lumber it is a big deal.”
Lumber prices are down on average about 10% to 15%.
Contact MBJ contributing writer Becky Gillette at email@example.com.
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