Lack of housing starts, not drought, hurting forestry

ACROSS MISSISSIPPI — It is not the heat or drought but the economy, specifically poor housing starts, that are causing grief for Mississippi’s forestry industry in 2011.

James Henderson, forestry economist and management specialist with the Mississippi State University Extension Service, said, “There’s no good news for the pulpwood markets, and pine saw timber prices are the lowest they’ve been since the national housing construction downturn started in 2006.”

Henderson said the state average for April through June was $24.50 per ton for pine saw timber. This was a decline of almost 50 percent from early 2005 prices during the peak of the U.S. housing bubble.

“Mississippi’s pine timber market is highly dependent on U.S. residential construction, and that market is in the worst condition in recent history,” Henderson said.

Prices are not expected to improve anytime soon. Henderson said there is a strong correlation between national housing starts and Mississippi’s saw timber market.

“Historically, the housing market rebounds quickly during or just after a recessionary period, but that has not been the case with this most recent recession,” Henderson said. “Many housing construction forecasts point to a resumption of normal home construction levels by 2016. The implications for Mississippi’s pine saw timber are low demand until 2016.”

Pine pulpwood averaged $6.99 during the second quarter of 2011. The average since 2004 has been $8.79 per ton.

“The average is high because pulpwood prices were ridiculously high at the beginning of 2010,” Henderson said. “We had an extremely wet fall and winter, so landowners were not able to harvest pulpwood. The paper mills did not have inventory on hand, so that drove up prices.”

As forest landowners delay harvest because of low prices, this allows the supply of timber to continue to grow.

“The unknown is how long is it going to take for healthy demand to dwindle down the supply of standing timber so that prices will rise,” Henderson said. “There may be so much timber on the stump that prices will stay low beyond 2016 when the housing market is expected to improve.”

Those people with timber ready to harvest must decide whether to sell it now at low prices or hold on to their inventory for an unknown length of time in hopes that prices will improve. If they hold their timber, they will accept risks such as fire, storms and insect damage.

Butch Bailey, Extension forester, said that while the biggest challenge facing Mississippi tree farmers now is price, a related issue is the availability of markets.

“A lot of loggers have gone out of business, and sawmills and pulp mills have closed. The timber is still there and growing in volume every year,” Bailey said. “The market will come back sooner or later, and when it comes back, will there be places to sell the timber?”

Many forest landowners are choosing to “bank on the stump,” which means not harvesting trees that are growing 6 to 7 percent in volume a year.

“If your alternative investments are doing less than that, you can bank on the stump,” Bailey said. “Let those trees grow now, and then when markets get better, you can cut them and liquidate that asset.”

In the meantime, landowners can take some comfort from knowing that this summer’s intense weather has not affected timber as much as it has other agricultural commodities.

New plantations, such as those seedlings planted last winter, haven’t had the time to establish a good root system, but seedlings planted in well-prepared sites without a lot of competition from weeds can survive. When trees are not thinned and allowed to grow too densely, even mature trees compete for water and sunshine and are more susceptible to problems in stressful times.

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