High Lumber Prices Good for Industry – Not so Much for Construction, Building
It’s not uncommon that good news for one industry means bad news for another, and so it is with the historically high prices of lumber. While Montana’s wood products industry can expect a good year, it plays a negative role for construction and the housing industry where high prices may push many projects off the drawing boards.
A report in the Montana Business Quarterly about a study done by the Bureau of Business and Economic Research predicts that 2021 will be a “generally positive” year for the lumber business.” Lumber and plywood demand is expected to remain strong and prices remain historically high.
Of course those high prices have much to do with the high demand for housing, which is good for the construction business.
In their report Steven Hayes and Todd Morgan say “New housing starts continue to increase, interest rates are low, and the home repair and remodel markets are expected to contribute to strong wood products sales.”
“Likewise, there are positive signs for Montana on the forest management side. State and federal agencies continue to cooperate under the 2014 Farm Bill’s Good Neighbor Authority to restore forest health, reduce wildfire hazard and harvest timber to meet ecological and economic objectives.”
And, while there were impacts on the industry because of slow-downs caused by COVID-19, 2020 was not a bad year for the lumber industry.
“Remarkably, sales from Montana’s industry during 2020 were up about 15% compared to 2019 because of the higher prices for wood products.” But one part of the country did not have the same experiences as other parts, explained the authors in their article, “Lumber Prices Skyrocket During Pandemic.” In their study they collected data and compared it to other parts of the country.
They concluded, “…the economic fundamentals of supply and demand played out differently in the national markets for wood products (i.e., lumber) versus the local markets for timber (i.e., logs).”
“During the second half of 2020, the demand for lumber used in new home construction, repairs and remodeling far exceeded the supply of lumber being produced by mills in the U.S. and Canada, causing lumber prices to rise all over the country. Meanwhile, sawmills in the Southeast enjoyed very low prices for logs from local landowners. This was due to many private landowners in that region who have been planting and growing trees for decades. The homebuilding bust of 2009 through 2012 meant a lot of timber did not get cut and was left on the stump to keep growing. Thus, the glut of available timber in the Southeast resulted in low prices for logs in the region. Even though more sawmills are being built there, the over-supply of logs is expected to exceed the capacity of mills for years to come. For many landowners the investments they made in planting and tending their forests did not yet pay off, but for mills and mill workers in that region the ample supply of logs was good news.”
COVID increased lumber demand as shutdowns and stay-at-home mandates left many people with time to do home improvement projects, which increased the demand for wood products, at a time the industry was experiencing production slowdowns, supply chain disruptions and general confusion. Imports from Canada also decline at the same time.
“Montana mills were generally able to continue operating throughout the year. Lumber production in Montana for 2020 was 428 million board feet (MMBF), down 10.8% compared to 2019. Employment in the state’s wood products facilities was down 3%, and worker income slipped 7.8% compared to 2019. However, few of these declines can be directly attributed to COVID-19.”
Who owns the timberlands makes a difference in what happens in the market. Montana’s land ownership is different than that in the South. “Different policies for public versus private ownership of timber influence those ownerships’ ability to respond to price signals from markets.”
In the South, “…less than 13% of timberland is publicly owned. Most of the public timberland is state-owned, about 30% of timberland is in corporate ownership and about 57% is owned by private individuals or families (USDA 2021).”
“In Montana, over 62% of timberland is owned by the U.S. Forest Service, another 5% is owned by the state, and another federal agency – the Bureau of Land Management (BLM) – owns about 4% (USDA 2021). About 29% of timberland in Montana is owned by private landowners including Native American tribes, and the amount of privately owned timberland is declining, particularly the amount of industrial timberland that is owned by companies that also own or operate mills.”
“The large share of private ownership of timberland in the South has been a boon for the wood products industry in that region, enabling the growth of the South’s wood products industry during the past three decades of decline in Montana’s industry. That public-private divide has not just impacted the supply of timber, which can hardly be overstated as a major factor influencing the industry. The large amount of private land ownership in the South also contributes to growth in the region’s home construction and population, which have boosted regional demand for wood products and the number of available workers. Canadian lumber companies have recognized these trends and made major investments in the South, buying and expanding mills in that region, which has a large supply of available logs, growing demand for lumber and a growing labor supply”
Timberland ownership has been changing in Montana.
“… Montana had more than 1.6 million acres of industrial timberland in 1989. Today, approximately 800,000 acres of timberland are corporate or industrial ownership.”
Substantial amounts of private industrial timberland have been sold in the past two decades.
“Changing private ownership of timberland in Montana is not new but has resulted in more public land and less consolidated ownership among private owners. This has raised concern among Montana’s recreation community and may create more uncertainty in timber supply for the state’s wood products industry. Timber harvest from industrial and nonindustrial private lands has been declining in recent years, while the harvest from U.S. Forest Service lands has been increasing, and state-owned harvest has been fairly consistent.”