PULLMAN, Wash. — The Pacific Northwest forestry industry faces a downturn in housing starts, which likely will last several years, says Charley McKetta, University of Idaho forest economist.
His assessment is published in the 1999 Pacific Northwest Agricultural Situation and Outlook Report, released Wednesday (Dec. 30) by Washington State University, University of Idaho and Oregon State University economists.
McKetta said some economic specialists in the industry are predicting new single-family housing starts will drop 5.6 percent in 1999. They see little recovery until 2002. “New building permits suggest that housing declines may be greatest in some western markets,” he reported.
Single-family housing construction has been in a boom phase, but McKetta says a slowing economy and saturated housing markets will offset continued interest rate declines and reverse this boom.”
A troubled Asian economy prevented lumber prices from rising as expected on the boom in this new domestic construction. McKetta says lumber prices started down in April 1997. The Random Lengths lumber index closed in October at $332 per thousand board feet, down from a high of $457. Both framing and select grades fell. “Ailing Asian markets gutted North American wood exports,” McKetta said. Falling exports redirected a quarter of both U.S. and Canadian export lumber back into the United States. Although western lumber’s price fell as a result, its production has not.
McKetta said regional fiber markets are mixed. Recycled fiber prices are down or soft. Mixed scrap dropped from $15 a ton to $10 in 1998. Old newspapers are stable at $20 a ton.
Although export volumes of composite panel were down, price indices have risen from $246 per thousand square feet in January to an August peak of $366.
McKetta said log markets are settling. A supply crisis caused by federal harvest reductions between 1988-95 has abated in most areas.
Domestic sawlog prices are dropping with lumber prices. Coastal Douglas-fir No. 2 sawlogs fell from a 1993 high of $840 per thousand board feet to $560 in Washington and $545 in Oregon.
Intermountain Douglas-fir and larch remained stable at $420 per thousand board feet in northern Idaho and $475 further south. Export log grade values have fallen because log export volumes dropped to 60 percent of 1993 levels. Export Douglas-fir prices fell 44 percent in 1997 and stabilized lower in 1998.
Western red cedar is a success story in the lumber industry. Prices on the coast rose 27 percent in 1997. Higher grades reached $920 per thousand board feet. One pole grade sale fetched $1500, McKetta said.
Washington prices abated 10 percent through 1998, but Oregon quotes remained high. Intermountain cedar prices rose 30 percent in 1997 and another 12 percent in 1998, closing at $800.
McKetta said this price differential has changed harvest strategies. “Many tree farmers are holding back higher grade Douglas-fir, hemlock and pines while mining pockets of cedar in partial cuts,” he reported.
Public stumpage price changes are increasingly management induced and aren’t reliable enough as market indicators for tree farmers to bother tracking, he said. Federal price trends are disconnecting from both lumber markets and private stumpage price behavior.
National forests now have higher percentages of salvage sales and the quality of trees offered is dropping, McKetta said. Helicopter requirements are trendy. Logging costs are rising to cut lower valued wood. The result is substantially lower and erratic stumpage prices with many unsold sales.
“Lumber and sawlog price declines should accelerate in 1999 although pulpwood prices may rise,” McKetta reported. Federal harvest policy is pervasive enough that log markets are starting to separate by species and grade. Many national forests will no longer sell Douglas-fir, hemlocks and pines larger than 20-inches in diameter.
“As this happens,” McKetta said, “higher grade logs in these species should get pricy. Forest health and ecosystem management will be targeting more small diameter whitewoods for sales and thinning.
“To the extent that congress funds these programs, small diameter sawlogs and pulpwood will flood markets where mill capacity has been severely reduced. These log prices could drop significantly.”
McKetta said the industry is entering an excellent period to regroup. “Private sawlog inventories were already depleted by price responsive harvest increases across the whole region. Perhaps its time for tree farmers to build up inventories while targeting long-run markets for larger, higher quality logs. Delay large tree harvests until average wood price levels rise with the next business cycle,” McKetta advised.
He recommends those in the industry who have made big gains in the stock market should consider reinvesting their stock market profits in thinning, fertilization and even pruning would yield quality trees sooner.
“Thinning costs could be partially offset by rising pulpwood prices,” McKetta said. “Small diameter log values could be helped by new whip mill technology which eats small logs as fast as 30 per minute. Even so, breakeven logs in these new mills still require a 10-inch small-end diameter. “However,” McKetta warned, “be wary that federal ecosystem management could still glut small diameter log markets.”
With many recent improvements in timber tax laws, McKetta recommends small tree farmers attend regional workshops on timber taxes in 1999.
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