Skip to main content Skip to navigation

Forest Products Outlook to Follow U.S. Economy

PULLMAN, Wash. — The outlook for Pacific Northwest forest products in 1997 is tied to the national economy, which is cooling.

University of Idaho Forest Economist Charles McKetta says unsold housing inventories are rising in the Pacific Northwest, except in the Puget Sound region.

Runaway housing prices should moderate in 1997. Increase should be less than five percent.

National housing starts peaked at 1.49-million units in 1996. A Federal Reserve interest rate hike of 0.5 percent would drop 1997 starts to 1.33 million.

Lumber prices were substantially higher in 1996. Spruce-pine-fir 2 x 4’s dropped to $240 per thousand board feet during the soft 1995 market but recovered to $400 by mid-1996. However, November’s quote of $378 begins an expected gentle decline. Higher stumpage royalties and logging cost increases will make Canadian lumber less competitive in 1997, says McKetta.

Both plywood and oriented strand board prices have dropped since 1995. The panel index is $314, down from $335 a year ago and oriented strand board has dropped from $217 to $131 due to excess capacity. McKetta expects prices for both to stabilize.

Volatile log markets also should stabilize at lower prices. Federal harvest reductions (locally more than 90 percent) caused panic log buying and rapid price escalation from 1988-95. High log costs closed over 300 western sawmills even though lumber prices were rising.

As surviving mill capacity drops closer to restricted log supplies, and as lumber prices fall, 1997 log prices will slowly decline, says McKetta.

Delivered Douglas fir log prices may drop 10 percent to 15 percent in 1997. Cedar prices should rise due to shorter supplies.

Sawlog stumpage prices usually follow the same trends as lumber and log prices. However, McKetta says the published public sales price no longer reflects private timber values. Since 1994, National Forest stumpage prices have fallen 36 percent while lumber prices went up 9 percent.

Increased salvage logs and ecosystem management raised public logging costs and substantially lowered public revenues even as private stumpage prices recovered in 1996.

“Regional fiber markets are also distorted,” says McKetta. Semi-chemical pulp is selling for $285 per short ton. World pulp and paper demand is rising with 150 new kraft mills expected in the next decade, but they won’t be built in the Pacific Northwest. The region is ill-fated with high environmental costs and chip supply unpredictability.

In five years, two Alaskan and four western pulp mills have closed with another shutdown scheduled for March. Chip demands of remaining mills are usually contra-cyclical because of their dependence on sawmill residuals.

Tight supplies pushed pulp log prices to $50 per green ton in the third quarter of 1995, but rapid harvest responses dropped prices to $21 westside and $26 eastside a year later. A cooling lumber market should lead to small pulp log price increases of $4 to $6 per ton.

Standing pulp grade inventories are not scarce and mills are substituting plantation poplars and recycled fiber, so higher prices could glut pulp log markets. Fuelwood prices should drop substantially from a recent $18 per dry ton as subsidies for biomass energy disappear.

“Rapid harvests of mature sawtimber might beat forecast price declines, but we are entering an excellent period to regroup,” says McKetta. Private inventories are already depleted by price responsive harvest increases.

The rate of return to size and grade increases on small diameter trees is high while the industry waits for general price levels to rise with the next business cycle. Meanwhile, a focus on stand improvement that capitalizes on rising pulpwood prices has a double payoff as increased product values compensate for thinning costs.

“Other issues are less clear,” says McKetta. “Tree farmers should watch forest policies of the 105th Congress closely.

“The escalating western fire and forest health crisis may overcome environmental resistance to public timber harvesting. The federal forests’ monopoly effect on timber markets could reverse. If ecosystem management dumps large volumes of small diameter whitewoods into a less competitive market, prices could be significantly depressed.”

Export and large sawlog prices might rise.

“Watch timber taxes,” McKetta urges. “Oregon conditions are improving as taxes on standing timber are repealed but are declining in Idaho as a tax code valuation glitch accelerates property tax increases on assumed timber inventories. Forest tax relief is on hold in both Washingtons.”

McKetta also advises the industry to watch a new environmental movement that argues regional growth no longer depends on forest industries.

“Our sector’s importance is indeed declining relatively as the region grows and diversifies, but it is still a positive economic contributor. Managed forests also complement quality of life. Regional development proposals to substitute more amenity-based tourism and lifestyle migration for public and private commodity forestry are counterproductive,” says McKetta.

The report was written by 40 agricultural economists and other farm and ranch experts at Washington State University, Oregon State University and the University of Idaho, and private industry. It was published Friday, Dec. 27, by the Capital Press.

– 30 –