Foreign timber competitors affect U.S. prices

Everyone wants to know what is going on in the timber market. Particularly when are prices going to rise? If I knew the answer to that question, I could buy low, sell high, and then retire! Unfortunately, I do not have a crystal ball that works.

However, if you ask me what prices are going to do tomorrow, I think I can answer that question. Tomorrow is immediate, and I do not see any increase in prices tomorrow. The “powers-that-be” tell me not to expect prices to go up within the next year. Now the question I was asked this week that I cannot begin to answer is, “What are prices going to do over the next three to five years?” Who knows the answer to that question? Not me anyway.

There are several occurrences working together that lead us to where we are in today’s market. I will attempt to identify several of these.

First, the U.S. has a major overproduction problem. Mills have more inventory on their yards than they can sell. As always, timber prices tend to run adversely proportionate to the amount of bare space on the mills’ wood-yards. No bare space means increased inventory, and this means lower sales relative to supply; thereby reducing prices to the timber owner. I suppose some of this overproduction is a result of recent years of price increases. In 1998, prices went sky high. As prices rose, so did production, possibly to join in on potentially higher profits from increasing demands for this product.  Unfortunately, as production increased, building has decreased. New housing starts have dropped. However, this drop alone would not have created the market we are in today.

Another occurrence that affects the supply and demand curve is the non-wood products taking the place of here-before solid wood products. The foam moldings, aluminum wall studs, and even the finger-jointed wood products lead to reduced demand for the more quality lumber products that have demanded a premium price in the recent past.

As we rush into the world market, we see other countries that have not been so competitive in the past beginning to move in on some of our export markets. Russia and Scandanavia, to name a few, have huge supplies of standing timber reserves and will be more and more competitive for our solid customers of the past. Not only in the sawtimber market are we seeing this problem occur, but Brazil and other such countries can grow pulp at a faster rate and with lower labor cost than we can.

A huge problem that may be our biggest immediate threat is the Canadian Softwood Lumber Agreement that expires March 31. Canada already owns 34 percent of our U.S. lumber market. That means thirty-four percent of the lumber we utilize in our country comes to us from Canada. The Canadian government owns most of the timberland in Canada. They sell the standing timber product to their mills at a fraction of the fair market price, so they can produce an end lumber product, ship it into the U.S., and still sell it at a competitive price with our lumber produced locally. This allows Canada to keep their people employed and their economy healthy. The problem is, their healthy, but government-subsidized lumber industry is at the expense of U.S. mills and timber growers. If the Softwood Agreement is not renewed, even for just a few months, the U.S. lumber market will suffer continued oversupply at the detriment of mills and landowners alike. Currently they are limited to only 34% of our market.

I have named just a few of the many complicated issues that affect the timber market. These issues will not change overnight. So what I could be saying is, with a need for income in the not too distant future, and the decision to sell or not to sell, you should consider all the factors. You could wait a year or two for prices to come up, and still be at the same place you are now, except for the loss of interest on the timber sales you could have had two years earlier. To talk to a Georgia Farm Bureau forester about your timber market, call your local office for our forester nearest you or call direct into the home office at 478-471-0440. As always, we are ready to assist with all your timber needs. Jim Griffith is is the General Manager of the Georgia Farm Bureau Real Estate Company.