Hardwood acreage and woodlots are valuable assets, but recent economic events have caused landowners to doubt the value of maintaining such acreage.
Tim Knol, regional market analyst for National Hardwood Review, tracks lumber prices and watches trends in the hardwood industry. He explained lumber prices from a historical perspective and described how trends and events affect prices and demand.
“In 2004, prices were fairly high and China was becoming a major furniture manufacturer so we shipped lumber to them,” said Knol. “Then the housing market began to collapse and prices trended downward.”
The stock market also collapsed in 2008, during what many refer to as “the Great Recession,” causing prices to plummet.
“Afterwards, we saw a bit of a bounce back because of a supply shortage panic,” said Knol. “It wasn’t that much of a shortage – it was more of a concern that there wouldn’t be enough lumber because of the number of sawmills that had gone out of business in the wake of the financial and housing crisis.”
Between 2016 and 2018, there was sustained increase in Chinese demand for manufactured products they were sending across the world. Next came a trade war, during which the U.S. had a sudden oversupply and overcapacity in the hardwood lumber industry.
Prices plummeted right before COVID, driving up lumber shortages, supply chain issues and domestic demand. Knol said no one predicted a high demand for flooring, cabinetry and other hardwood use for home remodeling, which resulted in record-high lumber prices.
As the supply chain recovered, U.S. production increased. Demand was slower, inflation shot up, interest rates and mortgage rates increased and prices came down just about as quickly as they had gone up.
“We saw a little urgency to restock at what was thought to be the bottom of the price curve,” said Knol. “It turned out that it was not the bottom of the price curve. It dipped back down in mid-2023, and in fall of last year, prices started rising again.”
He outlined numerous commonalities among the current lumber pricing situation with the Great Recession. “Worldwide economic slowdown, a huge drop in lumber prices and hardwood lumber production declined significantly in both instances,” he said. “We had three years of steady price declines with a larger drop at the end. The kiln-dried index dropped 28% during that time. Recently, over the post-COVID economy, there was about one year of price declines before they started coming up last fall. The kiln-dried index fell about 34%.”
Following the Great Recession, about 40% of sawmills went out of business, and in the post-COVID economy, more than 50 sawmills and yards auctioned or closed in 2023/2024 across the eastern U.S. and Canada.
The largest and most impactful closure was Allegheny Wood Products in West Virginia in February 2023. “They have nine sawmills,” he said. “Two of them have been purchased and will continue to operate and manufacture lumber for flooring. The other seven are still shut down.”
At least one of the closures in North Carolina was due to a lack of a pulpwood market. Also closed were custom cabinet shops, millwork and concentration yards. Knol noted quite a few sawmill closures were due to aging owners who wanted to get out of the business.
He pointed out some differences between the Great Recession and the current situation. “Lumber prices now are not at record lows,” he said. “The export decline has been less intense, and home building is on a different path … The number of single-family home starts dropped dramatically, however, the number of home starts in 2023 is still stronger than in 2019.”
The outlook is a mixed bag. “Housing remains the core driver for demand for hardwood lumber,” said Knol. “Remodeling is a big segment for flooring and cabinet manufacturers. Those got a big boost from COVID – there was a big increase in the amount of money spent on remodeling.”
Sales of existing homes have fallen over the past several years, which is significant because homeowners typically remodel and purchase new furniture when they purchase a home.
“U.S. single family home starts are looking better,” said Knol. “Even though mortgage rates have been high, they’ve benefitted from lack of existing homes for sale. This has spurred new construction which should continue through this year.”
Export demand has historically been a major price driver. “Exports were down last year,” said Knol. “That was across the entire world, with Australia being the biggest outlier … They bought more last year when everyone else was buying less.”
An interesting trend with hardwood exports relative to lumber is that foreign markets purchased 19% more logs in 2023 than in 2017, which was the peak log export year.
“We’ve seen a little bit of a shift toward more log purchasing overseas,” said Knol. “That’s been apparent with walnut and white oak. While log exports overall are up 17% year-over-year, it’s also up 27% to China. Walnut, white oak, ash and poplar have all increased 37% or more.”
U.S. hardwood production is down about 60% from its peak in 1999. “Prices are going up even though demand hasn’t really improved,” Knol said. “We’re expecting that demand to stay low through 2024. We’re also seeing a lot of tight margins, which will push more sawmills out of production. That will also keep lumber supplies relatively tight, and even the hottest items – white oak, walnut and hard maple – will stay fairly tight, partly because of log supplies.”
The short-term outlook is positive, and Knol expects increased prices in the Appalachian region. Prices will be driven by kiln-dried prices, which will be relatively good, especially for upper grades.
“White oak, red oak and maples have room to run up a little more,” he said. “Poplar prices will be fairly steady. The thing to keep in mind is because we have a demandless recovery, it would only take a modest production increase to upset the supply/demand balance and bring prices down again.”
by Sally Colby
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