The northern hardwood resource: A market perspectiveby Emily Carey

Any forester and economist will tell you that hardwood markets are very different from other markets. Even Bill Luppold of the U.S. Forest Service Northern Research Station, with over 40 years of experience analyzing hardwood forest markets, said “They are not what’s taught in economic textbooks” during his presentation at the online 2021 Northern Hardwood Conference.

Tree quality plays an important role in the hardwood market as higher quality timber brings higher prices. The large differences in price are related to stem form and size.

Luppold explained there are three different levels of quality: High quality, which includes tree grades one and two; mid-quality, which has grade three trees; and low quality, which is below tree grade three and cull. Between 2009 and 2019, there has been an increase in low quality volume from around 16 billion cubic feet to around 21 billion cubic feet of merchantable sawtimber-size hardwood in the Northeast.

“Growth in this resource has been confined to the low-quality part,” Luppold said. “Two things are going on here. We left a lot of trash in the woods that basically has grown up and is still trash. But maybe a larger one, that I just started to realize in the last five years, is that the forest is aging and there’s a certain amount of this that is age-related degrade. Trees grow up, they get bigger, then they start falling apart.”

The industry has seen tremendous inflation with the hardwood lumber price index fluctuating and changing frequently. “We have seen a tremendous dive in our remaining low price of just the hardwood lumber index,” Luppold said. “This is a super complex market, and that index is kind of an aggregate. It doesn’t represent what you want to look at individually.”

You can breaking the hardwood market down into three domestic markets: Appearance and export materials (furniture, flooring, etc.), industrial materials (pallets, crossties, etc.) and other materials (drumsticks, guitar bodies, staves, etc.). From 1997 to 2020, the industrial and other markets have held steady; however, the appearance and exports market has seen a decline in the amount of hardwood used.

“Given that exports have risen in this time, that means appearance is really where the issues are,” Luppold said. This decline in the appearance market is due to the almost disappearance of wood household furniture.

This drop in wood household furniture relates directly to the increase of wood imports that spiked at just over $15 billion before the 2008 recession. “Chances are when you go to a furniture store, there’s an 80% chance of looking at a wood furniture piece that has been imported,” Luppold said.

Additionally, the domestic need and want for wood furniture has dropped tremendously as people are no longer interested in buying wooden pieces.

“All hardwood lumber prices do not move in sync with one another; they move independently,” Luppold explained. The same species tree will bring a different price depending on where they are grown. A northern hardwood in the north will go for more than a northern hardwood in the south. Hardwood trees are not co-integrated; they are independent among species, which is responsible for much of the confusion found around the hardwood market.

Luppold finds it particularly troubling when looking at the prices of lumber used in both the appearance and industrial industries. Since the early 2000s, there has been a decline in the price of lumber per 1,000 feet of board (mbf). Now, the prices are beginning to rise; however, due to inflation, the prices are not as high as they seem.

“I once referred to the pallet industry as the sucker fish of the hardwood lumber market. They’ll absorb any material that no one else wanted,” Luppold said. This is troubling because the pallet industry is essentially setting the floor of the market and has remained fairly level throughout the years.

The hardwood market has seen a lot of changes within the last 30 years and now, Luppold explained, “high value species have declined more than low value species. Appearance lumber has declined more than industrial lumber.” This trend is particularly noticeable in black cherry, which had the largest decline in price since 1999, and red oak, which is not far behind black cherry.

“It’s been a rough 20 years for the hardwood lumber market,” Luppold reflected. “We have probably lost at least a third of the capacity. Part of the reason you’re seeing issues with the softwood industry is because they’ve lost about the same capacity…in fact, its gotten so strange that some of the southern mills that were designed to cut hardwood are now cutting softwood. That’s how strange the softwood market has gotten.”

Luppold advised listeners to avoid focusing on species, as there is no guarantee in this industry. Also, prices must be looked at secondary to what is growing best and what is going to be quality. Slower and consistent growth with good tree form produces more valuable hardwood logs, which is important, as there is a great increase in mortality.