What Happened and Where Is It Going?
The log market prices for the first two quarters of 2003 reflect the softest market conditions in the past five years.
The lumber market for the first two quarters of 2003 has been the lowest we have seen in the past 8 to 10 years. The lumber market and lumber futures are what drives the log market price. The log market does not respond dollar for dollar matching the lumber price, but it does move in response to the increase or decrease in lumber prices.
Log prices are also affected by supply. The region has less sawmills than five years ago and more log sellers. Crown Pacific, once a log user, was recently purchased by a Timber Investment Management Organization and are now log sellers. Many logs are now swapped, traded, and spun off to manufacturers that utilize the particular species or product in a more efficient process. Soft lumber prices and an adequate supply of logs will soften log prices.
Total overall wood use has increased, housing starts are not bad, interest rates are good, so why is the lumber price so low? One reason is that there is a surplus of lumber on the market. Much of this lumber is shipped into the U.S. from Canada. Also, our mills are more efficient, thereby producing much more lumber than ever before from each and every log. A once thriving and profitable export market that purchased the larger high quality logs is at the lowest level it has been in years and many of these once exported logs are now sawn into lumber and are part of the U.S. lumber inventory. In some areas, the State and Federal forests are logging timber that has been damaged by insects and fire. In the recent past these logs were not available on the market.
All these factors, with a soft lumber market, will hold down log prices in the near future.
Where Will the Market Go?
Landowners should monitor the market and look for price increases in specific species and grades. The next few years will require sellers to look into niche markets. Niche markets are times when the mills are looking for a particular species, product, or size class of log. Consider spreading out harvest entries, play the markets to maintain the highest net stumpage over a time period such as 5 to 10 years.
The log market fluctuates. It is down now but it will come up. When it will rise is difficult to predict, but little to no change is expected for the third quarter 2003. Some improvements can be expected first and second quarter of next year, but the increases are expected to be small until the region’s sawmill production increases or the log supply decreases which is not expected in the near future.