Construction
is key to growth By Ray Newbold Consumer product demands are precursors to manufacturing activity so in both growing and shrinking markets consumption provides some prediction of future activity. For the U.S. economy at large, the definition for a recession, two or more consecutive quarters of declining Gross Domestic Product (GDP), was not met until 2009. However, the forest products industry began feeling the downturn after a peak of softwood production in 2006. In the sustained period since then, new housing construction, home sales, home inventory in the real estate market and reduced manufacturing generally have continued to forestall an economic turnaround. Dr. Matthew Pelkki, George H. Clippert Endowed Chair Professor at the University of Arkansas-Monticello, School of Forest Resources, recently addressed the 26th Annual Ark-La-Tex Forestry Forum. Pelkki reported that 55 percent of wood sold in the United States goes to construction. With new home construction at 700 thousand units, down from a high of two million units annually, the impact on timber stumpage demand has been severely impacted. Although the supply of homes for sale has been reduced over the last year, many coming foreclosures are not yet into the supply statistics. Other influences that dampen prospects of a quick market rally are interest rates that will begin to rise at some point, inflation rates that will begin to increase, houses that will be smaller in square footage, and continuing unemployment that sustains a fear of spending money. Tree farmers who have watched the stumpage market know that the price correction for saw logs has followed the demand downward. Over the last six months, lumber prices have begun to turn upward which is a sign that demand for sawtimber will begin to turn as well. The paper market is still weak and Pelkki believes the closure of some U.S. paper mills is still likely. Pulpwood prices have not seen the sustained drop that logs have because paper mills, lacking the chip production from sawmills, have purchased more standing pulpwood to meet their fiber needs. Both pine and hardwood stumpage have experienced similar trends. Pelkki sees a long term situation that is more positive. The United States with its productive and privately owned forests can make an important contribution to global markets. Countries with a climate less conducive for tree growth along with economic systems that are less efficient will be prospective customers in the future. The southern U.S. has a particular advantage in productivity and ownership. Environmental impacts such as the mountain pine beetle in British Columbia will reduce production of wood products from that region for years. Also, several emerging markets will add to the diversity of wood use in the future. Biomass and biofuels are gaining acceptance and can utilize small, otherwise unusable fiber. There may never be a need for pre-commercial thinning (incurring a thinning cost with no income) of timber stands or for intensive vegetative competition control. Carbon markets may provide potential income, along with increasing use of modular housing units, wood plastics products, and niche markets for pharmaceutical products and extractives. Pelkki's message for tree farmers was to continue to manage forest land to meet circumstances and objectives of the landowner. Markets will rise and fall in cycles, but the long term nature of timber crops will, over the rotation period, hit some of the highs as well as lows and historically has shown the overall return on investment to be competitive and favorable with other investments. Other speakers to the meeting were C.A. (Buck) Vandersteen, current forestry issues; Bill Branch, water rights and regulation; Paul Spillers, coming changes in income taxation; and Bill Hubbard, national perspectives of the timber market. |