Abundance Of Timber, Slower Housing Market Forecast Keeps Prices Soft, Cuts Margins For Loggers
MARY HIGHTOWER
MONTICELLO, ARKANSAS
A nearly twofold increase in standing timber in Arkansas, coupled with a decline in housing demand, is keeping prices soft and tightening margins for loggers, according to economists at the Arkansas Center for Forest Business.
FreddieMac noted in its June outlook that the housing market slowed in April due to the return of higher mortgage rates, hovering near 7 percent. Total home sales for April fell 2.3 percent from March and were down 2.7 percent from a year ago.
Existing home inventory rose 16 percent year-over-year to 1.21 million units and new home inventory is at its highest level since January 2008, FreddieMac said.
Declines in the National Association of Home Builders’ Housing Market index indicate poor building conditions over the next six months, and FreddieMac said “the primary driver of the decline was attributed to higher mortgage rates.”
Last month’s report said that “net timber growth continues to exceed harvests by 25 million tons annually” with total standing timber in the state nearly doubling since 1978.
Hesitant to cut
Nana Tian, an economist and associate professor at the University of Arkansas at Monticello, said, “the strong supply of timber in the South – including Arkansas – has existed for a long time. The decreased timber prices – especially after the Great Economic Recession of 2008 – makes lots of landowners hesitant to harvest.
“The predicted housing starts decrease contributes to a relatively decreased demand in timber, so combined with a downward trend in both demand and market price, the timber supply is very strong,” she said. Tian provides analysis and conducts research for the Arkansas Forest Resources Center, part of the Arkansas Agricultural Experiment Station. The experiment station is the research arm for the University of Arkansas System Division of Agriculture.
This “wall of wood” is exerting downward pressure on timber prices.
Typical prices for pine pulpwood in Southeast Arkansas are less than $2 per ton. Prices often dip below $1 per ton as delivery prices tighten and logging costs are affected by inflation and unpredictable limits on mills accepting timber, according to the Arkansas Center for Forest Business report.
“Compared to the last decade, that price has decreased,” Tian said.
With decreased demand, capacity at Arkansas sawmills has fallen to about 85 percent.
Forestry-dependent state
Arkansas’s economy is the most forestry dependent of all the southern states, with 4.1 percent of the state’s gross domestic product – or about $7 billion – contributed by forest industries, according to Matthew Pelkki, director of the Arkansas Center for Forest Business, and an economist with the Arkansas Forest Resources Center. Only Wisconsin has a higher percentage of economic dependency on forestry in the U.S.
The report said that “the outlook for 2024 is at best, stable.”
“With uncertain economic conditions, global unrest in major energy and fertilizer producing regions, an election year, and a decline in predicted U.S. housing starts, the Arkansas forest industry will see little to no growth in 2024,” the report said.
However, “if the economic landing on inflation is ‘soft’ and the country does not go into a recession, some minor growth in 2025 is possible.”
Tian said factors that could help strengthen the industry include embracing climate-resilient solutions, such as creating a wood product-friendly consumer base, contributing to bioenergy projects such as biomass-to-electricity, combined-heat-and-power generation, and wood pellet segments. Tian said renewable projects that include liquid biofuels and biochar are increasing.
The timber industry in Arkansas suffered a hit this summer when AHF Hardwood Flooring announced it was idling its plant in Warren. AHF said in a news release that they would retain ownership and restart it if conditions were right. The plant employed 130 people. ∆
MARY HIGHTOWER: University of Arkansas