U.S. Appalachian-region hardwood grade lumber prices increased rapidly in 2021 and 2022 as global economic activity rebounded following the Pandemic. The past two years’ run-up was also fueled by Chinese demand, excess global liquidity and generally-tight rural U.S. labor supplies, which have thwarted hardwood sawmills’ surge capacity. Prices have started to soften in the past month. And, current signs suggest further downward pressure on pricing in the short term. However, in the longer term, global population growth and overall resource demand paint a positive outlook for both the hardwood sector and the U.S. forest products industry as a whole.
Readers will note regional hardwood timber stumpage prices display a similar recent trend to hardwood lumber prices, but that the 2022 peak (above) is less pronounced when compared to the 2022 hardwood lumber price peak (prior page).
One reason for the slight recent divergence between hardwood lumber and hardwood timber stumpage prices is the strong recent increase in energy prices. Diesel fuel is one critical component impacting nearly every stage of the hardwood lumber supply chain. For that reason, we watch both lumber prices and energy prices closely. Above, readers will note that fuel prices rose coincident with U.S. hardwood lumber prices.
Although exports don’t comprise even a quarter of the market for U.S. hardwood logs, exports are one barometer of demand for U.S. hardwood forest products. While year-to-date volumes are off their 2018 recent-record high-water-mark, average price per cubic-meter did hit an all-time high, driven by a combination of real demand and supply-chain cost increases (labor and energy).
For nearly every year since 2002, Canada and China have been the top two foreign markets for U.S. hardwood lumber exports (Vietnam temporarily surpassed Canada for one year, during 2020). And, since 2009, China overtook Canada as the #1 foreign destination for U.S. hardwood lumber exports.
Hardwood lumber is the #1 U.S. forest products export, in terms of dollars. Exports are a considerable part of the overall U.S. hardwood grade lumber output. As such, hardwood lumber exports are a terrific barometer of hardwood industry demand velocity. Both volume and price display strong, recent, upward trajectory.
Just in case readers wondered if Dollar-Yuan exchange rates contributed the lions’ share of the run-up in average prices for U.S. hardwood lumber exports, the chart above suggests there’s little correlation between global demand (price) for U.S. hardwood lumber and Dollar-Yuan exchange rate – despite China being the #1 foreign purchaser of U.S. hardwood lumber exports.
Although foreign demand for U.S. hardwood logs and lumber correlate strongly (above) the relationship is nuanced, and is impacted by the types of logs foreign purchasers seek – which can evolve over time. The grey line magnifies the “lumber premium” foreign purchasers are willing to pay (vs logs), and is a function of several factors, including lumber species preferences, labor policies in foreign countries, tariffs, duties and veneer log demand (logs not intended for conversion into lumber).
The mid-2022 inversion in 10/2 spread (above) points toward a likely contractionary period for the U.S. economy, in the short-term.
Similarly, the Sentiment Survey data is pointing toward a contractionary period for U.S. GDP growth, in the near-term.
New housing starts have begun to slow, nationally. This further suggests U.S. forest products markets will face some headwinds in the near-term. However, general population and household/headship dynamics suggest strong housing demand in the longer term, which historically supports demand for all U.S. forest products – including hardwoods from our region.
Although the U.S. forest products industry – and the overall economy – each face some near-term challenges, long-term demand forces support a positive outlook for both traditional forest products and the non-forest attributes our northeastern hardwood forests provide.
As always, if you have timber you may be interested in selling, and want a long-standing professional forestry firm representing your best interests in the process, please don’t hesitate to call any of our FORECON offices.
Our foresters would be very happy to speak with you about the markets, and more importantly, your goals and objectives for your land.
Thank you for spending some time with us today.