During the course of any given year, there are inherent fluctuations in demand for certain species for a number of reasons, but in general, current lumber prices, particularly the maples and to a lesser extent to oaks, have been strong since last fall. And since demand is a key driver in the value equation, it’s good to keep an eye on both the domestic and international markets that we are grateful to have for our quality hardwood timber resource.
Domestically, hardwood markets lag behind but somewhat closely track the softwood markets for framing lumber. As housing starts fluctuate, so go the softwood markets, and consequently the hardwood markets. Housing starts (as of January 2016) have reached 1.099 million, up from 1.08 million as of January 2015. The trend shows a slight up and down fluctuation monthly, but the overall trend line is up. Hopefully if this can continue we’ll see a solid strengthening of our hardwood markets.
Internationally, our hardwoods have always been sought after, as some of the best quality hardwood timber in the world grows inside our region. As discussed previously, the demand the Chinese have on our hardwood exports is significant, so it’s no surprise that China’s economy has some effect on our markets. Thankfully, we have a significant pool of international buyers of hardwoods, including Canada, the European Union, Mexico, Southeast Asia, Japan, and Korea that often complement and sometimes offset the fluctuating Chinese demand. Hardwood exports in 2014 hit record levels and while 2015 numbers are slightly down, 2015 appears to have been the second highest year ever for hardwood exports.
Below is a chart showing the increase in demand growth over a five year period for these major international hardwood customers:
Source:http://www.fas.usda.gov/data/money-does-grow-trees-us-forest-product-exports-set-record
Besides quality lumber consumers, other large consumers of hardwood lumber, especially the lower grade material, are in the pallet, railroad tie, construction pad and flooring markets. As stated previously, with the exception of flooring, over the last few years these markets have been strong and have provided a welcome base for hardwood lumber prices. The decline in oil and gas prices has slowed the development of those resources, and consequently slowed the demand for low grade hardwood material used for various exploration activities. There are however, a number of large gas lines being planned, which will require additional construction timbers for road pads but overall, it appears that low-grade hardwood prices may be vulnerable.
In a January 2016 publication, our friends at the Hardwood Review stated: “(Back in) 2012 Weekly Hardwood Review analysis found that low-grade – including flooring lumber, ties, cants, timbers, board road and crane mats – constituted nearly 57% of U.S. hardwood sawmill output.” Clearly, the low-grade markets are critical to the hardwood industry.
For the last few years ash lumber has been in high demand. More recently however ash prices have experienced downward pressure. This is potentially because of new European import requirements together with a large quantity of ash being harvested in advance of the emerald ash borer (EAB). The beetle has been found in pockets throughout the region and when significant populations are present they are quite damaging. Black cherry lumber prices have held steady and although we have heard of some positive signs for cherry timber (especially quality), prices remain historically soft and any recovery will be welcome. Sugar maple and red maple lumber prices have remained high, and both red oak and white oak lumber prices have improved over the winter.
Stumpage prices, while they generally follow lumber prices, are generally less volatile but heavily dependent on grade and logging conditions. Stumpage prices are also somewhat dependent on log inventories. Logging conditions have generally been favorable and log inventories are generally adequate, however signs of an early spring currently have loggers and haulers very busy. With better lumber prices and production concerns related to weather, stumpage have held steady. Quality sales and favorable conditions are still bringing a large number of bidders on our timber sale offerings.
Of particular concern is ash and the emerald ash borer. Our region is seeing quite a bit of ash mortality which can ruin a tree very quickly. If you have a merchantable amount of white ash we suggest you monitor your stand for EAB infestation. Many landowners have accelerated sales of ash timber and although prices have shown some weakness it may still be advisable to market your ash timber. Certainly any of our foresters can advise you of your specific circumstances.
On a similar note, the current market for black cherry timber and logs remains somewhat depressed. As with lumber prices, black cherry timber prices have not recovered to pre-recession levels and remain historically depressed. Many landowners have been hesitant to sell quality cherry at these depressed prices, however, in spite of this we continue to see quality cherry being placed on the market.
In summary, our region’s hardwood timber prices are heavily dependent on the domestic, export and low grade lumber markets, all of which show both positive and negative signs. Current stumpage prices are very similar to last year’s values with some optimism that prices are still improving, especially if lumber price trends continue upward.
Chuck Alexander
Director, Appraisal Services