Lumber prices have been on a roller coaster since the pandemic. They skyrocketed to a record high in May 2021, about quadruple the pre-pandemic five-year average prices, retreated swiftly over the summer, and started to surge again since mid-September. Lumber prices have made headlines and even been addressed by the Federal Reserve Chair. The South is often considered the wood basket of the country because of its significant role in wood supply. People would naturally think that southern timber prices increase dramatically as lumber prices soar because sawmills use timber as raw material to produce lumber. Timber prices and lumber prices are even used interchangeably by some news reporters. However, lumber and timber products are governed by different demand and supply factors.
Despite the marked rise in lumber prices, timber prices in the South have barely increased in the past two years until recently. According to TimberMart-South (TMS), the average southern sawtimber price (nominal) hovered around $23-25/ton from 2010 to 2020, compared with $37/ton in 2007. The southern timber market was among the hardest hit by the 2008-2009 economic recession. Roundwood harvest in the South dropped more than 30% compared to the peak in 2007 and timber prices declined more than 40%. Most mills curtailed their production. Some less efficient mills closed permanently. Trees continue to grow vigorously no matter what is going on in the economy. As a result, a significant volume of sawtimber has been accumulated on the stump over the past decade. Although demand for timber products has gradually improved with improvement in the housing market, the amply supply of standing timber has put constant downward pressure on timber prices in the region.
Fortunately, landowners have started to see a gradual increase in timber prices in 2021. Timber prices across the South averaged at $26.24/ton in the third quarter, a 15% increase year-over-year. In some parts of the region (e.g., South Georgia, Florida, and East Alabama), the prices could be more than $45/ton due to strong demand from local sawmills. Record high lumber prices and continued improvement in the housing market support investment in sawmills. Softwood lumber production capacity in the South has increased 2.9 billion board feet (bbf) from 2017 to 2020, an increase of 16%. Newly announced greenfield construction and existing mill expansion suggest that the capacity could increase by another 3.0 bbf by 2023 (TMS). Canadian firms account for most of the increase mainly due to the high timber costs in Western Canada. This is good news for private forest landowners in the South since the increased demand is likely to translate into higher timber prices.
Whether the recent rise in timber prices can be sustained largely depends on factors from the demand side. Positive signs include a stable growth in single-family housing starts, continued increase in home improvement and repair expenditures, sawmill capacity expansion, and recovery in log exports. Additionally, the U.S. Department of Commerce recently announced that it will double the tariffs on Canadian softwood lumber to 17.9%. This may push U.S. domestic lumber prices even higher but may also accelerate the pace of Canadian firms’ investment in southern lumber mills. Overall, standing timber prices are expected to hold their recent strength in the near term. However, supply chain disruptions and labor shortage in the logging, transportation, and sawmilling sectors add uncertainties to the market.