Doane Daily Cotton Commentary

DTN Grains: Opening | Midday | Closing

Nation’s economy works against timber industry

By Linda Breazeale

MSU Ag Communications

       MISSISSIPPI STATE (July 18, 2008) -- The mortgage crisis and high fuel costs are working against timber markets in 2008.

       James Henderson, assistant forestry professor with Mississippi State University’s Extension Service, said prices for pine pulpwood were increasing early in the year, but higher fuel costs are pressing midyear prices downward, and pine sawtimber prices have been trending downward since the summer of 2007.

       “Higher fuel costs drive up harvest costs. This year, those costs cannot be passed on because of the relatively low demand caused by the weak housing market,” Henderson said. “That cuts into profits, and many logging firms are already operating at or below the breakeven point.”

       Henderson said the Mississippi second-quarter average for pine pulpwood was $9.16 per ton, about 11 percent lower than the first-quarter average.

       “Demand for pulpwood is still strong, but the decrease is due to the rising cost of diesel,” he said. “Still, pulpwood prices are the silverlining in the timber markets. Trees removed from pine plantations during the essential thinning process are used for pulpwood,  and thinning is determined  by biological factors, not based on market conditions or the whim of a landowner. So the good news is that since managers need to thin stands anyway, the price is relatively good for that product.”

       Pine sawtimber, which was already at a low price, averaged $32.76 per ton during the same period, which was a 10-percent decrease from the previous quarter. Henderson said the low price and decrease reflect a lack of demand for lumber and plywood for new home construction.

       “We have a pretty high inventory of newly constructed homes and existing homes on the market. That means the supply of housing is high relative to demand,” he said. “New home construction likely will continue to trend downwards or remain level for six to 12 months.”

       Henderson said forestry’s downward spirel essentially began when the housing bubble burst in early 2007. From that point on, it became harder to secure a mortgage and more houses were going into foreclosure.

       “We can expect prices for sawtimber to remain depressed until demand for more housing construction kicks in,” he said. “We are looking at 2009 before we see much improvement.”

       John Auel, a research associate with MSU’s Forest Wildlife Research Center, said a number of logging firms operating now have reduced their crews and many have closed in past year. Mississippi has between 1,200 and 1,300 certified logging operations.

       “Firms with two or three crews will cut back to one crew or they may change when the buy new equipment,” Auel said.

       Joe Kemp, general manager of B&G Equipment in Magnolia, said sales have definitely been down, especially during the midsummer months. With four locations across the state, including businesses in Iuka, Philadelphia and Hattiesburg, B&G sells loggers equipment such as skidders, cutters and loaders.

       “Each month seems to get a little worse. Loggers are only purchasing in ‘must-have’ situations,” Kemp said.