Log and lumber prices aren’t expected to be as volatile in 2019 as last year, but experts still aren’t bullish about the timber industry’s economic outlook.
After hitting a record high of $564 last June, the price per thousand board feet of framing lumber dropped 40 percent by the end of the year, to $335, according to the Random Lengths market information service.
The shift was brought on by tepid growth in housing starts, a strong supply of lumber and concerns about interest rates, among other factors that are likely to persist in 2019, according to timber experts at a Jan. 24 conference in Vancouver, Wash., organized by the Western Forestry and Conservation Association.
“The risks are outweighing the opportunities out there,” said Kevin Mason, managing director of the ERA Forest Products Research firm.
The good news is that consumer confidence is generally still positive and the U.S. gross domestic product continues to grow, he said.
However, the ongoing trade dispute with China and the recent government shutdown create economic uncertainties during a time of broader anxiety over the risks posed by Brexit, or Britain’s exit from the European Union, he said.
Such global nervousness tends to spur investment in U.S. dollars, raising the currency’s value and thereby impeding log and lumber exports, Mason said.
Another troubling sign is the declining interest rate for long-term bonds compared to short-term bonds in the U.S., he said.
When interest rates for long-term debt drop below short-term rates, it’s seen as a signal that investors are particularly worried about economic problems in the immediate future.
Such an “inversion” has traditionally been the best indicator of an upcoming recession, said Mason. “It’s not inverted yet but it’s getting awfully close.”
Prices for logs have slipped about 5 to 8 percent from their 2018 peak but can be expected to continue falling “not dramatically but slowly” due to the reduced demand for lumber, said Hakan Ekstrom, president of the Wood Resources International consulting firm.
“Obviously, that’s having a big impact on the the profitability of sawmills” and their willingness to buy logs, he said.
While tariffs imposed by China could further hinder exports and make more logs available domestically, some landowners may hold off on selling logs due to price declines in the lumber market, said Ashlee Cribb, chief commercial officer at Roseburg Forest Products.
“It made everyone take a step back,” Cribb said of the lumber price drop.
Home-building ultimately has an impact on demand for logs and lumber, but prices for wood products don’t necessarily track housing starts neatly, said Mendell. For example, housing starts in 2018 were up 5 percent over the previous year even as lumber prices fell.
Log and lumber prices in 2019 may be influenced by broader forces than the usual supply and demand factors in the timber industry, he said. “The thing I’m most concerned about is the economy beyond our sector.”
“When there’s uncertainty, people don’t buy houses,” added Ekstrom.