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Timber markets offer hope, caution


 

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Posted: 9/11/2009

 

Mississippi’s timber owners are keeping a close watch on the national housing market with hopes that the worst economic times are behind them.

"Recovery in the U.S. housing market is key to Mississippi’s sawtimber markets, and it appears that the beginnings of a recovery are emerging," said James Henderson, forestry specialist with the Mississippi State University Extension Service. "Pending home sales and single-family construction have increased most months in 2009."

Although better prices will be appreciated, they remain a far cry from prices just four years ago.

"While timber prices should begin to move higher, it is unlikely that sawtimber prices will return to the price highs observed in 2005 anytime soon," Henderson said.

The timber industry has struggled since the peak of the housing bubble in 2005, the same year Hurricane Katrina hit south Mississippi, driving market timber supplies even higher.

Steve Butler, president of TimberCorp in Brandon, said after Katrina, he advised landowners to delay sales of healthy trees if possible. Now, prices are even worse.

"I’m still advising people not to sell unless they have an urgent need for cash flow or if the health of their stand depends on selling some trees," Butler said. "It may be a good idea to thin pulpwood, which is lower in value. Timber managers should watch for pine beetles and other problems because every day a mature tree remains standing, it is at risk from hurricanes, tornadoes, pine beetles and other obstacles."

Butler estimated the market downturn could last another 18 months to four years. He said landowners need to monitor the market closely and be ready to sell quickly.

"The rush to market when prices go up could prevent any drastic improvement," he said. "You would definitely want to be among the first to sell."

Butler said the four years post-Katrina skews the industry’s five-year average prices. Consultants typically look at the five-year average prices to make recommendations on selling timber.

"In the old days, the average was something close to $40 per ton for sawtimber," said the veteran consultant. "Today, it’s closer to $30 per ton."

Henderson said Mississippi prices for sawtimber and for smaller chip-n-saw timber are basically half of 2005 levels. He said prices may be slow to respond to the U.S. housing improvements, in part because of the number of Conservation Reserve Program pine plantations from the 1980s that are reaching maturity.

"The reviving housing market may have even fewer implications for the state’s hardwood sawtimber markets," Henderson said. "With the primary housing market inducements targeting first-time home buyers, most of the newly constructed single-family homes will be smaller and use less quality hardwoods for kitchen cabinets and flooring."

Henderson said the recession did not hit the pulp and paper industry until October 2008 when consumption plummeted. Price declines are near 30 percent below 2008 levels.

"Improvement in the pulp and paper sector combined with continued growth in the wood energy sector should improve and maintain a healthy pulpwood market in the coming years, which will be good news for landowners needing to conduct first thinning operations," he said.


Forestry