Page 18 - Tree Line - North Carolina Forestry Association - Fourth Quarter 2020

SYP KD Weighted MBF Lumber Price 2016-YTD 2020
deviate significantly from intrinsic values. This combination of events has
resulted in a tremendous supply gap in the market. As lumber producers ramp up capacity and attempt to match production to current demand trends, there will continue to be volatility before the supply/ demand relationship equalizes and the lumber market finds its footing.
NC Stumpage Markets
Southern timber markets have remained remarkably steady since the Great Recession. Make no mistake: There have been periods of high volatility, runs on specific forest products, and pockets of intense competition throughout the South, but overall, the stumpage market seems
to always find its footing and return to a state of equilibrium.
Over the last decade, sawlog demand from mills has not tracked with the
rising demand for lumber. During the years immediately following the Great Recession, the surviving mills became much more efficient at sawing timber, which ultimately allowed them to use less wood in the lumber-producing process. These mills adapted to the market and learned to do more with less, which
has kept log demand muted despite an improving housing market.
That’s not to say the situation has been 100% predictable in North Carolina. Prolonged periods of wet weather (and a hurricane) made timber tracts that were previously purchased simply unworkable by the fourth quarter of 2018 and into the first quarter of 2019; the markets reacted
subcomponents of the RMI were well above 50. [Any number over 50 indicates that more remodelers view remodeling market conditions as good than poor.] The Current Conditions Index averaged 77, with large remodeling projects ($50,000 or more) yielding a reading of 70, moderately sized remodeling projects (at least $20,000 but less than $50,000) at 78 and small remodeling projects (under $20,000) with a reading of 83.”
Capacity Adjustments
Modern sawmills are remarkably efficient at meeting lumber demand by turning round logs into square boards while generating very little waste. But they are designed to run at capacity to maximize these efficiencies. An idled mill can take weeks to restart, fine-tune its supply chain, and deliver finished product to the market.
During the peak of the pandemic, many sawmills were forced to temporarily curtail or close, thereby removing a sizable chunk of capacity from the market almost overnight. Those manufacturers who were able to keep working had to do their best to match production to a considerable shift in demand. But what was anticipated to
be a huge drop in demand was, in reality, a short-lived dip as the remodel sector buoyed overall demand. By the time mid-April rolled around and U.S. lumber
output had slowed, Canadian lumber shipments to the U.S. — which make up a significant amount of U.S. supply — were also down by nearly 20%.
Market Speculation
As production capacity has fluctuated, demand patterns have changed, and the lumber manufacturing sector has been chasing a moving target ever since early spring. For wholesalers and purchasers
of finished lumber, who typically buy inventories many weeks in advance, the situation has created a sense of desperation
“During the peak of the pandemic, many sawmills were forced to temporarily curtail or close, thereby removing a sizable chunk of capacity from the market almost overnight.”
16 ncforestry.org / FOURTH QUARTER 2020
that has resulted in panic buying.
They, too, are chasing a moving target
as they try to secure a share of limited inventories while staying one step ahead of the competition and maintaining build schedules. When this kind of panic grips a commodities market, it often spins into a speculative scenario in which prices
accordingly and sent stumpage prices soaring as a result. Harvesting crews put these tracts on the back burner and moved to workable tracts to maintain production. However, when the wet weather subsided, these crews simply circled back to work the previously purchased tracts that had dried out.