Page 18 - Tree Line - North Carolina Forestry Association - Third Quarter 2023

How Markets React to
an Expanding Lumber Industry
By Shawn Baker, vice president of research, Forisk Consulting
Forestry is an industry of long time horizons, often measured over decades. While it is easy to focus on current market conditions
and short-term shifts, the wood demand and forest supply trends that impact pricing result from capital investment and forest management decisions made years earlier. Regardless of the current economic situation, the presence of
new, efficient sawmills and a supply of healthy, merchantable trees offer a more competitive hedge to cyclical housing and lumber markets. Therefore, it is helpful to look at longer trends to understand what drives timber markets.
North Carolina benefits from strong lumber markets as companies continue to invest in the state. As much as 1.5 million tons of additional sawtimber demand could come online through 2025 if Roseburg’s Roanoke Valley sawmill and Binderholz’s Enfield sawmill both achieve their goals. That would increase lumber capacity 24% in the state.
Other southern states experienced similar periods of lumber expansion. Alabama, for example, saw several
major sawmill investments from 2017 through 2021. Total sawmill capacity
in the state increased 64% from 2016 through the end of 2022 (Figure 1), during which North Carolina’s lumber capacity grew 9%. This coincided with a strong recovery in housing markets and a shift in lumber production to the South. Southern lumber production grew almost 30%. Proportionally, Alabama’s share of southern production grew while North Carolina’s proportion shrank.
Given the early investment in Alabama, we might expect sawtimber markets there benefited from the additional capacity. Instead, sawtimber prices at the end of 2022 were essentially unchanged from those at the start of 2016 (Figure 2). In contrast, North Carolina sawtimber stumpage prices rose 25% over the same
FIGURE 1 Alabama and North Carolina Lumber Capacity and Southern Softwood Lumber Production, 2016-2022. Sources: Forisk Consulting, Western Wood Products Association
FIGURE 2 Pine Grade Inventory on Private Timberlands in Alabama and North Carolina, 2016-2022. Sources: U.S. Forest Service, SOFAC, Forisk Consulting
16 ncforestry.org / THIRD QUARTER 2023
period. Only Florida sawtimber prices grew more in the South and only Florida and Georgia report higher current sawtimber prices. It would be reasonable to question why a state such as Alabama with so much lumber capacity growth experienced little price response.
The answer is supply, the flip side of the economic equation. Among the key reasons Alabama attracted investment
so early was the favorable timber supply situation. Despite growth in sawmill capacity, pine grade inventory (trees suitable for cutting into boards and other