By Mark R. Smith, Contributing Writer
Right up front, Jerry Tugwell makes a point that he and other forestry industry executives feel needs to be made.
Tugwell is president of Tugwell Consulting Forestry, in Asheboro, N.C. He makes his living managing timberland for private landowners, then conducts sales on their behalf to sawmills and other buyers. And he knows that the lumber markets in various regions of the U.S. are all different, thus have different results.
“All of the markets are specific to geography, so there is variance in their strength,” he said, while pointing that Asheboro as a prime location. “Even two hours east of here, the markets are not as good. But here in the Piedmonts, the market is very competitive, with more than 20 sawmills within an hour of me that compete for stumpage.”
Tugwell called that section of North Carolina, which lies about an hour west of Charlotte, “one of the stronger markets in the country.” Taking a broader view, he said “The southern U.S., from Virginia to Texas, is what people in the industry call ‘The Wood Basket of the World.’”
“I think that’s fair to say,” Tugwell stated, noting that North Carolina encompasses about 15 million acres of timberland and that the other southern states possess considerable and comparable resources.
Warren Peters gave a similar report for another region, the Gulf Coast, where five new sawmills are under construction and another reopened.
The region is “seeing strong expansion in capacity,” said Peters, a consultant with Peters Forest Resources, in Baton Rouge, La., citing new mills announced in Lumberton, Miss., by the Idaho Forest Group, with an investment of $120 million; and another by Claw Forestry, which will rise in Gloster, Miss., with an investment of $200 million. It should be operational in early 2024.
In Louisiana, Canfor Pulp has announced a new mill in DeRidder, north of I-10; Hunt Forest Products and Tolko Industries announced a mill in Taylor; and Teal Jones announced a new mill in Bossier Parish. In addition, Interfor purchased a former Georgia Pacific mill in DeQuincy that closed during a corporate consolidation and reopened earlier this year.
Those moves illustrate “the promise in this region,” said Peters. “We’re also seeing more mills announced in other parts of the Southeast, which are poised for growth due to a rise in housing starts, though I think we’ll see somewhat of a slowdown due to the Federal Reserve raising interest rates.”
While there is ample activity, he also said that there are “more excess resources in the Southeast. We’re growing more than we’re cutting,” which is partially due to there being less publicly-owned land in that part of the county. “It’s only 13 percent, according to the federal government.”
In extreme cases, Peters said, tree farmers “are growing two tons for every ton we cut. In most places in Southeast, we grow 1.4 tons for every ton, according to a U.S. Forest Service study.”
While having such ample supply is good for the manufacturers, it’s not for the landowners, “since supply is greater than demand. That keeps demand lower,” he said.
And speaking of supply, the supply chain has also affected the lumber industry. The issues started with the first part of the pandemic when the shutdown slowed production at the mills, as well as transportation. “Today, the mills are back up to running full steam, but I think the bigger issue now is transportation,” said Peters. “Diesel fuel prices are high, which affects the logs and lumber side. There is also a shortage of drivers.”
A year ago, it was the lumber prices that were up. “It’s been a roller coaster,” he said. “Today, wholesale prices are they’re still about twice what they were before the pandemic, though that which bodes well for retailers.”
Looking ahead, Peters thinks the market “will eventually move toward more balance between the log and lumber markets.”
“I don’t see much change during the next six months,” he said, “though lumber prices may soften due to the fed raising interest rates, which will result in higher home mortgage rates.”
Like Louisiana, neighboring Mississippi is part of the saw mill boom on the Gulf Coast, as Enviva is opening its fourth Mississippi facility by locating its manufacturing operations in the Bond community of Stone County, which is part of the Gulfport-Biloxi metropolitan statistical area. The project, which is slated to open in early 2025, represents a corporate investment of $250 million. Based on that news, Betsy Rowell, Executive Director of the Stone County Economic Development Partnership in Wiggins, supported Peters’ take on the region.
“The forestry industry is huge along the Gulf Coast and is powered by the wealth of natural resources in our region, and specifically in Stone County,” said Rowell. “The economic impact will be huge at $250 million total, starting with the construction phase. That will require approximately 300 workers to complete. And even with the dearth of workforce in our country, we will have an ample supply of people in our area who want these jobs. Our workers are accustomed to this type of project.”
Then once the mill is built, it will require “about 115 workers to operate,” she said, some of whom who are expected to relocate to the area due to its lower cost of living.
“The population of Stone County is under 20,000 people, so that gives you an idea of the economic impact of a project of this magnitude will have,” said Rowell. “The Enviva facility also will generate development in sister industries and benefit from our solid highway network due to our proximity to Interstates 59 and 10.”
When asked about industry trends, Roger Lord, principal with the natural resources consulting firm Mason, Bruce & Girard, of Portland, Ore., also cited lumber prices, notably a record-breaking spike.
“In the first half of 2021, lumber prices hit a record high of $1,500 per thousand board feet, whereas they had historically been in the $400-$500 range. This was due to mill worker shortages, freight disruptions and the supply chain issues we’ve heard about. But then they dropped like a rock, dipping below $500 by September,” Lord said.
Then came another spike later in 2021. “That peaked around this past March. It didn’t go quite as high, to about $1,300, but was still a huge upswing,” he said, noting it has dropped again to the $550-$600 range.
The volatile market is just a sign of strong demand for lumber. “During the peak of the COVID-19 pandemic, we saw what we call ‘over-the-shoulder’ demand that arose because so many people were stuck at home,” said Lord. “People spent lots of money on wood to build something in their backyard, a deck or a fence, just to keep busy.”
But in 2021, the unexpected lumber price surge “was fueled by stronger housing starts and homeowners who realized that they could work from home,” he said, many of whom moved to more rural areas, partially to avoid crowded cities. “In the West, we saw a migration from the bigger coastal cities, Los Angeles and Seattle, to smaller locales like Salt Lake City; Boise and Coeur d’Alene, Idaho; and Bozeman, Mont.” There were even a number of new residents in spots on the map “that seem like the hinterlands, like Bonner’s Ferry, Idaho.”
In addition to the COVID-19 flight, “the demographic trend of millennials reaching peak home-buying age to buy homes also spurred the market,” Lord said. “Also, the home building industry has been underbuilding homes since the last recession in 2008. Nationally, we’re short by three to four million homes,” said Lord, “but in 2021 housing starts reached 1.6 million, the highest rate since 2006.”
But today, due to inflation and mortgage rates that have surged above five percent, the housing market is leveling off, “with some buyers getting priced out and cancelling contracts,” he said. “So, the market for lumber is dropping back to normal levels.”
Other factors to consider in the Pacific Northwest include the 2020 wildfires, which burned one million acres in western Oregon. “Throughout most of 2021, it was a salvaging effort,” Lord said, “but with the high lumber prices, log prices stayed strong.”
With those salvaging efforts winding down, the region had record-breaking log prices earlier this year through most of May, even as lumber prices started to crash. “But we think with the higher mortgage rates will come a stabilization of lumber prices at a lower level, not much below where they are now,” said Lord, “and log prices will drift down, too.”
Heading south on the west coast to Eureka, Calif., James Able, president of Able Forestry Consultants, is also concerned about the effect that the Federal Reserve raising interest rates will have on the industry.
“I don’t know the full effect of what raising interest rates will have, but the last time they hit five percent-plus, the log and lumber prices dropped like a rock,” Able said. “Interest rates have remained down during the past two years to spur the economy during COVID-19,” which has spurred the strong log and lumber market.
Another ongoing problem Able said, has been the labor shortage. “We can’t get anyone to operate the machinery, drive the trucks,” etc. “So we’re having the same issue other industries are having.”
This issue has affected home builders. “Imagine after probably a couple of years of costs and delays, [the builder] finally get the permits,” said Able. “The next step is to call up to northern California or Southern Oregon to a lumber mill to get the lumber – only to be told can’t get the wood delivered no matter what they’re willing to pay.”
So while there is a huge pent-up demand, “Even as people have the money to buy the houses, the supply chain issues will curtail home construction,” he said, “and now with the interest rates rising, the price of the mortgage goes up hundreds of dollars more a month, and the home buyer is again stymied.”
“But in California, despite all the normal supply and demand problems, government overregulation goes on,” Able said. “That’s a constant.”
Like Lord, Able cited the wildfires out west as a market factor. “Some of what burned would have been timber we would have used,” he said. “The government reduced the sale of timber during the past years and that allowed a lot of dying and diseased timber to remain in the forest.”
Much of that dead material has helped spark many of the fires we’re seeing today. “Some burned timber can be salvaged, if logged, before the bugs destroy it” he said. “However, it must be treated and processed properly, which is expensive and time consuming.”
He also made the point that timber that is not processed correctly or in a timely manner can produce some ruinous results, “such as big bugs coming out of the woodwork of a newly-finished house,” Abel said, “and onto the owner’s grand piano.”
While some markets continue to flourish, others have faded away. Huntsville, Texas-based Lone Star Forestry is located on “the western edge of the Pinebelt,” said Wayne Pfluger, president, on the outskirts of the growing metropolitan Houston area.
Does growth sound good? It usually does, but not in this case. It’s a key reason that most of the mills in that region have shuttered during the past decade-plus.
“We’re among the few forestry consulting firms left in this area. Moving timber is difficult [here] at this time,” said Pfluger, noting that with the exception of one local sawmill, the next closest mills are about 90 minutes away, in Evadale and Corrigan.
The issue in that part of the country is access to processing facilities. “Contrary to what people might think, there are plenty of timber growing areas in Texas,” he said, adding that his company, which is located along the I-45 corridor that connects Houston and Dallas, has ample timber available, but low demand. That’s due to the lack of mills.
That issue, combined with the hit of high fuel prices, means “we have difficulty finding interested buyers to move the product,” said Pfluger, “so our part of the country is just not as strong as others for forestry and lumber. Our markets are depressed due to that population growth and the ensuing mill closures.”
He said the lumber market “is economical when the land owner has at least 50 acres to work with, but when that land is parceled down to small sizes for residential and commercial development, it becomes uneconomical,” noting that successful mills generally operate “in more rural areas.”
So with the continued growth of the Houston Metropolitan Statistical Area, “I don’t see any more mills opening nearby. That means that we have to find other niches for our landowner base to be successful,” Pfluger said, like working with solar farms companies, wetland mitigation banks and carbon banking, to name a few, that also need accommodations around Houston.
And that, he does. “My clientele is roughly 250 private non-industrial forest landowners and we manage about 150,000 acres, but my company is more about land management. Forestry is part of that, but we’ve had to evolve to serve our client base in the local market.”
Key to Lone Star’s approach, Pfluger said, is learning how to save clients money through other means, such as savings on their property taxes.
So, as Tugwell said, different companies in different markets work in different ways. In the case of Lone Star, very different.
“The companies in the forestry consulting business are a diverse group. That’s due to regional, and even local, needs and uses of timberland. We all have different specializations, due to these regional and area differences,” Pfluger said. “While we’re much the same, it’s always interesting to learn and share what others are working on.”