Timber Prices

November 2012-Timber Market Update

November 2012

Timber Market Update

by Dr. James Henderson, Extension Forestry

Timber harvesting activity over the third quarter was up and, given the relatively dryer weather over the past two months, most mills around the state now have adequate timber inventories. As a result, demand for pine sawtimber was down as mills implemented quotas on timber deliveries. The impact on pine sawtimber stumpage prices for Mississippi, as reported by Forest2Market (available MSUCares.com/forestry), decreased sharply to $24.26 for the third quarter of 2012. Prior to the Fall of 2012, Mississippi had experienced four consecutive quarters of sawtimber price increase. Given the recent improvement in the national housing market and the increase in residential construction, which is expected to maintain a positive trend over the next several years, demand for sawtimber should resume in earnest later this year and into 2013 as lumber mills increase production. However, stumpage prices will not necessarily increase greatly over the next several years as timber inventories in Mississippi are high.

Estimates from the Mississippi Institute for Forest Inventory indicate increases in standing pine sawtimber of over 43% since the beginning of the U.S. housing bubble collapse. It will take several years to reduce this inventory once demand for timber increases following continued improvement in the U.S. housing market.

It appears that the U.S. housing market is on the path to recovery. Housing starts and permits, a leading indicator of construction, are up by 30% from last year. Also, both new and existing home inventories are at lows not seen since the peak of the U.S. housing bubble. These are all positive indicators that demand for timber will be expanding over the next few years. However, as indicated in the July 2012 Timber Market Update, it is reasonable to assume that it will be several years before we see significant gains in pine sawtimber stumpage prices given both the demand and supply side issues facing Mississippi's timber markets. Having said that, it is safe to say that the path to recovery for our timber markets is underway.