U.S. wood markets are varied during COVID-19 response
Lumber futures markets showing bounce due to continued demand, low supply and housing needs
MADISON, Wis. -- The COVID-19 crisis has had ongoing impacts on timber prices and the economics of the forest industry across the U.S., but there were wide variations by region and specific industry.
There were indications of the beginnings of a rebound coming from the housing sector, with new home sales in the U.S. increasing by 0.6% in April from the previous month. The April, 2020 sales of 623,000 homes was 6.2% below April, 2019.
A low existing inventory of homes for sale and record low mortgage rates for 2020 were cited as reasons for continued demand, Lawrence Yun, Chief Economist for the National Association of Realtors, said in a May presentation to real estate agents.
Meanwhile, lumber price index-tracker Random Lengths’ futures prices have rebounded by 45% from a low on April 1 of this year reaching $356.80 per thousand board feet as of May 26. The price jump happened after some companies closed mills due to slack demand in March.
An indicator of future demand is coming from the housing sector. The NAR’s Yun predicted that new housing starts will bottom in this quarter ending June 30 and then rebound gradually.
Some Lake States markets, while impacted, were less affected by the economic downturn than other regions of the country. Early 2020 Forest Data Network index prices showed increases in hard maple stumpage prices in some northern Wisconsin counties. However, much of the pulpwood market in Wisconsin was severely depressed by a flood of salvage wood recovered after last summer’s tornadoes. Forest Investment Associates, which also tracks market information, noted the same hardwood trend in their first quarter newsletter: “Demand for hard maple was good while demand for birch and basswood was fair.”
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U.S new home contstruction jumps
U.S. new home construction in April grew over 6% in April over the same period last year, a positive sign amidst a month of severe decline in the broader American economy. However, new home construction of nearly $537 million for the month was down 4.5% from March, according to the announcement from the U.S. Census Bureau.
The statistics are watched carefully by mills nationally as they reflect the market for construction lumber, one of the most important products for the forest product industry. Lumber futures markets apparently sensed the good news, with the price increasing 9% during the month of May.
Pacific Northwest markets showed the effects of having an export emphasis as Weyerhaeuser, the giant of U.S. forestry business, suspended its dividend payments on May 1, and also temporarily suspended operations at some mills. The moves by the Seattle company were
“in light of continued significant uncertainty regarding the duration and magnitude of an economic slowdown and its effect on the company’s business conditions,” according to a company statement. The dividend will be resumed “as soon as practicable”.
Forest owners in the Northwest reported that the company had suspended most log purchases in the area other than on its own lands. Weyerhaeuser owns 12.4 million acres in the U.S. and manages another 14 million acres of land in Canada.
The company’s footprint in the Lake States was significantly reduced by its sale of 555,000 acres of timberland in the Upper Peninsula of Michigan in November, 2019. The land was purchased by the Lyme Timber Company of Hanover, New Hampshire. Lyme also purchased a block of 30,000 acres in Northeast Wisconsin.
Timberland owners in the area reported volatile pricing with varying demand from export markets impacting those prices. Trade tensions and Covid shutdowns in China affected that demand. And domestic demand leading to mill closures in the area had an impact on demand for logs in the domestic market.
In the meantime, dramatic events also had a big impact on the market in the Northeast U.S. The Androscoggin paper mill in Jay, Maine suffered an enormous explosion on April 17, closing down the entire complex. The mill is owned by Pixelle Specialty Papers, LLC, which purchased it this year from Verso. There were no deaths or serious injuries in the explosion.
The mill partially reopened two weeks later, but the pulp operation remained closed, having a negative impact on stumpage sales given the reduced market for inferior wood.
Two other trade issues are fouling up wood markets in New England. The Canadian border
Is largely closed. Mills in Quebec are a large part of the Northeast infrastructure in the forest business. The initial border closure began on March 21.
Export maritime shipments in the Northeast have been held up by a logjam of empty shipping containers clogging most Northeast U.S. ports. The slowdown of international trade has caused shippers to be reluctant to reload the containers back on to ships with markets uncertain.
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