cole sykes
Alabama Cooperative Extension System
AUBURN UNIVERSITY — After a rocky 2023, Alabama's lumber market is expected to start heading in the right direction in 2024. However, as the year progresses, there are several factors to keep an eye on. A forest economist with the Alabama Cooperative Extension System said landowners need to know what the market is like this year.
weakest link
There is a saying that a chain is only as strong as its weakest link. When it comes to the Alabama timber market supply chain, the chain is strongest when the ratio of timber supply, demand, input costs, capital investment, and accessibility is optimal.
Adam McGard, an associate professor of forest business and economics at Alabama Extension, said the state is dealing with an oversupply of marketable timber.
“Alabama continues to face timber supply issues in terms of oversupply,” McGard said. “Depending on how much of the supply goes and goes to market, the cultivated inventory of loblolly pine, which accounts for about 83% of the conifer cultivated inventory in the state, has more than doubled in the past 20 years. has increased to.”
A major factor in the market is capital investment. Over the past decade, capital investment in Alabama's forestry sector has exceeded $7 billion, reaching an all-time high of $1.3 billion in 2018. In the same decade, investment decreased significantly due to the impact of the new coronavirus infection (COVID-19). However, since 2020, these investments in the industry have increased year on year.
Most of these investments are in mill capacity improvements, new sawmills, and mills transitioning to producing high-demand products (currently paperboard and containerboard). Mr Maggard said there was also new investment in wood pellet mills across the state, which also reflected the southeast region.
wood price
On average, there has been a significant change in stump prices (the price of pre-harvest tree stumps) for well over 10 years.
“Stump prices remain broadly subdued and are not likely to change much, barring possible weather effects (wet weather events),” McGard said. “But the large surplus, the housing market, the economy, factory capacity and the weather are all economic conditions to watch heading into 2024.”
Other factors that can affect the price of stumps include competition, distance from the mill, plot size, tree species, and ease of access to the plot.
Recently, low demand for pine lumber forced prices to fall, but they eventually stabilized near the beginning of the year. As with pine and hardwood pulpwood, its prices fell significantly every quarter in his 2023. In fact, Maggard said pine pulpwood prices have fallen an average of 21% across the region. Some of the factors contributing to the decline include product shifts in the paper sector, increased utilization of recycled fibers, and increased supply of sawmill residue due to increased production capacity from recent mill expansions.
housing market
The housing market slowed throughout 2023. Negative factors currently impacting the housing market include rising mortgage rates, declining housing affordability, inflation, delays in household formation, labor shortages, and continued constraints in logistics and supply chains; Examples include bank failures in the United States. and global uncertainty (wars in Ukraine and Israel).
Most of the value-added forest products are used in the new single-family home construction sector. Rising mortgage rates have significantly increased monthly mortgage payments for this sector. This caused many buyers to exit the market.
“The impact of rising mortgage rates is clear, as total costs are falling with affordability. Therefore, total sales of new and existing homes will be lower in calendar year 2023,” Maggard said. said. “Overall, interest rates are expected to fall slightly in 2024, indicating a more favorable outlook. The desire to own a home continues to grow as mortgage rates fall and affordability increases. It continues to be a positive sign for a return to a strong housing market when it rises.”
Regional timber market outlook
Mr. Maggard shares a quick note on the regional timber outlook. The list below shows regional market trends.
- Softwood lumber capacity in the South is increasing thanks to new and improved mills.
- Softwood lumber production is projected to increase throughout the South.
- The region's hardwood production capacity has declined in recent years. This is due to the mill's transition to softwoods and increased production capacity for pine wood. Also, pine is cheaper and easier to obtain.
- Seven pulp and paper mills closed in 2022 and 2023. Three factories were converted to only recycling production facilities. As the largest pulp and paper producing region, this has cost him over 10 million tons of lost consumption.
- While the pellet and bioenergy market continues to grow, the demand for wood for pulp is decreasing.
- Logging jobs are declining and trucking continues to be an issue.
For more information
Alabama's timber market could have a productive year in 2024. As the month progresses, look for clues impacting the market, including further building developments, mortgage rates, weather events, and the economy. For more information on forest economics, check out Alabama Extension's Forest Business Resources program to learn how to maximize the potential of forests.
