Current Timber Times
I am a millennial timber and land man, or a forestry consultant, age 31. I was graduated from college right after the economy crashed and sawtimber prices followed. I have heard stories from the glory days of $45/ton stumpage in chip-n-saw markets, but I have never sold any for more than about $15/ton.
During my time working in central Alabama, our market opportunities have been weak and bleak. Most of the land I manage has had one market opportunity for CNS logs, essentially forcing my clients to be price takers, not price makers.
In late 2016 there seemed to be some rustling around in the sawmilling sector. The rumor mill started running about existing facilities and planned upgrades that would allow for more production. In other words, they would be buying more wood. Not too long after that there were a few announcements and new mills, and, boy, us guys on the management side were tickled. More markets!
In hindsight, it seems like the initial announcements of upgrades started a snowball effect. Now, two years later, I wake up half-expecting yet another announcement of another new sawmill. In the area with which I am most familiar—Birmingham southward and extending into west Georgia and east Mississippi—most of the major mills have upgraded and expanded production. The holes that used to riddle that wood basket are now being plugged with new output. Where I used to have just one outlet for my clients’ pine logs I will soon have three or possibly four, all accessible within a reasonable distance.
Upside/Downsides
The sawmilling expansion we are experiencing is unprecedented. At the surface, I can’t help but be excited. My clients put a lot into growing their wood and managing their land, and they truly deserve to be paid more for their wood than $15/ton. Perhaps it’s my training as an ag economist I received at Auburn University that frames my outlook, but I can’t help fretting over the downsides that people are just now comprehending.
At the beginning of this sawmill expansion program, I spoke with a close friend and major dealer/harvesting contractor in our area. He stated: “Hunter, for every 100 tons of sawmilling capacity we put on in the modern era, that effectively adds 30 tons of chips to the pulp market. And to date the projected sawmill upgrades and starts (in our area) will add five million tons of log demand. You do the math: two million tons of chips displaces about 40 full time thinning crews.” The gravity of that statement and what the consequences were hit me like a ton of pulpwood.
I have since lost count of how many announcements there have been in my area. Furthermore, there are still whispers of yet more to come. It stirs conflicting emotions in me. Sure, I want to sell wood for higher prices, and I want the mills to face competition, but what will happen to all the wood coming on, our growing stock for the future?
I spend a lot of time talking to old gray- and white-haired timber men. Their words of wisdom give me a perspective that belies my age. There are a couple of things I have gleaned from my discussions with them and from my own observations that we should at least consider.
In the short term, after new builds and upgrades are complete, there will be intense competition in the pine log market. Because mills will have to pay to get the wood, this will trickle down to the loggers who will choose to clear-cut log tracts over thinning because they can profit from higher margins. The existing logging force will be incentivized to move the majority of its resources to clear-cutting log tracts. In the medium term, logging capacity can be built back up to meet new demand. But even if we are able to do that, issues still exist.
Consequences
The paper industry, once a thriving sector carrying the wood business sector on its back, has consolidated and a few mills have closed. We are all too familiar with what happens when a paper mill closes, and timber people frequently speculate about which one might be strategically shuttered next. We are taking an industry that is on a downward slope and adding an “I’m afraid to add it all up” amount of chips to the aggregate pine fiber supply.
Pine pulpwood prices have been relatively flat for years and years and could further decline. We should be preparing ourselves for a big dip. How big? Your guess is as good as mine, but it will be significant, It will change the management of our forests and the day-to-day operations of our logging sector for an indefinite time.
In the medium term we can expand logging capacity, and if we are making enough money at the end of the rotation, in theory we could afford for thinning to become an expense whereas it has always been a revenue stream. Without thinning, Alabama and surrounding areas could, over time, host the biggest bark beetle feast there has ever been. But implementing costly thinning regimens results in the biggest industry issue. If we added new loggers and decided to pay for thinning instead of receiving income, there is still the question, “How will we get it to the mill?”
When I am around academics, I try to keep them grounded and remind them that none of their professional life exists unless a truck goes across the scales somewhere. Forestry in its entirety stops dead in its tracks without the trucks. Due to regulations, litigation, and societal factors, what was once an inexhaustible resource—truckers—has been very negatively impacted. I have read that insurance carriers are requiring two to three years’ experience before they will insure a driver. Most of the wood logistics people I know say their inventory is down 30% because they are not able to fill seats. But in this new regulatory environment, how do you even add new drivers?
Interesting times these are, and I can’t help but be concerned about all the wood we have coming on. We have to be able to grow, manage, thin, and transport it. We desperately need new outlets for pine fiber and we desperately need a solution to our logistics issues, but I am not sure that either will come. With this expansion we will enter a new era surely to be marked by feast in the selling of mature pine timber and famine in the growing and managing of young forests.