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Timber and Forest Products Markets after Katrina - Society of Wood ...

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Post HurricaneForest Market OutlookJune 25, 2006Society of Wood Scienceand TechnologyNewport Beach, CA


Extension ProfessorMSU Department of Forestry


Where We’re Headed TodayReview DamageSalvage ProgressCheck Price AveragesOutlook for Industry SegmentsLong Range FutureSome Conclusions


PerspectiveOutlook not predictions. Let’s look atthe current landscape togetherLooking at stumpage markets, notdelivered, from the privatelandowner perspective.Individual firms and industries havetheir own perspective that is specificto them.


Damage Review


RitaSept. 21,2005KatrinaAugust 29,2005


Hurricane Damage SummaryVolume (billions bf)AlabamaMississippiLouisianaTexasTotalKatrina1.110314.1Rita1.72.13.8


“Connecticut/Delaware”Hurricane Damage SummaryAlabamaMississippiLouisianaTexasTotal”Damaged” AcresKatrina500,0001,300,0001,000,0002,800,000Rita400,000(est)435,000835,000Total 3.63 million acres


Salvage Progress


Salvage Progress ReviewReporting a bit “Sketchy”, to dateAll states have Recovery/Salvage taskforces in place, mostly throughassociationsTexas best reports. MS and LA lessformal.Logging costs up 30%There is a shortage of logging capacity.


Salvage Progress ReviewIn Texas as of late December:43% (667 million tons) of Pine Sawlogs33% (106 thousand tons) of Pine PwdSalvaged.Few LA specifics.


Salvage Progress ReviewIn extreme southeast MS:Situation gloomy for NIPFs. Companiesbetter off.Mill yards and extra storage yards are full.Prices are low and loggers are scarce.Downed timber salvage chance ending.Market glutted. Some “green” salesstarting. Some estimate 25% salvaged.“Pulp market will remain low for 2 years.”


Salvage Progress ReviewIn central MS:“Salvage timber turning to pulp and millsfull.”“Pine sawtimber prices starting back up‘cause mills need green wood to run withbad quality (salvage) trees.”“The market needs rain. Too dry”.


Salvage Progress ReviewThe reality is that much damaged timberwill not be salvaged and landowners willhave to recover losses by tax credits.70 to 80 % of the damaged timber will belost.Industry mills continued to produce afterthe storm. PNIFs will bear the brunt of thelosses from the storm.


Regional Prices


The Katrina / Rita EffectHurricane Katrina affected the entiretimber market in Mississippi,Louisiana and Texas. The impactcontinues today. This effect willlikely persist at least until late 2006.


Timber Prices Respond


Timber Prices Respond“Southern pine stumpage submarketsare informationally efficient and thatprices adjust efficiently to newinformation within the reporting period(2-3 months).”Prestmon and Holmes. 2000. Timber Price Dynamics Followinga Natural Disaster. J of Ag Economics. Vol 82 pp. 145-160


Timber Prices Respond“Catastrophic weather events cause ashort term supply pulse associated witha negative price spike and a long-runenhancement to residual forest stock.”Prestmon and Holmes. 2000. Timber Price Dynamics Followinga Natural Disaster. J of Ag Economics. Vol 82 pp. 145-160


Pine SawtimberStanding $/Ton from TMSState/RegionQ1Q2Q3Q42005AveQ1 06F2MM/A06MS N48.1543.1640.9042.2443.6151.14MS S47.4145.4642.0638.8143.4442.3841.47LA N43.3440.4739.3942.8741.5246.69LA S38.1334.4635.9234.2535.6934.01TX N45.2642.8442.8440.6142.8940.48TX S46.9239.1339.8444.2142.5344.32


Price Signals in the Market:Stumpage markets as reported by TMSstill sorting out. Prices have clearlydropped in effected areas. Are marketsrecovering yet?Better pattern should be evident in2nd Quarter 2006 figures after June.Individual players in submarkets differin their description of the currentmarket.


Industry Segment Outlooks


Pine Sawtimber MarketsMost important market forhurricane damaged areas - bullish2005 a new high softwood lumberdemand of 63.6 bbf –3% above2004 record high of 61.8 bbf.Southern pine lumber productionestimated at 18.3 bbf for 2005.That’s 1% above 18.0 in 2004.


Pine Sawtimber MarketsHousing forecast to slow – again -butfrom record levels.The South has the hottest housingmarkets: Atlanta, Houston, Dallas,Miami“Even as U.S. housing starts cool,demand for housing in the South isexpected to remain strong…” RLYardstick


Katrina Future ReconstructionHurricane Katrina destroyed 7 times thenumber of homes in 3 LA parishes(184,000) than Hurricane Andrew did in1992. Andrew was previously thehurricane with the worst damagerecord.


Formosan Termite Factor


Treated Lumber Market Boost?Did Katrina flooding spread Formosantermites? “Probably not, but…45 to 50% of all SP lumber getstreated.New building codes being created nowfor hurricane reconstruction.Termites are a major consideration inthe codes.


Paper Industry OutlookUS paper industry increased productiononly one year (2004) from 2000 to 2005.2005 saw restructuring, cuts and “goingprivate”.In 2005, nearly 6 million tons ofcapacity was removed from the NAmarket. Mostly up north and Canada(but some in LA and TX).Retrenching not over. More in 2006.


Industry Segment Outlooks 2006Pine lumber and panels should be solidon housing, hurricane and generalconstruction.Pulp and paper should be sluggish tosteady as industry restructures andhurricane pulpwood is plentiful.Hardwood industry should be solid onstrong demand for low-grade lumber,RR ties, industrial timbers and cabinets.


What about the Future?“Macro Trends” Still inForce


Trends in Southern Forestry


History Makes the SouthImportant in Forestry


1930 - Today1820-18801620-18201880 - 1930Using US Forests has been migratory over 300 years


Today, the South is the LeadingTimber-Producing Region in the US“The South has the mostintensively managed forests inthe world.”“This one region producesmore wood products than anyother single nation.”From: Southern Forest ResourceAssessment, USFS, Summary Draft,Dec., 2001


RPA Reports“Looking Ahead: An Analysis ofthe Timber Situation in the U.S.1957 - 2050” by Richard Haynes.National Woodlands, July, 2000


“…but softwood lumberproduction will increasinglyshift to the South and thePacific Northwest after 2015.Pulp, paper and paperboardproduction will increaseprimarily in the South, andmainly in the South-centralpart of that region.”“Looking Ahead: An Analysis ofthe Timber Situation in the U.S.1957 - 2050” by Richard Haynes.National Woodlands, July, 2000


“Overall, these projections seemto bode well for nonindustrialprivate woodland owners in theUnited States. Despite regionalshifts in demand and productionof various forest products, pricesand markets should remainstrong and a flood of importedtimber does not appear likely tooverwhelm domesticproduction.”“Looking Ahead: An Analysis of theTimber Situation in the U.S. 1957 -2050” by Richard Haynes. NationalWoodlands, July, 2000


Southern Forest ResourceAssessment, 2001Forest Area StableTimber Production WillExpandPine PlantationInvestment Will IncreaseTimber Production ShiftsWestIncreasing Demand ForRecreation


Long-Term Outlook for USTimber and Forest ProductsSoftwood lumber and OSBconsumption will grow torecord levels by 2050.Pine stumpage prices willremain stable andhardwood prices will rise.Environmental pressureswill rise in the South.


Human Influences on ForestEcosystemsThe SouthernWildland-UrbanInterfaceAssessmentNovember, 2002


Human Influences on ForestEcosystems“Between 2000 and 2020the South’s population isprojected to increaseanother 23.8 million”.“…outdoor recreationparticipation expected togrow faster thanpopulation for 60%of allactivities tracked.”


Recreational and EnvironmentalValues Are Rising


Recreational and EnvironmentalValues are Rising•Realtors report that demand forrecreational land, primarily for hunting,is strong.•TimberMart South reports that theaverage hunting lease in MS/LA in early2004 was $3.75/acre with a range of$2.20 to $6.50. Some much higher.


Forest Investments AreFinancially AttractiveFinancial Organizationssuch as Pension funds,Banks, InsuranceCompanies andEndowments are buyingtimberland.“TIMOS”Attractive ROI is drivingthis change


The Conclusion to this story is:1. Mississippi forestland remainseconomically important and valuabletoday for timber and more.


The Conclusion to this story is:2. Mississippi has good timbermarkets and prices today (thoughrecovering).


The Conclusion to this story is:3. Markets for the future arepredicted to be steady


Headline: Dr. Bob Daniels Retiresfrom MSU!Timberland Investment SpecialistReg. Forester #1012, Realtor662-323-9292Bob@century21starkville.comFormer MSU Professor of Forestry, Fellow, Society of AmericanForesters


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