June 2, 2016 - By Kate Campbell - With U.S. new home sales rising 23 percent compared to the annual pace of 2015, California timber operators say they're guardedly optimistic about improving markets for harvested logs and lumber products. But they note the outlook can vary greatly, depending on the type of wood, where it's grown, forest health and market conditions.
(Left) The pace of wood processing is picking up in California, with mills such as Redwood Empire Sawmills in Cloverdale, above, receiving more log deliveries from coastal timber stands. Loggers say the market has improved but margins remain tight and forest conditions have been worsened by drought, which has contributed to the deaths of millions of trees in California forests.
Photo/David Van Lennep
"The timber market is better than 2008 when the recession hit, but it's not breaking any records," said logger Mike Anderson of Fort Bragg. "Margins now are exceptionally tight because of exorbitant costs of regulation, transportation and manufacturing."
There are many wild cards that can impact lumber prices, Wood Markets analyst Gerry Van Leeuwen said.
"A big element impacting the lumber price outlook will be the industry's schedule or strategy for putting curtailed or even closed sawmill production back online, not to mention whether log inventory companies are willing to build in advance of demand," Van Leeuwen said.
California loggers are back in the woods and busy, Anderson said, noting current market log prices are generally up about 15 percent compared to last year as forest harvest season gets underway.
"There's more work because there are fewer people in the business now compared to 2008," Anderson said, "and fewer people are willing to make the investments necessary to create jobs in California's forests because of regulatory and economic uncertainties. That said, the market is better."
New home sales in April were the strongest they've been in more than eight years, government surveys found, but that doesn't necessarily translate into increased demand for California lumber products, market analysts noted. There's considerable international competition, depending on the species of trees.
Currency exchange rates make Canadian imports cheaper than American wood prices, at the same time Chinese log imports have declined by about 30 percent because of a slowing economy, analysts at Random Lengths International reported.
Redwood Empire Sawmills area manager David Van Lennep described redwood prices as strong, better than last year.
Most of the company's products are sold in California and surrounding Western states. The company owns or manages redwood forests from Del Norte to Santa Cruz counties, said Van Lennep, who is Santa Cruz County Farm Bureau president.
"With the exception of red cedar, we don't have much competition from other species," he said. "We're running a longer single shift this year, because we're seeing a need for additional product, but it has been many years since we've run two full shifts."
Santa Cruz County forester Matt Bissell said redwood log prices have risen and landowners are seeing good returns.
"But with all of the drought mortality in the Sierra, the pine market is flooded and prices are low," Bissell said. "Some long-term landowners are losing money to get rid of the fire and beetle hazard."
Last fall, Gov. Brown issued an emergency proclamation citing the hazard posed by an estimated 22 million dead trees—and many million more likely to die this year—in California forests. Researchers for the Carnegie Institution for Science estimated last November that up to 58 million large trees in California are dying due to the state's ongoing drought.
State and federal officials currently are surveying for tree mortality and forest health, with updated results expected in coming weeks. Drought-stressed trees are susceptible to bark beetle infestations, which kill trees and cause a distinctive blue staining that greatly reduces the value of salvaged logs milled for the finished lumber market.
"Pine log prices are still low when compared to historical norms," Tuolumne County forest owner Shaun Crook said. "There's a huge supply of 'blue' pine (salvage logs from beetle kill) that has to be worked through the system before prices will improve."
Different species of trees are used for different portions of home building, said Crook, who is Tuolumne County Farm Bureau president, adding, "redwood lumber companies have a valuable niche market and have done a good job of marketing their products, when it comes to construction."
Larry Duysen of Sierra Forest Products in Terra Bella said, "We're always optimistic that markets will be favorable, but there will be plenty of lower-value logs on the market."
The logging and milling company has been in operation more than 40 years.
"In the past decade, timber supply has been a big problem," he said. "We had to cut our workforce in about half. But now, because of the glut of logs on the market from tree mortality in this region, there'll be more than we can manage."
In his area, Duysen said, he's seeing whole mountains and valleys of trees dying.
"I visit a tree one day, come back a week later, and it's dying," he said.
Mark Pawlicki, spokesman for Redding-based Sierra Pacific Industries Inc., said the company is seeing an uptick in lumber demand because of the recent increase in housing starts, but supplies are under pressure from Canadian lumber coming into the U.S.
A key U.S.-Canada softwood trade agreement expired a year ago, and there are few controls on lower-cost Canadian lumber flowing into U.S. markets. Trade officials are working on a new agreement but have not announced a final deal, Pawlicki said.
"Another problem is tree mortality, particularly in the central Sierra, but we're seeing the bark beetles moving farther north and they are now being found in El Dorado," he said. "Right now, there's a glut of fire- and beetle-killed trees on the market and there aren't enough mills to take all those dead trees."
Some forestry experts suggested that deteriorating global market conditions and a severe lack of wood-processing infrastructure will make managing current levels of tree mortality in California forests extremely difficult. In addition to lost economic benefit, they said the situation enhances the risk of catastrophic wildfire.
(Kate Campbell is an assistant editor of Ag Alert. She may be contacted at firstname.lastname@example.org.)
Reprinted with permission: California Farm Bureau Federation