Crazy Times in the Wood World

Spring 2021

Anyone who’s purchased a board in the last year knows that lumber prices are through the roof!! The Random Lengths Framing Lumber Composite Price index recently peaked at an all-time high of $1,044/Mbf (thousand board feet). This compared to $400/Mbf in March 2020.

What the heck is going on?

There are numerous reasons for this spike, not the least of which is the basic economic theory of supply and demand. On the heels of the COVID pandemic:

  • Sawmill shutdowns dramatically decreased lumber inventories;
  • COVID-related staffing shortages at mills that were operating resulted in an inadequate lumber supply to match demand;
  • At the same time a huge lumber demand was created by homeowners tackling remodel and repair projects,
  • And low interest rate financing fueled an unprecedented uptick in housing starts.

In other words, it’s a classic ECON 101 demonstration of low supply in a climate of high demand driving prices up (and up, and up).

Speculation is that these pressures will not soon be relieved and lumber prices will continue at historic highs into the summer.

Frustratingly for timber owners, log prices have not tracked with these inflated lumber prices. Again, supply and demand play a key role. In many areas of the country, including the Inland Northwest, there are more logs available than sawmills can process, so there’s little incentive to raise log prices since that action would just increase log deliveries and further flood already overflowing log yards.

Right now timber owners need to consider the long game and look to the future: The sawmill industry is healthy and has capital to invest in increased efficiency and equipment upgrades – steps that should pay dividends to the entire timber industry in the future. And over the last few months log prices have moved upward in the Inland Northwest at a modest pace, which has increased profit margins for timber owners. Prudent landowners should focus on the general health and vigor of his/her forest and take advantage of this trending upward market when appropriate.

 

-Mike Wolcott, ACF, CF