Grand fir and western hemlock log prices fell dramatically earlier this year, and they have not recovered. Although the prices of other species (with the exception of cedar) are also somewhat weak, grand fir/western hemlock (GF/WH) log prices have dropped much farther. Why?
When this question is presented to industry experts, the same answers are echoed again and again—Canadian exports and market globalization.
We have heard this story before, but why is GF/WH being hit harder than other Inland Northwest species? The answer lies in the fact that from a global perspective, there is more wood available to compete directly with GF/WH. Specifically, the spruce/pine/fir species mix from Canada has aggressively overtaken U.S. markets (in spite of the lumber tariff) where our inland GF/WH species once prevailed. One lumber salesman mentioned that Phoenix, Arizona, once a market dominated by lumber from our area, is now being served by Canadian lumber. This shift has also taken place in Eastern markets where lumber from Europe and Canada has increased market share.
Douglas-fir/western larch has not suffered this same fate because less lumber is available on a worldwide basis that competes directly with these species. Also, Douglas-fir/western larch lumber fills a different niche—one that is more dependent on strength characteristics.
Increased competition from coastal western hemlock is another factor influencing Inland Northwest markets. According to Shawn Church, an editor at Random Lengths, Inc., production of coastal western hemlock has risen due to increased mill efficiency. In addition, more western hemlock is being absorbed by U.S. markets because of the waning export market. Although the same can be said for coastal Douglas-fir, again, there is less Douglas-fir available world-wide.
The bottom line is that the world is currently experiencing excessive lumber production. Many species are being impacted by this situation, but the GF/WH markets are suffering the most. Now that’s great if you are building a house, but it doesn’t help timber owners.
What does the future hold? There is not a lot of optimism out there. Because housing starts have been at all-time highs, the solution must come from the supply side of the equation, rather than the demand side. A settlement with Canada that significantly reduces the amount of spruce/pine/fir entering our country would increase GF/WH market prices. A revitalized export market would also help, but that is an unlikely occurrence.
On the other hand, it seems current log prices for GF/WH in our area are lower than justified by lumber prices. Many factors are likely influencing this situation including local GF/WH log inventories, complications with drying lumber (GF/WH take over 50% longer to dry than Douglas-fir/western larch) and the preference of sawmills to cut species with higher profit margins, such as western redcedar. It is our opinion that GF/WH log prices will trend upward, but that the gap in log prices between Douglas-fir/western larch and GF/WH will remain wider than pre-2000 levels.