The U.S. South’s Timber Sector in 2005 · The U.S. South’s Timber Sector in 2005: A Prospective...
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The U.S. South’s Timber Sector in 2005: A Prospective Analysis of Recent Change David N. Wear, Douglas R. Carter, and Jeffrey Prestemon ■ Except during very brief periods, total timber production grew between 1962 and 1998. ■ Between 1998 and 2002, total timber production declined by about 9 percent, back to 1995 levels. ■ Prices for softwood products declined between 1998 and 2004. For softwood pulpwood, the price decline was dramatic. By 2004, inflation-adjusted prices for softwood pulpwood had fallen to their lowest levels since 1997. ■ Prices for hardwood products had not turned downward through 2004. ■ Based on price and quantity patterns, we identify three phases of development in southern timber markets: a moderate growth phase from 1977 to 1986, a rapid growth phase between 1986 and 1998, and an adjustment phase between 1998 and 2004. ■ The moderate growth phase was characterized by expanding demand and supply. The rapid growth phase was dominated by growth in demand, which outstripped supply growth for wood products. The adjustment phase was dominated by declines in demand. ■ During the rapid growth period, hardwood sawtimber prices grew steadily but output grew only slightly. This suggests a possible contraction of available hardwood sawtimber inventories and supply. ■ Consumption of lumber in the United States has grown at a lower rate than housing starts, indicating some substitution away from lumber as a building material. ■ Both nonwood and engineered wood products have substituted for lumber in many applications. For example, the share of floors, walls, and roofs made with wood is about constant but there is a shift toward greater use of engineered wood products. ■ Electronic media are substituting for paper. ■ A majority of pulping capacity in the United States is located in the South, but this share has declined since the mid-1990s. ■ Pulping capacity in the South, an indicator of long-term demand, has declined by 16 percent since 1998. ■ Increasing world demand for paper products is leading to expansion in paper production capacity in countries other than the United States. ■ Shifts in capacity indicate that the United States has lost some of its comparative advantage for producing paper for the world market. Possible causes of this decrease in comparative advantage are disadvantageous resource and labor costs and location of the United States relative to major world demand centers. ■ Overall, there is no indication that domestic demand for southern pulpwood will increase. ■ Softwood lumber production capacity in the South has increased steadily in recent years (1997–2003). ■ Softwood lumber
Transcript of The U.S. South’s Timber Sector in 2005 · The U.S. South’s Timber Sector in 2005: A Prospective...
The U.S. South’s Timber Sector in 2005:
A Prospective Analysis of
Recent ChangeDavid N. Wear, Douglas R. Carter,
and Jeffrey Prestemon
■ Except during very brief periods, total timber production grew between 1962 and 1998. ■ Between 1998 and 2002, total timber production declined by about 9 percent, back to 1995 levels. ■ Prices for softwood products declined between 1998 and 2004. For softwood pulpwood, the price decline was dramatic. By 2004, inflation-adjusted prices for softwood pulpwood had fallen to their lowest levels since 1997. ■
Prices for hardwood products had not turned downward through 2004. ■ Based on price and quantity patterns, we identify three phases of development in southern timber markets: a moderate growth phase from 1977 to 1986, a rapid growth phase between 1986 and 1998, and an adjustment phase between 1998 and 2004. ■ The moderate growth phase was characterized by expanding demand and supply. The rapid growth phase was dominated by growth in demand, which outstripped supply growth for wood products. The adjustment phase was dominated by declines in demand. ■ During the rapid growth period, hardwood sawtimber prices grew steadily but output grew only slightly. This suggests a possible contraction of
available hardwood sawtimber inventories and supply. ■ Consumption of lumber in the United States has grown at a lower rate than housing starts, indicating some substitution away from lumber as a building material. ■
Both nonwood and engineered wood products have substituted for lumber in many applications. For example, the share of floors, walls, and roofs made with wood is about constant but there is a shift toward greater use of engineered wood products. ■ Electronic media are substituting for paper. ■ A majority of pulping capacity in the United States is located in the South, but this share has declined since the mid-1990s. ■ Pulping capacity in the South, an indicator of long-term demand, has declined by 16 percent since 1998. ■ Increasing world demand for paper products is leading to expansion in paper production capacity in countries other than the United States. ■ Shifts in capacity indicate that the United States has lost some of its comparative advantage for producing paper for the world market. Possible causes of this decrease in comparative advantage are disadvantageous resource and labor costs and location of the United States relative to major world demand centers. ■ Overall, there is no indication that domestic demand for southern pulpwood will increase. ■ Softwood lumber production capacity in the South has increased steadily in recent years (1997–2003). ■ Softwood lumber
About the AuthorsDavid N. Wear, Project Leader, U.S. Department of Agriculture Forest Service, Southern Research Station, Research Triangle Park, NC 27709; Douglas R. Carter, Associate Professor, University of Florida, Gainesville, FL 32611; and Jeffrey Prestemon, Research Forester, U.S. Department of Agriculture Forest Service, Southern Research Station, Research Triangle Park, NC 27709.
Cover photo: A beautiful spring day in the Southeastern United States is seen in this SeaWiFS image. Several smoke plumes are visible including
a rather large one that originates in Georgia, midway between the Savannah and Altamaha rivers. A good-sized plume of turbid water can also be seen flushing out of Mobile Bay. Photo courtesy of the SeaWiFS
Project, NASA/Goddard Space Flight Center, and ORBIMAGE.
January 2007
Southern Research StationW.T. Weaver Blvd.
Asheville, NC 28804
This first update of the Southern Forest Resource Assessment published in 2002 was produced in collaboration with the Southern Group of State Foresters.
The U.S. South’s Timber Sector in 2005:
A Prospective Analysis of
Recent Change
David N. Wear, Douglas R. Carter, and Jeffrey Prestemon
List of Figures ................................................. iv
Introduction .....................................................1
Recent Trends in the Timber Sector .................2
Harvest Quantities ............................................2
Timber Prices ...................................................2
Summary of Changes .......................................3
Key Observations—Recent Trends ..................4
Demand Factors ..............................................5
Competing Nonwood Products ........................5
Domestic Demands ...........................................6
International Trade in Wood Products ............12
Key Observations—Demand ...........................19
Supply Factors ............................................... 20
Competing Uses of Land .................................20
Land Ownership Changes ...............................24
Key Observations—Supply .............................24
Conclusions and Implications ........................ 25
Acknowledgments .......................................... 26
Literature Cited .............................................. 26
Appendix: Data Notes .................................... 29
Contents
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List of Figures
Figure 1—RoundwoodharvestsintheU.S.Southbyproduct.(Sources:U.S.DepartmentofAgricultureForestServicetimberproductoutputreports.)...................................................................................................2
Figure 2—RoundwoodproductionintheU.S.South,allproducts.(Sources:U.S.DepartmentofAgricultureForestServicetimberproductoutputreportsandseeappendixforexplanationofinterpolationprocedures.)..............2
Figure 3—RoundwoodproductionintheU.S.South,selectedproducts.(Sources:U.S.DepartmentofAgricultureForestServicetimberproductoutputreportsandseeappendixforexplanationofinterpolationprocedures.)...................................................................................3
Figure 4—RealstumpagepricesintheU.S.Southbyproduct.(Source:TimberMart-South.)...........................................................................................3
Figure 5—HardwoodpulpwoodharvestandpriceintheU.S.South.(Sources:TimberMart-SouthandvariousResourcesPlanningActtimberproductoutputreports.).....................................................................................4
Figure 6—SoftwoodsawtimberharvestandpriceintheU.S.South.(Sources:TimberMart-SouthandvariousResourcesPlanningActtimberproductoutputreports.)...................................................................................................4
Figure 7—SoftwoodpulpwoodharvestandpriceintheU.S.South.(Sources:TimberMart-SouthandvariousResourcesPlanningActtimberproductoutputreports.)...................................................................................................4
Figure 8—Engineeredwoodproductsproduction.(Source:TheEngineeredWoodAssociation.).............................................................................................5
Figure 9—Distanceinmilesbycountyfromtheforestedcenterofthecountytotheclosestpulpmillorchipmill.WhitedotsarepulpmillsandchipmillswithintheSouthernStates.NotethattheuniverseofallpulpmillsandchipmillswithintheUnitedStatesandacircuityfactorof1.4wereusedinthedistancecalculation.(Source:R.Huggett,preliminaryfindings,economicsofbiomassremovals,U.S.DepartmentofAgricultureForestService,ResearchTrianglePark,NC.).............................................................................................6
Figure 10—U.S.pulpoutputprocessingcapacity,1961–2000.(Source:Smithandothers2004.)................................................................................................7
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Figure 11—PulpmillcapacityintheUnitedStatesandtheU.S.South,1983–2003.(Sources:ForestResourcesAssociation;U.S.DepartmentofAgricultureForestService,SouthernResearchStation;Pulp&PaperNorthAmericanFactbook;andTimberMart-South.)....................................................7
Figure 12—Pulpproductionforvariouscountries,1995and2002.(Sources:Pulp&PaperInternationalandPaperloop.com.)................................................8
Figure 13—Averageannualratesofchangeinpulpproductionforvariouscountries,1995to2002.(Sources:Pulp&PaperInternationalandPaperloop.com.)..................................................................................................8
Figure 14—Kraftlinerboardmillsmanufacturingcosts,2003.(Source:JaakkoPoyryManagementConsulting.).........................................................................8
Figure 15—Deliveredconiferouspulpwoodprices.(Source:WoodResourcesInternational.).....................................................................................................9
Figure 16—Deliverednonconiferouspulpwoodprices.(Source:WoodResourcesInternational.).....................................................................................................9
Figure 17—Averagedistanceinmilesbycountyfromtheforestedcenterofthecountytotheclosestfivesawmillswithin150miles.BluedotsaresawmillswithintheSouthernStates.NotethattheuniverseofallsawmillswithintheUnitedStateswasusedinthedistancecalculation.(Source:R.Huggett,preliminaryfindings,economicsofbiomassremovals,U.S.DepartmentofAgricultureForestService,ResearchTrianglePark,NC.)............10
Figure 18—Softwoodsawmillcapacity.(Source:SpelterandAlderman2003.)...............................................................................................................11
Figure 19—PanelcapacityintheU.S.South.(Source:McKeeverandSpelter1998.)....................................................................................................11
Figure 20—Southernpanelproduction.(Source:TheEngineeredWoodAssociation.)......................................................................................................11
Figure 21—U.S.broaddollarindex.(Source:UnitedStatesFederalReserve.)...........................................................................................................12
Figure 22—U.S.tradeinwoodpulpandthebalanceoftrade(BOT).(Source:U.S.InternationalTradeCommission.)..............................................................12
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Figure 23—WoodpulpimportsintotheUnitedStates.(Source:U.S.InternationalTradeCommission.).....................................................................13
Figure 24—Woodpulpimportsintosoutherncustomsdistricts.(Source:U.S.InternationalTradeCommission.).....................................................................13
Figure 25—Woodpulpimportsintosoutherncustomsdistricts.(Source:U.S.InternationalTradeCommission.).....................................................................14
Figure 26—WoodchipsimportsintotheUnitedStates.(Source:U.S.InternationalTradeCommission.).....................................................................14
Figure 27—Woodchipsimportsintosoutherncustomsdistrictsindollars.(Source:U.S.InternationalTradeCommission.)................................................15
Figure 28—Woodchipsimportsintosoutherncustomsdistrictsintons.(Source:U.S.InternationalTradeCommission.)................................................15
Figure 29—WoodchipsimportsintotheUnitedStatesandthebalanceoftrade(BOT).(Source:U.S.InternationalTradeCommission.)...........................16
Figure 30—U.S.woodchipsexports.(Source:U.S.InternationalTradeCommission.)....................................................................................................16
Figure 31—U.S.woodchipsexportsfromsoutherncustomsdistrictsindollars.(Source:U.S.InternationalTradeCommission.)....................................17
Figure 32—U.S.woodchipsexportsfromsoutherncustomsdistrictsintons.(Source:U.S.InternationalTradeCommission.)................................................17
Figure 33—Sawnwoodimportsandthebalanceoftrade(BOT).(Source:U.S.InternationalTradeCommission.)..............................................................18
Figure 34—ExportsofU.S.hardwoodlumbertovariousregions(1989–2004).Source:ForeignAgriculturalServicewebsite(www.fas.usda.gov)..........18
Figure 35—U.S.lumberexportsfromsoutherncustomsdistricts.(Source:U.S.InternationalTradeCommission.)..............................................................19
Figure 36—Particleboard,orientedstrandboard,andwaferboardimportsandthebalanceoftrade(BOT).(Source:U.S.InternationalTradeCommission.)....................................................................................................19
List of Figures, cont.
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Figure 37—TotaltimberlandareaintheSouth...................................................20
Figure 38—Changeinforestarea1945–92byState.(Source:U.S.DepartmentofAgricultureForestService,ForestInventoryandAnalysissurveydata.).........20
Figure 39—Projectedchangeinpercentofforestbetween1992and2020bycountyintheSoutheasternUnitedStates.(Source:WearandGreis2002.)......................................................................................................21
Figure 40—Acresbyforestmanagementtype.(Source:U.S.DepartmentofAgricultureForestService,ForestInventoryandAnalysisdatasummarizedbyConnerandHartsell2002.)..........................................................................22
Figure 41—RealpricesofhardwoodandsoftwoodpulpwoodintheU.S.South.(Source:TimberMart-South.).................................................................22
Figure 42—TotalareaplantedintreesintheU.S.South,allownerships(industry,nonindustrialprivate,andpublic)andtheindustryownership.[Sources:1945–99:RobertF.Moulton(2000);2000–04:SteveChapman,GeorgiaForestryCommission(2005).]..............................................................23
Figure 43—TotaltreeplantingintheU.S.Southwithestimatesofbothexpansionandreplacementplanting(seeappendix)..........................................23
Figure 44—Forecastofthepercentofindustrytimberlandinalandconversion-valueclassinGeorgia,2010.(Source:WearandNewman2004.)...............................................................................................................25
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The U.S. South’s Timber Sector in 2005: A Prospective Analysis of Recent ChangeDavid N. Wear, Douglas R. Carter, and Jeffrey Prestemon
Abstract—Forest product markets are an important part of rural economies of the U.S. South, but recent changes in timber markets have raised questions about the future. Several factors have altered forest products markets since the late 1990s, including industry consolidations and associated changes in land ownership, changes in domestic consumption patterns and international trade patterns, and depreciation and closure of older processing facilities. The focus of this assessment of timber markets is on understanding how these and other demand and supply factors have affected the markets for various timber products. Our findings suggest that the demand for domestically produced timber products has declined somewhat in the United States, as domestic demands as well as exports have fallen. At the same time, the supply of domestically produced timber products has continued to expand since the late 1990s. The net result of these demand and supply changes may be (a) a decline in timber product output and (b) a disproportionately strong decline in associated prices. An evaluation of investment of wood products firms in manufacturing capacity within the region provides insights into future production potential. Paper production capacity has declined since the late 1990s, while lumber production capacity has remained near 1990s levels. Indications are, therefore, that demand for pulpwood to produce paper may not rebound to late 1990s levels in the foreseeable future. However, persistent low prices for softwood pulpwood could indicate long-term opportunities for the manufacture of other products from this product class. Long-term demand for solid wood products appears strong, signaling that a relatively favorable investment climate should exist in this part of the forest sector.
Keywords:Demand and supply factors, forest products markets, investment climate, long-term demand, paper production capacity.
Introduction
TimberproductionintheSoutheasternUnitedStateshasgrownbothinabsolutetermsandrelativetothatinotherregionsofthecountrysincethe1970s.Overthisperiod,theSouthhasdemonstratedstrongcomparativeadvantageinproducingarenewabletimberresourceasmanagementhasshiftedfromminingofvolunteersecond-growthforeststointensiveplantationforestry.Today,forestproductsremainanimportantpartofsouthernruraleconomies,butrecentchangesintimbermarketshaveraisedquestionsaboutthefuture.Thisreportexaminesthesechangesandassessestheirimplicationsforthefuture.
Thecoincidenceofseveralfactorshasalteredforestproductsmarketssincethelate1990s.Industryconsolidationschangedlandownershipacrossalargeportionoftheregion’smostproductivetimberland.Changesindomesticconsumptionpatterns,coupledwithshiftsininternationaltrade,shiftedtimberdemands.Depreciationandclosureofolderprocessingfacilities,especiallyinthepaperindustry,hasaccentuatedmanyofthesefactorsandchangedthespatialarrangementoftimbermarketswithintheregion.ThesedevelopmentshaveledmanyintheforestrycommunitytoconcludethatthefutureoftimbermarketsintheUnitedStatesingeneral,andintheSouthinparticular,isoneofdecline.
Atthesametime,otherdevelopmentsseemtobodewellforsouthernforestproductsindustries.Productionofnewer,engineeredwoodproductscontinuestogrow.Timbersupplyisstrongandappearstohaveexpandedthroughoutthe1990sinspiteofcompetinglandusepressures.Intensive
forestmanagementcontinuestoexpandyieldsandthepotentialforgrowthappearstopersist.Indeed,long-runforecastsofgeneraleconomicandtimbermarketactivitypredictexpandingdomestictimberdemandoverthecomingdecades.AnyexpansionintimberproductionisexpectedtobeconcentratedintheSouth.Forecastsreportedinthe“SouthernForestResourceAssessment”(WearandGreis2002)andthe2000RPAtimberassessment(Haynes2003)suggestthatsouthernforestlandowners,facingstrongfuturemarkets,willcontinuetoinvestinandexpandtheirtimberproductioncapacity.
Theobjectiveofthisreportistoprovideanassessmentoflong-runtrendsandrecent(5-year)changesintimbermarketsintheSouthernUnitedStates.Suchanassessmentisnecessarytoreconciletherecentdeclineinpricesandproductionofsomewoodproductsandlong-runoptimismabouttheprospectsfortimberdemandandproductivityintheSouth.Thisassessmentreliesstrictlyontheinterpretationofhistoricaldataandnotonforecastingmodels.Thefocusisexclusivelyonunderstandingthemostrecenthistoricalexperienceandplacingitinthecontextofotherdevelopmentsinworldmarketsforwoodproducts.
Thisreportisorganizedasfollows.Westartbychartingthemostbasictimbermarketindicators:priceandharvestquantity.Patternsofchangeinpriceandquantityprovideinsightsintooverallmarketdirection.Wethenexploreasetoffactorsthataffectthedemandfortimberproducts,includingdomesticconditionsandforestproductstrade.Thisanalysisofdemandisfollowedbyananalysisoftimbersupplyfundamentals,whichfocusesonlanduse,forestinvestment,andtimberlandownership.Weconclude
The U.S. South’s Timber Sector in 2005: A Prospective Analysis of Recent Change2
bysynthesizingthesefindingsanddiscussingimplicationsforthefutureofsoutherntimbermarkets.
Recent Trends in the Timber Sector
OurobjectiveinthissectionistoshowhowtimbermarketshavechangedintheU.S.Southsincedetailedrecordshavebeenkept,withemphasisonthemostrecentchanges.Ourapproachistousetimberharvestsandpricesascompact,summaryindicatorsofthesector’sevolutionovertime.Webeginbyexamininghowharvestquantitiesandthenpriceshavechanged.Weputthesechangesintocontextbydecomposingquantityandpricechangesintotheirrootcauses,shiftsinsupplyanddemand.
Harvest QuantitiesForestsintheU.S.Southyielda
varietyofhardwoodandsoftwoodtimberproducts.Softwoodproductsconstituted69percentofharvestoutputin2001,thelatestyearforwhichcomprehensivedataareavailable(fig.1).Sawlogsandpulpwoodproductsaccountedfor41and42percentoftotalharvest,respectively.Softwoodsawlogsarethelargestproductclass(30percent),followedbysoftwoodpulpwood(27percent)andhardwoodpulpwood(15percent).Thesethreeproductclassesrepresentedroughly72percentofharvestsin2001andhaverepresentedatleast68percentofharvestssincethe1970s(fig.1).1
Timberharvestsfromsouthernforeststrendedstronglyupwardduringthelasthalfofthe20thcentury(fig.1).Between1962and1996,annualharvestingmorethandoubledfromabout4billioncubicfeettoalmost10billioncubicfeet,whiletheproductmixremainedrelativelyconstant.Pulpwood’sshareofproductionrangedfrom39to44percentandsoftwood’ssharerangedfrom64to71percentofproduction,withnoconsistenttrends.
Chartingtotalproductiononanannualbasisrevealsthatgrowthinharvestsforallproductswasvery
1HarvestquantitydataarederivedfromU.S.DepartmentofAgricultureForestServicetimberproductoutputreports.(Seeappendixfordetailsondatasources.)
steady,withonlyafewexceptions(fig.2).Forexample,outputdippedduringabriefrecessioninthemid-1970s.Growthinharvestswasatitsstrongestfrom1982through1998,withoutputexpandingatarateof3.3percentperyear.Afterthislongperiodofstronggrowth,totalharvestquantityfellbyapproximately9percentbetween1998and2002.Harvestquantityin2002wasapproximatelyequaltothatin1995.Thisrepresentsthelargestandlongestdownturninharvestingoverthehistoricalperiod(1952–2002).
Trendsinthethreelargestproductclasses(fig.3)showthattheharvestdeclinebetween1998and2002was
largelyexplainedbyreductionsinpulpwoodproduction.Softwoodandhardwoodpulpwoodharvestsdeclinedby11and21percent,respectively,whilesoftwoodsawtimberharvestswerestable.Weareunabletoconstructanannualtimeseriesofhardwoodsaw-logproduction(thefourthlargestproductclass)usingacomparabletechnique,buttheperiodicdata(fig.1)suggestthathardwoodsawtimberharvestswererelativelystableoverthisperiod.
Timber PricesTimberpricescanbeconsideredan
indicatorofthescarcityoftimberas
Figure 1—Roundwood harvests in the U.S. South by product. (Sources: U.S. Department of Agriculture Forest Service timber product output reports.)
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Figure 2—Roundwood production in the U.S. South, all products. (Sources: U.S. Department of Agriculture Forest Service timber product output reports and see appendix for explanation of interpolation procedures.)
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aninputtoproduction.Ifstumpagepricesareincreasing,thentimberisbecomingrelativelymorescarce.Conversely,fallingstumpagepricesindicatethattimberisbecomingmoreabundantrelativetodemandsforitsuse.Pricesforvariouswoodproductsdemonstratedavarietyoftrendsbetween1977and2004,theperiodforwhichwehavecomprehensivedata,indicatinganevolvingstoryregardingthescarcityofthesenaturalresources.2
Between1977andthelate1980s,timberpriceswereflattodecliningforhardwoodandsoftwoodproducts(fig.4).Softwoodsawtimberpricesdeclinedveryslightlybetween1977and1991andsoftwoodpulpwoodpriceswereessentiallyflatbetween1977and1989.Hardwoodpulpwoodpriceslikewisewereflatbetween1977and1988.(Ourpriceseriesforhardwoodsawtimberbeginsin1992.)Noindicationsofincreasingscarcitywereapparentthroughthelate1980s,whileharvestsgrewatmoderaterates(fig.3).
Pricepatternsfortheseproductsstartedchangingsubstantiallybetween1989and1992(fig.4).Real-dollarpricesturnedupwardforallfourproductsandincreasedthrough1997or1998.Between1988and1998,hardwoodpulpwoodpricesincreasedatanaverageannualrateof12percent,softwoodpulpwoodat5percent,andsoftwoodsawtimberat8percent.Hardwoodsawtimberpricesincreasedatarateof6percent(overtheperiod1992–98).Pricedata,therefore,indicateincreasingscarcityforalltimberproductsoverthisdecade.
Between1998and2004,hardwoodpulpwoodandsawtimberpricesleveledoff,andsoftwoodsawtimberpricesdeclined,returningto1994levelsby2004.Softwoodpulpwoodpriceshave,however,followedadecidedlydifferentpattern.Pricesforthisproductfelltolessthanone-halfoftheir1998levelandin2004wereattheirlowestlevelsfortheperiodexamined(1977–2004).
2ToexaminepricetrendswehaveconstructedregionalpriceindicesbasedonpricesreportedbyTimber-MartSouthforallregionsoftheSouth.Throughoutthispaperwereportpricesinrealterms,adjustedforinflationusingtheConsumerPriceIndexpricedeflatorwith2004asthevaluebasis.Weuseindicesoftimberpricestoalloweasiercomparisonsamongproducttypes.Whenindicesareused,wedefine1952asthebaseyear,i.e.,theindexissetequalto1in1952,andapplytheindexingtotherealpricesdescribedabove.
Summary of ChangesChangesinbothharvestquantities
andtimberpricessince1998suggestthatthetimbermarketisinthemidstofatransition.Priceshavedeclinedfromtheirpeaklevelsbutremainrelativelystrongforhardwoodproductsandsoftwoodsawtimber.However,thesemoderatedeclinesandaprecipitousdeclineinsoftwoodpulpwoodpricessuggestthatreturnstotimberlandownersarenowsubstantiallylowerthantheywereinthe1990s,whenthesereturnspeaked.Especiallyforsoftwoodpulpwood,thesepatternssuggestastrongcontractioninpulpwooddemandcoupledwithstabletoexpandingsuppliesofstandingtimber.
Lookingjointlyatpriceandharvestchangesforthethreelargestproduct
classesintheSouth(figs.5,6,and7),wecandefinethreedistinctperiodsofdevelopmentbetween1977and2002:
Moderate growth phase
1977–86:Duringthisperiod,harvestsofallproductsincreasedatamoderateratewhiletimberpricesstayedconstantorevendeclinedforallthreeofthemajorproducts.Thesetrendsareconsistentwithexpansionofbothsupplyanddemandfortheproducts.
Rapid growth phase
1986–98:Duringthisperiod,harvestsofpulpwoodandsoftwoodsawtimbercontinuedtoincreasebutatafasterratethanbetween1977and1986.Pricesfortheseproductsalsoincreasedduringthisperiod,andatahigherratethanpricesfor
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Figure 3—Roundwood production in the U.S. South, selected products. (Sources: U.S. Department of Agriculture Forest Service timber product output reports and see appendix for explanation of interpolation procedures.)
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Figure 4—Real stumpage prices in the U.S. South by product. (Source: Timber Mart-South.)
The U.S. South’s Timber Sector in 2005: A Prospective Analysis of Recent Change4
harvests.Thispatternofchangeisconsistentwithastrongexpansionintimberdemandbutdoesn’tprovideconclusiveevidenceofchangesintimbersupply.Itisconsistent,however,withdemandexpandingfasterthansupply.Incontrast,hardwoodsawtimberproductionwasstable,withincreasingpricessignalingatighteningofhardwoodsaw-logsupplies.
Adjustment phase
1998–2002:Duringthisperiod,bothharvestsandpricesdeclinedforpulpwoodproducts.Thesepatternsofchangeareconsistentwithastrongcontractioninthedemandforpulpwood.Forsoftwoodsawtimber,harvestsleveledoffwithdecliningprices.Thisisconsistentwithanexpansioninsawtimbersupply,coupledwithadeclineindemand.Limiteddataforhardwoodsawtimberindicatethatharvestsandpriceswerestableoverthisperiod.
Insubsequentsectionsofthispaper,weexaminevariousdemandandsupplyfactorsthathavelikelyinfluencedmarketsfortimberproductsintheSouth,withattentionfocusedonevaluatingchangesthatoccurredduringtheadjustmentphase(1998–2002).
Key Observations— Recent Trends■ Except during very brief periods, total timber production grew between 1962 and 1998.
■ Between 1998 and 2002, total timber production declined by about 9 percent, back to 1995 levels.
■ Prices for softwood products declined between 1998 and 2004. For softwood pulpwood, the price decline was dramatic. By 2004, inflation-adjusted prices for softwood pulpwood had fallen to their lowest levels since 1997.
■ Prices for hardwood products had not turned downward through 2004.
■ Based on price and quantity patterns, we identify three phases of development in southern timber markets: a moderate growth phase from 1977 to 1986, a rapid growth phase between 1986 and 1998, and an adjustment phase between 1998 and 2004.
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Figure 5—Hardwood pulpwood harvest and price in the U.S. South. (Sources: Timber Mart-South and various Resources Planning Act timber product output reports.)
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Figure 6—Softwood sawtimber harvest and price in the U.S. South. (Sources: Timber Mart-South and various Resources Planning Act timber product output reports.)
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Figure 7—Softwood pulpwood harvest and price in the U.S. South. (Sources: Timber Mart-South and various Resources Planning Act timber product output reports.)
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■ The moderate growth phase was characterized by expanding demand and supply. The rapid growth phase was dominated by growth in demand, which outstripped supply growth for wood products. The adjustment phase was dominated by declines in demand.
■ During the rapid growth period, hardwood sawtimber prices grew steadily but output grew only slightly. This suggests a possible contraction of available hardwood sawtimber inventories and supply.
Demand Factors
Demandisaneconomicconceptthatrelatestheconsumptionofacommoditytoitsprice.Elementaryeconomictheoryindicatesthatlessofacommodityisconsumedatahigherpriceandthatchartingallthepossibleprice-consumptioncombinationsdefinesademandcurve.Thiscurve,however,canberepositionedbasedonmanyfactorsotherthanthecommodity’sprice,e.g.,income,pricesofsubstitutesforthecommodity,andchangingtastes.Hereweexaminedemandsfortimberproductsbyexaminingvariousfactorsthatcanrepositionthedemandrelationships.Welookcloselyatsubstitutionpossibilities,productioncapacity,andinternationaltradeasindicatorsofchangesindomesticdemand.
Woodproductsareoneofthemanycommoditiesthatareusedtoproducefinalconsumerproductssuchashomesorpaperandrelatedproducts.Therefore,thedemandforwoodproductsisderivedfromthedemandforfinalproductsintowhichtheyareamaterialinput.Woodproductscompetewithotherconstructioninputssuchasconcrete,steel,aluminum,plastics,orotherfibers.Wethereforeneedtoaccountforthesecommoditieswhenevaluatingchangesinwoodproductsmarkets.Wealsoneedtoaccountfortheemergenceofengineeredwoodproducts,suchasorientedstrandboard(OSB),whichcanutilizesmallerdiametertrees,assubstitutesfortraditionalwoodproducts.
Inthissection,weexaminethestructureofdemandfortimberintheSouth.Westartbyexaminingthepositionofwoodproductsrelativeto
competingcommoditiesintheUnitedStates.Thisincludesanexaminationoftrendsinsubstitutionandinthepricesofsubstituteproducts.Wethenexaminethedemandfortimberderivedfromdomesticdemandforsolidwoodproducts.Here,wefocusonsawtimberandpulpwoodproductsandusedomesticproductioncapacityasanindicatorofmediumtolong-rundemand.Weclosethissectionondemandbyexamininginternationaltradeincludingexportsandimportsoffinalgoodsandrawmaterials.
Competing Nonwood Products
Thepotentialforsubstitutionbetweentimberandothermaterialsdependsupontheleveloftechnologyandrelativepricesofalternativematerialinputs.Forinstance,thepossibilityforsubstitutionawayfromwoodtoproducepaperandpaper-relatedproductsislowbecausetherearecurrentlynoeconomicallyviableandwidelyavailablesubstitutesforwoodfiber.However,thepotentialforsubstitutionamongalternativematerialsinbuildingconstructionismuchhigher.
Evenduringtherapidgrowthphasedescribedearlier,theuseoflumberintheUnitedStatesdidnotgrowatthesamerateashousingstarts.Increasingpricesoftimberrelativetosteelandcementallowedforsubstitutionaway
fromlumberandtowardtheseothermaterialsduringthelastfewdecadesofthe20thcentury.Veryrecentlargeupturnsincementandsteelpricesmayportendamoderatingorreversalofthissubstitutionofrawmaterials.Althoughmanyfactorscontributetopricedifferencesamongrawmaterials,energypriceswillhaveastronginfluenceonthefuturecompetitivepositionofwood.Generally,energycostsassociatedwithproductionofsteelandcementarehigherthanthoseassociatedwithproductionofsolidwoodconstructioninputs.Itisthereforepossiblethatrecentupsurgesinenergypricescouldhaveapositiveinfluenceondemandfordomesticallyproducedconstructionwood,relativetoitssubstitutes.
Changingsharesofconstructioninputsreflectshiftingpricesofnonwoodandwoodsubstitutesrelativetosolidwoodinputs.Fleishmanandothers(1999)reportthatlumberlostmarketshareintheconstructionmarketbetween1995and1998,withtheshareinwallframingdownfrom93to83percent.Mostofthelostshareinthelumbermarketcouldnotbeattributedtononwoodsubstitutes.Instead,mostreplacementhasbeenbyengineeredwoodproducts—laminatedbeams,woodI-joists,andlaminatedveneerlumber(LVL)(fig.8)—withsomesharealsocapturedbysteel,reinforcedconcrete,andwood-plasticlumber.LVLespeciallycapturedincreasingmarketsharebetween1991and2004,with
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Figure 8—Engineered wood products production. (Source: The Engineered Wood Association.)
The U.S. South’s Timber Sector in 2005: A Prospective Analysis of Recent Change6
nodeclineinitsrateofgrowth(fig.8).Lumberhasalsolostmarketshareinroofandfloorapplications(Fleishmanandothers1999).Thedeclineofmarketshareoflumberduringthe1990scanbeattributedmainlytoimprovementsinengineeredwoodproductquality,decliningqualityoflumber,andperceptionsthatlumberisnotasenvironmentallyfriendlyassomealternativeconstructionmaterials.
Substitutionawayfromforestproductsisonlyoneexplanationofreducedmarketsharefordomesticallyproducedforestproducts(Fleishmanandothers1999;ZhangandBuongiorno1997,1998).Imports,technologicalchange,andevolvingconsumerpreferencesarealsodeterminingfactors.Inthepapersector,forexample,informationtechnology
continuestoshiftnewsprovisionfromnewspapersandtowardelectronicmedia,withimportantimplicationsforpaperdemand.Inaddition,declinesindemandforsoftwoodpulpwoodproductssuchasunbleachedkraftpulparepartiallyduetorecentsteepdeclinesinpaperbagmanufactureandconsumptiondomestically.
Domestic Demands
Pulp and Paper Sector
Hardwoodandsoftwoodpulpwoodmakeup42percentofthetimberconsumedintheSouth.Theregion’spapermillsareconcentratedinafewareasinwhichplentifulwaterisavailable.TheseareasincludesoutheasternGeorgia,northeasternFlorida,andsouthernAlabamaand
Mississippi.ConcentrationofpaperproductioncapacityorganizesthedemandforpulpwoodwithintheSouth—demandforpulpwoodisstrongestinthevicinityofmillsandweakenswithdistancefromthemillgate(fig.9).Whilesatellitechipmillsdistributedthedemandforpulpwoodovermoreoftheregionduringthe1990s,pulpwoodmarketsarestillmuchmoreconcentratedgeographicallythanmarketsforsolidwoodproducts.
Rawmaterialutilizedforproductionofpaperproductsconsistsofpulpwoodandpulpwoodresidualsfromotherwoodproductmanufacturing.Theutilizationofrecycledfiberhasbecomeincreasinglyimportantintheproductionofpaperproducts.Ince(2000)showsthatrecycledmaterial
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Pulpmills and chipmills distance (miles) 1 – 50 51 – 100101 – 250251 – 500500 +
Pulpmills and chipmills
Figure 9—Distance in miles by county from the forested center of the county to the closest pulpmill or chipmill. White dots are pulpmills and chipmills within the Southern States. Note that the universe of all pulpmills and chipmills within the United States and a circuity factor of 1.4 were used in the distance calculation. (Source: R. Huggett, preliminary findings, economics of biomass removals, U.S. Department of Agriculture Forest Service, Research Triangle Park, NC.)
�
comprised23.9percentoftotalfiberusedintheU.S.papersectorin1985to37.9percentin1998.Thishasresultedinarelativedropinthedemandforvirginwoodfiber.HealsofindsstrongindicationsthattheamountofrecycledmaterialusedinU.S.papermanufacturehasperhapsreachedamaximum,especiallygivenstrongexportdemandforrecoveredpaper.Soitislikelythatexpandinguseofrecycledmaterialmitigateddemandandpriceincreasesduringtherapidgrowthphasebutthatchangesindemandforrecycledmaterialhavenotbeenamajorinfluenceintheadjustmentphase.
Pulpingcapacitywithintheregiondefinestheupperlimitofthedemandforpulpwood.Becausecapacityexpansionrequiresanenormouscommitmentofcapital(constructionofatypicalpapermillcostsapproximately$2billion),trendsincapacityprovideastrongindicatorofcurrentandanticipateddemandsforpulpwoodwithintheregion.Inthissection,weexaminedynamicsinpulpingcapacityandtheimplicationsforderiveddemandforpulpwoodintheregion.
Forseveraldecades,theUnitedStateshasproducedmorewoodpulpthananyothernation.Through1998,totalU.S.pulpmillcapacity,andtheshareofU.S.pulpmillcapacitylocatedintheSouth,trendedupward(fig.10).Since1998,U.S.pulpingcapacityhasdeclinedslightlywhilesoutherncapacityhaddroppedbyabout16percentby2003(fig.11).Thesedeclinesindomesticcapacityoccurredasothercountriesexpandedtheircapacity.Forexample,Sweden,Finland,Chile,andBrazilincreasedtheircapacitybetween1995and2002(figs.12and13).WhiletheUnitedStatesandtheSouthcontinue
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01961 1965 1970 1974 1983 2000
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Figure 10—U.S. pulp output processing capacity, 1961–2000. (Source: Smith and others 2004.)
Figure 11—Pulpmill capacity in the United States and the U.S. South, 1983–2003. (Sources: Forest Resources Association; U.S. Department of Agriculture Forest Service, Southern Research Station; Pulp & Paper North American Factbook; and Timber Mart-South.)
The U.S. South’s Timber Sector in 2005: A Prospective Analysis of Recent Change�
Figure 13—Average annual rates of change in pulp production for various countries, 1995 to 2002. (Sources: Pulp & Paper International and Paperloop.com.)
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Figure 14—Kraft linerboard mills manufacturing costs, 2003. (Source: Jaakko Poyry Management Consulting.)
toleadtheworldinpulpwoodproduction,theirshareofworldwidecapacityhasdeclinedsince1991.By2003,SouthernU.S.pulpcapacityhadapproximatelyreturnedtoits1985level.
Newpulpmillcapacityandpulpproductionisfeedingincreasedworldwidedemandforpaperproducts,especiallyinAsia.WithleveltodecliningcapacityintheUnitedStates,itisclearthatnewcapacityisbeingdevelopedinothercountries.ThereisnoevidenceofexpansionaryactivityinpulpandpapermanufacturingintheSouthernUnitedStates.Thesechangesarelikelyexplainedbyshiftsincomparativeadvantagerelativetoseveralfactors,includinglaborcosts,rawmaterialscosts,andproximitytofinalproductmarkets.
ManufacturingcostsinkraftlinerboardmillsintheUnitedStatesandabroad(fig.14)provideanexampleofdifferencesincomparativeadvantage.TheU.S.SouthiscompetitiveinthismarketcomparedtotheU.S.West,Canada,andEurope,butlagsbehindLatinAmericancountries(primarilyBrazilandChile)initscoststructure.
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0U.S.A. Canada Sweden Finland Brazil Chile N.Z.
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Figure 12—Pulp production for various countries, 1995 and 2002. (Sources: Pulp & Paper International and Paperloop.com.)
9
Figure 16—Delivered nonconiferous pulpwood prices. (Source: Wood Resources International.)
Figure 15—Delivered coniferous pulpwood prices. (Source: Wood Resources International.)
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FiberandlaborcostsaresignificantlyhigherinmoreindustrializedcountriesthaninSouthAmerica.TheU.S.SouthretainscomparativeadvantagebecauseofitsproximitytoU.S.demandcenters,i.e.,becauseoflowertransportationcosts,butlaborandwoodinputcostdifferentialsmakeLatinAmericanproducersviablecompetitors.
In1995,1999,and2004,bothBrazilianandChileanproducerscoulddeliverbothconiferousandnonconiferous(mostlyeucalyptus)pulpwoodtomillsatsubstantiallylowercostthancouldproducersintheU.S.South(figs.15and16).In2004,deliveredfibercostswere24and27percentlessinBrazilandChile,respectively,forconiferouspulpwood,andwere21and27percentlessfornonconiferouspulpwood.Pricedifferentialsarenotstatic,however,andpricesinBrazilandChilehaverisensince1999,relativetothosefoundintheSouthernUnitedStates.Thecomparativeadvantageheldbythesenationswoulddecreaseifthistrendweretocontinue.
The U.S. South’s Timber Sector in 2005: A Prospective Analysis of Recent Change10
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Sawmill distance (miles) 1 – 50 51 – 100101 – 150
Sawmills south
Solid Wood Sector
Thelargemajorityofthesolidwoodproducedintheregiongoesintolumberandpanelproducts.Panelproductsandlumberutilizeabout46percentoffiberproductsgeneratedintheSouth.Theregion’slumbermills,unlikeitspulpandpapermills,arewidelydispersed(fig.17).
Unlikesouthernpulpwoodcapacity,southernsoftwoodsawmillcapacityhasnotdeclined.Softwoodsawmillcapacityremainedstableorincreasedslightlybetween2000and2003(fig.18),evenascapacityintheWesternUnitedStatesdeclined.ComparabledataarenotavailableforhardwoodlumbercapacityintheSouth,butsustainedproductionandpricesgenerallydonotsignaldeclinesincapacity.
Southernpanelcapacityexpandedsignificantlyinthe1990s(fig.19).Southernpineplywood,whichdominatedpanelproductionthroughthe1970s,peakedinthe1990sandhassincedeclined.CapacityforproducingOSBandmedium-densityfiberboardgrewstronglythroughthe1990s.Morerecentdataindicatethatalthoughsouthernpanelproductionhasremainedstable,OSBproductionhascontinuedtogrow(fig.20).ExpandingOSBcapacitycoupledwithdecliningplywoodcapacityindicatesincreasingdemandforlessexpensive,small-diametertimber,especiallycomparedtodemandfortheveneerlogsusedinplywoodproduction.
Figure 17—Average distance in miles by county from the forested center of the county to the closest five sawmills within 150 miles. White dots are sawmills within the Southern States. Note that the universe of all sawmills within the United States was used in the distance calculation. (Source: R. Huggett, preliminary findings, economics of biomass removals, U.S. Department of Agriculture Forest Service, Research Triangle Park, NC.)
11
Figure 20—Southern panel production. (Source: The Engineered Wood Association.)
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381997 1998 1999 2000 2001 2002 2003
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illio
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Figure 18—Softwood sawmill capacity. (Source: Spelter and Alderman 2003.)
Figure 19—Panel capacity in the U.S. South. (Source: McKeever and Spelter 1998.)
The U.S. South’s Timber Sector in 2005: A Prospective Analysis of Recent Change12
Figure 21—U.S. broad dollar index. (Source: United States Federal Reserve.)
International Trade in Wood Products
TheUnitedStatesisboththeworld’slargestimporterandproducerandthesecondlargestexporterofwoodproducts.Importsandexportsofbothrawandvalue-addedwoodproductscandirectlyaffectdomesticdemandfortimber.Increasingforestproductimportsmaycorrespondwithreduceddemandfordomesticallygrowntimber,thushelpingtodepressdomesticstumpagepricesbothintheshortandlongrun.Inthissectionweexamineexportsandimportsforbothrawmaterialsandfinishedwoodproducts.
Tradeinwoodproductsneedstobeviewedinthecontextofinternationaleconomicconditions.Whiletherearemanyreasonsforchangesintradeflows,theincreaseinimportsandexpandingoverallU.S.tradedeficitinforestproductsduringthe1990smayhavebeenrelatedtotherisingvalueoftheU.S.dollarrelativetoforeigncurrenciesduringthatsameperiod(fig.21).Economicdoctrinesuggeststhatexportsincreaseandimportsdecreasewhenadomesticcurrencyweakensrelativetocurrenciesofanation’stradingpartners.Since2002,thevalueofthedollarrelativetothevalueofothercurrencieshasdeclined,whichsuggeststhatthecomparativepositionofU.S.manufacturersmaybeimproving.However,changesinexchangeratestaketimetoplayoutintermsoftradeflows,andsomeevidencesuggeststhatexchangerateshiftsmakelittledifferenceinthelongruninforestproductstrade,asothercostsofproductionandsupply-and-demandfactorsadjusttoaccommodatethem(UusivuoriandBuongiorno1991).Itistooearlytosaydefinitivelyhowrecentweakeninginthedollarwillaffectforestproductstrade.
Raw Material Trade
Wood pulp—Thevalueofwoodpulpimportsandexportsdemonstratedacyclicalpatternwithnostrongtrendsbetween1989and2003(fig.22).TheU.S.balanceoftradeinwoodpulphasbeenroughlyeveninrecentyears,i.e.,importshaveequaledexports.However,U.S.southernportsexportedapproximatelyseventimeswhatwasimported.Between1989and2003,CanadawasthelargestandBrazilthesecondlargestsourceofwood
Nominal Real140
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Figure 22—U.S. trade in wood pulp and the balance of trade (BOT). (Source: U.S. International Trade Commission.)
pulpimportedintotheUnitedStates(fig.23).ForproducersintheU.S.South,thelevelofBrazilianimports—primarilyhardwoodpulp—factorsmostlyintolocalmarkets,andtheseimportsareusedtomeetspecificfurnishdemands.Brazilianimportsintosouthernportshaverisensharplysincetheearly1990s(figs.24and25).Still,overallimportsintoSouthernStatesin2004onlyaccountedforbetween2and3percentoftotalsouthernwoodpulpconsumption.
Wood chips—Unlikepatternsoftradeinwoodpulp,patternsoftradeinwoodchipshavechangedsubstantiallysincethelate1980s.Until2003,CanadawastheleadingsourceofwoodchipsimportedintotheUnitedStates,providingchipsforNorthern
U.S.producers.However,afterpeakingin1997,CanadianwoodchipsalestotheUnitedStateshavedeclinedtolessthanone-thirdoftheirpeaklevel(fig.26).ProducersinthesouthernhemispherehavealsosuppliedwoodchipstotheUnitedStatesatvarioustimes.Inthemid-1990sChileprovidedasmuchasone-thirdoftotalwoodchipimportsintotheUnitedStates.In2004,importsfromBrazilincreasedmorethanfivefoldcomparedto2003,andBrazilbecamethelargestsupplierofwoodchipsimportedintotheUnitedStates.ImportsfromBrazilaredeliveredmainlytoSouthernU.S.ports(figs.27and28).Southernchipimportsin2004representedonlyabout0.9percentoftotalsouthernpulpwoodconsumptionandabout3percentoftotalsouthern
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Figure 23—Wood pulp imports into the United States. (Source: U.S. International Trade Commission.)
Figure 24—Wood pulp imports into southern customs districts. (Source: U.S. International Trade Commission.)
The U.S. South’s Timber Sector in 2005: A Prospective Analysis of Recent Change14
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Figure 25—Wood pulp imports into southern customs districts. (Source: U.S. International Trade Commission.)
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illio
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Figure 26—Wood chips imports into the United States. (Source: U.S. International Trade Commission.)
15
Figure 28—Wood chips imports into southern customs districts in tons. (Source: U.S. International Trade Commission.)
1989
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1991
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2004
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Figure 27—Wood chips imports into southern customs districts in dollars. (Source: U.S. International Trade Commission.)
hardwoodpulpwoodconsumption.MostoftheseimportsentertheUnitedStatesatMobile,AL,andafewportsinFlorida,solocalizedimpactsonhardwoodmarketsneartheseportscouldbesignificant.
ThesurgeinBrazilianchipimportsistheexpectedresponsetodomesticpriceincreasesresultingfromlocalscarcityofhardwoods.Inaddition,eucalyptuschips,ahighlypreferredfibersourceforsomepapergrades,maybepreferredovernativehardwoods.TheextenttowhichhardwoodchipimportsfromSouthAmericamightincreaseoverthecomingyearsisunknown.However,itislikelythatpricesofchipimportsfromSouthAmericanowdefineaceilingfordomestichardwoodstumpagepricesincertainareasoftheSouth.
Sincethebeginningofourtimeseriesonwoodchips,1989,theUnitedStateshashadalargetradesurplusinwoodchips(fig.29),i.e.,exportshavefarexceededimports.Since1999,however,thetradesurplusinwoodchipshasfallensteadily,fromaround$515millioninthemid-1990sto$126millionin2004.
Roughly80percentofwoodchipexportsfromtheUnitedStateshavebeenshippedtoJapan;theremainderflowstoCanada(fig.30).WhileexportstoCanadahaveincreasedsomewhatinrecentyears,exportstoJapanhavefallenoffdramatically.Between1991and2002,nearlyallofthewoodchipsexportedfromSouthernU.S.portswereshippedtoJapan(figs.31and32).Exportsofwoodchipexportsfromsouthernportsessentiallyceasedby2002.
Thisdeclineinsouthernchipexports—primarilyhardwoodchips—toJapanwasequivalentto5percentoftotalsouthernpulpwoodproductionin2003andnearly16percentofsouthernhardwoodpulpwoodproduction.MostoftheimportsandexportsofwoodchipsintoandoutofsouthernportshavebeenthroughMobile,AL,andwemightexpecttheeconomicimpactsofdemandshiftstoradiateoutwardindecliningfashionfromthisportofentry.
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The U.S. South’s Timber Sector in 2005: A Prospective Analysis of Recent Change16
Figure 29—Wood chips imports into the United States and the balance of trade (BOT). (Source: U.S. International Trade Commission.)
1989
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Figure 30—U.S. wood chips exports. (Source: U.S. International Trade Commission.)
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Figure 31—U.S. wood chips exports from southern customs districts in dollars. (Source: U.S. International Trade Commission.)
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JapanTotal
Figure 32—U.S. wood chips exports from southern customs districts in tons. (Source: U.S. International Trade Commission.)
The U.S. South’s Timber Sector in 2005: A Prospective Analysis of Recent Change1�
1989
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eter
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European UnionEast AsiaNorth AmericaAll other
Final Products Trade
Lumber—TheUnitedStatesisalargenetimporterofsoftwoodlumber,andthevastmajorityofitslumberimportsarefromCanada(fig.33).LumberimportsfromSouthAmerica,althoughrelativelysmallbetween1989and2004,havebeenrisingsteadily.TheUnitedStatesexportssomelumber,butthebalanceoftradefavorsimports,andthetradedeficitisgrowing(fig.33).
TheimportationoflumberfromCanadahasanimportantinfluenceondomestictimbermarkets,buttheeffectsonsouthernmarketsarelikelytobeindirect.LumberfromWesternCanadamoredirectlysubstitutesforlumberofspeciesthatgrowintheWesternUnitedStates(Nagubadiandothers2004).ThelumberproductsthatarenowimportedintotheUnitedStatesaregenerallynotdirectlysubstitutablefortreatedlumberproducedintheSouth.
Asitisinoveralltimberproducts,theUnitedStatesistheworld’slargestproducer(60percent)anditslargestconsumer(52percent)oftemperatehardwoodlumber.About8percentofdomesticproductionisexportedtovariouscountries.Hardwoodlumberisamuchmoreheterogeneouscommoditythansoftwoodlumber,soitsproductionandtradeservesawidevarietyofenduses,fromflooringtofurnituretoshippingpallets.Aggregatedataprovideonlyaverygeneraldescriptionoftrendsinthissector.Also,wecannotsplitouttradedatafortheSoutheasternUnitedStates,soweusedatafortheUnitedStatesasawholetoevaluatehardwoodlumbermarketchanges.Notethatabout10percentofhardwoodexportsarefromthePacificNorthwest[especiallyredalder(Alnus rubra Bong.)]andabout90percentarefromtheEasternUnitedStates.
Exportsofhardwoodlumberincreasedfromabout2millionm3in1989tojustover3millionm3in2004(fig.34).NorthAmericaisthedestinationforthegreatestshareofhardwoodlumberproducedintheUnitedStates,followedbyEastAsiaandthe25countriesoftheEuropeanUnion.Allothercountriestogetherreceiveabout10percentofhardwoodexportsfromtheUnitedStates.The
US
$ (m
illio
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Figure 33—Sawnwood imports and the balance of trade (BOT). (Source: U.S. International Trade Commission.)
Figure 34—Exports of U.S. hardwood lumber to various regions (1989–2004). Source: Foreign Agricultural Service web site (www.fas.usda.gov).
distributionofexportsamongthesedestinationshaschangedsomewhatsince1989,withshipmentstoEuropedecliningandshipmentstoothercountriesinNorthAmerica,i.e.,CanadaandMexico,increasingsubstantially(fig.34).ShipmentstoEastAsiahavebeenessentiallyconstantinaggregate,withachangingmixofdestinations.Specifically,shipmentstoChinahaveincreasedbyalargeamountsincethe1990swhileshipmentstoothercountriesinAsiahavedeclinedbyacomparableamount.
Southernexportsofsoftwoodlumberhavebeenrelativelysmallandhavedeclinedoverthelastdecade(fig.35).Softwoodlumberexportsin2004wereonlyaboutone-thirdtheamountexportedin1992.Southernsoftwoodlumberexportsaccountforonlybetween1and2percentoftotalsouthernsoftwoodlumberproduction.
Panels—Tradeinpanelproductsisweightedtowardimports.Forexample,theUnitedStatesimportedabout15percentofplywoodconsumptionand38percentofOSBconsumptionin
19
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Figure 35—U.S. lumber exports from southern customs districts. (Source: U.S. International Trade Commission.)
Figure 36—Particleboard, oriented strand board, and wafer board imports and the balance of trade (BOT). (Source: U.S. International Trade Commission.)
1989
-3,000
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9419
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Key Observations—Demand■ Consumption of lumber in the United States has grown at a lower rate than housing starts, indicating some substitution away from lumber as a building material.
■ Both nonwood and engineered wood products have substituted for lumber in many applications. For example, the share of floors, walls, and roofs made with wood is about constant but there is a shift toward greater use of engineered wood products.
■ Electronic media are substituting for paper.
■ A majority of pulping capacity in the United States is located in the South, but this share has declined since the mid-1990s.
■ Pulping capacity in the South, an indicator of long-term demand, has declined by 16 percent since 1998.
■ Increasing world demand for paper products is leading to expansion in paper production capacity in countries other than the United States.
■ Shifts in capacity indicate that the United States has lost some of its comparative advantage for producing paper for the world market. Possible causes of this decrease in comparative advantage are disadvantageous resource and labor costs and location of the United States relative to major world demand centers.
■ Overall, there is no indication that domestic demand for southern pulpwood will increase.
■ Softwood lumber production capacity in the South has increased steadily in recent years (1997–2003).
■ Softwood lumber production capacity in other regions of the United States outside of the South has declined.
■ There is no indication of declining demand for softwood sawtimber and some indication of increasing demand.
■ Expansion in panel capacity indicates ongoing strong demand for low-quality hardwood and softwood material for engineered wood panels.
■ Wood pulp imports are a relatively small portion of wood products consumption in the South (between 2 and 3 percent).
1999(Spelter2001).NearlyallofthesepanelimportscamefromCanada.Particleboard,waferboard,andOSBimportsfromCanadagrewstronglyinrecentyears,increasingfrom$1.53billionin1999to$3.16billionin2004.U.S.exportsinthiscategoryarenegligible(fig.36).
OSBmarketsareinaperiodofrapidexpansion,andnewmillsinCanadaandtheUnitedStatesareplanned
(Spelter2001).NorthAmericawillcontinuetodominateworldproductioninthiscommodityclass,butthetradebalancewithinNorthAmerica—especiallybetweenCanadaandtheUnitedStates—couldchangeasthesectorexpands.AdeclineinpulpwooddemandintheSouthmaygivetheUnitedStatesadditionalcomparativeadvantageforthesitingofnewNorthAmericanmills.
The U.S. South’s Timber Sector in 2005: A Prospective Analysis of Recent Change20
■ Although small, wood pulp imports to southern customs districts, and especially imports from Brazil, have increased since 1998.
■ Up to 8 percent of domestic demand for pulpwood has been displaced by changes in trade, the majority (5 percent) by loss of wood chip export markets.
■ Almost all lumber imports are from Canada, with a small but increasing share from South America.
■ Imports from Canada do not displace demand for treated southern pine lumber.
■ Exports of southern pine lumber are very small and have declined substantially since 1998.
Supply Factors
Timbersupplydefineshowlandownersdelivertimbertomarketinresponsetotimberpricesand,inthelongerrun,avarietyofothersignals.Severalfactorsmakeitdifficulttoanalyzethetimbersupplysituation.Thesefactorsincludethelongproductionperiodinvolvedingrowingtrees,themultiplebenefitsthatlandownerscanderivefromstandingforests,andconstantchangeinthelandbasefromwhichtimberisproduced.Itistemptingtothinkofsupplyassimplytherelationshipbetweenharvestsandpricesor,evenmoresimply,theamountofstandingtimberinventory,buttheseotherfactorsneedtobeaccountedfor.Inthissection,weexamineseveralfactorsthatinfluencesupply.WestartbyexaminingtheareaoftimberlandintheSouth,focusingespeciallyonrecenttrendsinandprojectionsofforestarea.Wethenexaminethestructureoftimberlandownershipintheregion,whichinmanywaysdescribesthemanagementintentappliedtothetimberlandbase.Nextweevaluatechangesininventoryovertimeandinvestmentactivitiesthatprovideinsightsintofuturechangesinproduction.
Competing Uses of LandTheareaoftimberlandprovides
thestartingpointforananalysisoftimbersupply.TotaltimberlandareawithintheSouthwasrelativelystablethroughoutmuchofthe20thcentury,withabouta5-percentreductioninthe
1970stiedtoagriculturalexpansion(fig.37).Thisstabilityinoverallareareflectsmanyoffsettingchanges,aslandhasshiftedfrommarginalagriculturalusestoforestcoverataboutthesamerateasforestshavebeenconvertedtodevelopeduses.Changeshavenotbeendistributedacrosstheregionevenly.Sincethe1950s,forestlossestiedprimarilytoagriculturalexpansionwereconcentratedinTexas,Florida,Oklahoma,Louisiana,andArkansas.Alabama,Georgia,Mississippi,andSouthCarolinasawthelargestgainsinforestareaoverthisperiod.ModestchangeswereobservedfortheremainingStates(fig.38).
1630 1907 1938 1953 1963 1982 1989 1999
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Figure 37—Total timberland area in the South.
Figure 38—Change in forest area 1945–92 by State. (Source: U.S. Department of Agriculture Forest Service, Forest Inventory and Analysis survey data.)
4,000
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-6,000
-8,000
Cha
nge
in th
ousa
nd a
cres
AL AR FL GA KY LA MS NC SC TN VA
Researchconductedforthe“SouthernForestResourceAssessment”(WearandGreis2002)indicatesthattheSouth’sforestshavebeenandwillcontinuetobesubjectedtostrongpressureresultingfrompopulationandeconomicgrowthintheregion.Futurelossesofforestareaare,therefore,projectedtobegreatestinareaswheregrowthismostrapid:theSouthernAppalachianPiedmontintheCarolinasandGeorgia.OtherareasofprojectedhighforestlossincludecountieslocatedalongtheAtlanticandGulfofMexicocoasts(includingnearlyallofFlorida),theSouthernAppalachianMountains,andzonessurrounding
21
Change in percent forest (1992–2020)
< -10
-10 – -5
-5 – .5
-.5 – .5
.5 – 5
5 – 10
> 10
somemetropolitanareas,includingWashington,DC,Birmingham,AL,andNashville,TN.About12millionacresareprojectedtobelosttourbanizationbetween1992and2020andanother19millionacresbetween2020and2040,continuingtrendsobservedinthe1990s(fig.39).
ThetotalchangeintimberlandareadependsonwhetherruralareasoftheSouthwillexperienceincreasesinforest.Whileurbanizationcouldeliminateabout12percentofcurrentforestedareasintheregionby2020,forecastsofforestinvestmentindicatethatnearlythesameamountoflandmightbeconvertedfromcropand
pasturetoforestusesoverthesameperiod.Thekeyfactorsindeterminingthischangearetherelativereturnstoagriculturalandforestuses.Moderateincreases(about0.5percentperyear)intimberpricescombinedwithunchangingagriculturalreturnswouldyielda“nonetloss”scenarioforforestland.Unchangingpricesforbothagriculturalandforestproductsyieldnooffsettinggainsinforestsfromagriculturallandand,therefore,anetlossofabout31millionacresby2040.Changesinagriculturalpolicycouldalsoaffectthismargin.Decreasesinagriculturalsubsidiescouldleadtoincreasesinforestlanduses.
Figure 39—Projected change in percent of forest between 1992 and 2020 by county in the Southeastern United States. (Source: Wear and Greis 2002.)
The U.S. South’s Timber Sector in 2005: A Prospective Analysis of Recent Change22
Timberland Area
Forestlandusecanbesplitintotwodistinctsubcategoriesbasedonforestoriginandmanagementtype.Naturallyregeneratedforests,consistingofnaturalpine,mixedpine-hardwood,andvarioushardwoodforestmanagementtypes,canbeviewedaslargelyaresiduallanduse—mostwerenotestablishedwiththeintentofproducingtimber,andarelocatedwhereneitherdevelopmentnoragriculturalusescouldbejustified.Forestplantationsaretheothermajorsubcategoryoftimberland.Establishingtheseforestsrequiresadirectapplicationoffinancialcapital,whichgenerallyimpliesintenttoharvesttimberatsometime.Plantationforestry,whichhasbeenlimitedtopinespeciesintheSouth,isanagriculturalstyleofforestmanagementthatisdisplacingharvestsfromnaturallyregeneratedstands.
Pineplantationshaveexpandedsteadily,frompracticallynonein1950tomorethan30millionacresinthelate1990s(fig.40).Theynowaccountforabout16percentofalltimberland.Onaper-acrebasis,theseforestscanproduceuptothreetimesthequantityoftimberproductsthatnaturallyregeneratedforestsproduce.Perhapsthestrongestsignalofthemarket’sperspectiveonfuturetimbersuppliesiscurrenteffortstoestablishandintensivelymanagepineplantations.
Steadygainsinthepriceofhardwoodpulpwoodoverthepast25years(fig.41)havenottriggeredinvestmentinhardwoodplantations.Thisindicatesthatcurrentandanticipatedpricesarenothighenoughtojustifythecapitalcostsofestablishingtheseplantations.Thiscanbeexplainedeitherbystrongsuppliesofhardwoodtimberfromnaturallyregeneratedforests,limitedgrowthrateimprovementsforhardwoodplantationscomparedtonaturallyregeneratedhardwoodforestsorcompetingplantedpineinvestments,theunavailabilityofaprofitabletechnologyforintensivemanagementofhardwoods,orthereadyavailabilityoflow-costhardwoodchips,e.g.,fromSouthAmerica.
Figure 41—Real prices of hardwood and softwood pulpwood in the U.S. South. (Source: Timber Mart-South.)
Figure 40—Acres by forest management type. (Source: U.S. Department of Agriculture Forest Service, Forest Inventory and Analysis data summarized by Conner and Hartsell 2002.)
1980 1985 1990 1995 2000 2005
40.00
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23
Timberland Investments
Investmentcanbethoughtofasthededicationoftoday’scapitaltotomorrow’sproduction.Inforestry,therearetwoprincipaltypesofinvestment.Oneistheinvestmentoffinancialcapitalinforestestablishmentanddirectmanagementactivitiessuchassitepreparationandprecommercialthinning.Theotherissimplythedecisiontoletforestsgrow.Thislattertypeofinvestmentinforestgrowingrepresentsamuchhighercapitalcostthandirectinvestments(Wear1994).Still,treeplantingisastrongindicatorofthedegreeofexpansionaryinvestmentintheforestsectorand,therefore,ofhowprivatelandownersperceivefuturemarkets.
PlantingintheSouthappearstobestronglyinfluencedbymarketsignals,i.e.,anticipatedreturnstotheplantinginvestment(seeNewmanandWear1993).However,ithasalsobeeninfluencedbygovernmentalprogramsthatreducethecostsofforestestablishmentfornonindustrialforestowners.Federalprogramshaveencouragedtreeplantingonnonindustrialprivateforestlandswiththeobjectiveofenhancingfuturetimbersupplies(forexample,theForestryIncentivesProgram)orachievingconservationobjectivesbyplantingagriculturalfields(forexample,theConservationReserveProgram,orCRP).Inaddition,severalStateshaveemployedsimilartreeplantingprogramsforprivatelandowners.
TreeplantingintheSouthgrewfromessentiallynonein1945toanaverageofbetween1.5and2millionacresperyearinthe1990s(fig.42).Thepatternoftreeplantingshowsdistinctspikesinthe1960sand1980scorrespondingtotheSoilBankandCRPtreeplantingprograms,respectively.Theseprogramswererestrictedtononindustrialprivateforestlands.Exceptduringthesetwoperiods,treeplantinghasbeendominatedbyforestindustryandconcentratedonthe20percentoftimberlandcontrolledbythisownership.IntheperiodbetweentheSoilBankandCRPs,theindustryshareofplantingrosetoabout70percentofthetotal.SincetheCRP,industryplantinghasconstitutedabout50percentoftotalplanting.
Industry shareTotalIndustry
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Figure 42—Total area planted in trees in the U.S. South, all ownerships (industry, nonindustrial private, and public) and the industry ownership. [Sources: 1945–99: Robert F. Moulton (2000); 2000–04: Steve Chapman, Georgia Forestry Commission (2005).]
Treeplantinghastwocomponents.Oneisthereplacementofharvestedplantations.Thereisastrongincentivetoreplantharvestedplantationssinceadecisiontopostponeplantingafterharvestallowsfornaturalregenerationand,therefore,increasedcostsforanydelayedplanting.Theothercomponentisexpansionaryinvestment—thatis,theestablishmentofnewtreeplantationsonagriculturalfieldsorwherenaturallyregeneratedstandshavebeenharvested.
BycomparingtreeplantingwithchangesintheinventoryofplantationsintheSouth,wecanestimatethe
3,000
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PlantingExpansionReplacement
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Figure 43—Total tree planting in the U.S. South with estimates of both expansion and replacement planting (see appendix).
amountofexpansionaryinvestmentimpliedbyplantingactivities(fig.43).ExpansionaryinvestmentdominatedplantingthroughtheSoilBankperiodandupto1970.Throughoutthe1970sand1980s,however,replacementinvestmentfarexceededtheamountofexpansionaryinvestmentasthefirstwaveofplantationscameonlineforharvesting.Expansionaryinvestmentstartedtogrowagainintheearly1980sandreachedabout1millionacresperyearinthelate1980s.Itremainedatthislevelthroughthe1990s.Totaltreeplantingfellbyabout
The U.S. South’s Timber Sector in 2005: A Prospective Analysis of Recent Change24
30percentbetween2001and2004,suggestingareductionintheamountofexpansionaryinvestment,perhapsbacktothelevelsobservedinthelate1970s.3
Investmentlevelscorrespondwithmarketpatternsdescribedearlier.Duringthegrowthphase,between1986and1998,landownerssustainedthehighestlevelsofmarket-driveninvestment,bothintermsoftotalinvestmentandexpansionaryinvestment.Withtheonsetoftheadjustmentphase,treeplantingfellsubstantially.Theamountofthisdeclineisroughlyequivalenttothelevelofexpansionaryinvestment,whichsuggeststhatforestinvestmenthasfallentoalevelroughlyequaltoreplacementinvestment.Ataminimum,wecansaythatexpansionaryinvestmentwasatrelativelylowlevelsin2003and2004.
Becausetimbergrowingisaverylengthyprocess,theexpansionaryinvestmentactivitythatcharacterizedthe1986–98growthphasewilllikelyresultinanincreaseintheinventoryofstandingtimberforalongtimetocome.Hence,evenwiththeslowdownininvestmentthatbeganin2002,thesupplyofsoftwoodproducts,especiallysoftwoodpulpwood,shouldcontinuetogrow.
Land Ownership ChangesResearchintotheeconomicsof
timbermanagementhasidentifiedimportantdistinctionsbetweendifferentownershipgroups(e.g.,NewmanandWear1993,Pattanayakandothers2004).Inparticular,thesestudieshavedocumentedmoreproductivemanagementfocusonforestindustrylandscomparedtoallotherownerships.Asaresultofinvestmentpatternsdescribedintheprevioussection,the20percentoftimberlandmanagedbyindustryinthelate1990scontainsmorethan60percentoftheregion’splantations.Ineffect,managementonindustrylandshasbeenthemostresponsivetotimberscarcitysignalssince1970.
3Wedonothaveadefinitiveestimateofexpansionaryinvestmentsince1999becausecomparableinventoryestimatesofplantationareaarenotavailable.However,plantingratesfellmuchmorethantherateofharvest,indicatingastrongcontractioninexpansionaryinvestment.
Changesinthewoodproductssectorsince1999haveinitiatedarestructuringofforestcapitalwhoseimplicationsfortimbersupplyarenotyetunderstood.Forestindustryownership,whichstoodatabout40millionacresin1999,mayhavefallentoabout20millionacresin2005.4Anextensionofongoingtrendsandplansannouncedbywoodproductsfirmssuggestthatverylittletimberlandmaybeownedbytheforestproductsindustryby2010.
Salesofforestindustrylandmayhaveseveralcausesandimplications.Someoftheseforestssimplyhavemuchhighervalueinadevelopeduse,andtheirsaleisjustapartofthegeneralurbanizationprocessdescribedearlier.Arecentstudy(WearandNewman2004)indicatesthatin2002,about6to7percentofindustrytimberlandinGeorgiawasinalandvalueclassthatcouldnotbesustainedbytimberproductionalone,i.e.,aconversionclass.Bytheyear2010,25percentofGeorgiatimberlandwillbeintheconversionclassifthepopulationgrowsasexpected(fig.44).Theseestimatesareconsistentwithlanduseprojectionsfromthe“SouthernForestResourceAssessment”(WearandGreis2002).
Whowillownthetimberlandthatisnotconvertedtoanotheruseandhowwillthattimberlandbemanaged?Muchofthemostproductivetimberlandisbeingsoldtotimberinvestmentmanagementorganizations(TIMOs),whichactlargelyasfiduciarieswhentimberlandisusedasaninvestmentinstrument.Manyoftheseinvestmentsareheldbypensionfundsandaretiedtoclosed-endandotherfundsthattendtotradefrequently.TheimplicationofgreaterTIMOownershipseemstobeamorerapidturnoverinforestownershipandthepotentialforongoingparcelizationoftimberlandownershipintosmallersizedproperties.
TIMOshavestrongincentivestomaximizereturnsandwilldrawcapitaltoforestinvestmentsinstrongmarkets.Itseemsclear,however,thatmanagementwillbecharacterizedbyashortertimehorizonandthattimber
4Clutter,M.;Mendell,B.;Newman,D.[andothers].StrategicfactorsdrivingtimberlandownershipchangesintheU.S.South.Manuscriptinpreparation.AuthorcanbereachedatTheCenterforForestBusiness,UniversityofGeorgia,Athens,GA30602.
inventoryandtimbersupplycouldbelessstablewiththislarge-scalechangeinforestownership.
AnotherimplicationofindustrydivestitureisthegreaterreliancebyindustryontimberproducedbyprivatelandownersandtheTIMOs.Thiscouldincreasethepricesensitivityofthetimberowningsectortodemandchanges,increasingthevolatilityoftimberprices.Furthermore,giventhatindustryhashistoricallyaccountedforalargeshareoftheincreaseinpineplantationarea,thedivestitureoftheselandsbyindustrycouldforetellacontinuedlowerrateofpineplantationgrowth.AsPrestemonandAbt(2002)indicate,reductionintherateofpineplantationexpansionisconnectedtogreatertotalforestlossesinthelongrun.
Finally,wemightspeculatethatthelossofindustryownershipintheSouthcouldleadtoreducedinvestmentintimbergrowingresearchanddevelopment.TheconsequencesofsuchapullbackaredifficulttoforeseebutmayleavetheUnitedStatesinaworsepositiontocompetegloballyinthelongrun,ifothercountriesmaintainorincreasetheirresearchintotimberproductiontechnologies.
Key Observations—Supply■ Timberland area within the South was relatively stable through the 20th century.
■ Ongoing urbanization is focused in the Piedmont and along the coasts. Forest loss is projected by recent research to be highest in the Southeast (from Virginia to Florida).
■ Agricultural prices are such that increased timber prices or a reduction in agricultural subsidies could lead to an expansion of pine plantations on agricultural lands.
■ Timber sector studies project that the South could experience changes ranging from no net loss of forest to a net loss of 31 million acres by 2040 (16 percent of forests), depending on the future price of timber.
■ In spite of strong growth in prices of hardwood pulpwood, there has been little investment in hardwood production, i.e., hardwood plantations.
25
Figure 44—Forecast of the percent of industry timberland in a land conversion-value class in Georgia, 2010. (Source: Wear and Newman 2004.)
■ If planting that was subsidized under the Soil Bank and CRPs is not counted, planting of pines increased at a steady rate between 1945 and 1998.
■ Except during the Soil Bank and CRP periods, industry has done a disproportionately high share of tree planting (45 to 70 percent of planting with only about 20 percent of timberland).
■ Tree planting has served as both replacement and expansionary investment. In the 1990s, levels of expansionary and replacement investment were each about 1 million acres per year.
■ Recent declines in planting indicate a reduction in expansionary investment since the late 1990s.
■ The supply effects of recent reductions in expansionary investment will not be felt for some time.
■ Forest products firms, which hold a disproportionately high share of the forest capital, have been selling much of their lands, about 50 percent by 2005, compared to 1999 levels.
■ Some industry land sales are explained by urbanization pressures, but most of the land sold is expected to remain in timber production in the near term.
■ The shift toward TIMO management may entail more parcelization and fragmentation of timberland ownership. The shift may also lead to a less stable supply of timber, more volatile timber prices, and a slower rate of increase in the area of pine plantations.
■ Divestiture of industry lands could lead to lower overall investments in timber research and development, leaving producers in the U.S. South less able to compete against foreign producers in the long run.
Conclusions and Implications
OurfocusinthisassessmentoftimbermarketsintheSoutheasternUnitedStateshasbeenonunder-standingthedemandandsupplyfactorsthathaveplayedoutinthemarketsforvarioustimberproducts.Below,wesynthesizeourfindingsintoalistingofthesignificantforcesdrivingchangeinmarketsfortimberproductsintheSouth.
1. The demand for domestically produced timber products has shifted downward in the United States. Consumption of solid wood products has not grown at the same pace as housing starts, and the per capita consumption of paper has declined over the past 10 years, after being relatively stable for many years. These declines in domestic production and per capita consumption of some timber products have been coupled with a substantial decline in the off-shore demand for U.S.-produced timber products. Exports of wood chips fell from its peak in 1998 to nearly zero exports in 2003.
2. The supply of domestically produced timber products has continued to expand outward since the late 1990s. Timber supply is a function of the amount of land dedicated to forest growing and the intensity of management. The area of timberland has remained fairly constant since the 1970s, and the area of intensively managed (planted) forests continued to expand through the 1990s (that is, expansionary investment continued even after production and prices fell). Because timber is a long-lived asset, supply could continue to move outward and dampen prices for years. The effects of recent declines in planting may not be felt for several more years.
3. Fundamentals of economics indicate that a substantial downward shift in demand coupled with a constant to increasing supply leads to (a) a decline in output and (b) a disproportionately strong decline in prices. This is exactly what has been observed in pulpwood markets—especially softwood pulpwood markets—since 1998.
0.0 – 0.20.2 – 0.40.4 – 0.60.6 – 0.80.8 – 1.0No data
Interstates
2010 probability
The U.S. South’s Timber Sector in 2005: A Prospective Analysis of Recent Change26
4. An evaluation of investment of wood products firms in manufacturing capacity within the region provides insights into futre production potential. Capacity for lumber production has remained strong, while capacity for paper production has declined since the late 1990s. Indications are, therefore, that demand for pulpwood to produce paper may not rebound to early 1990s levels in the foreseeable future. Long-term demand for solid wood products appears strong, however.
5. Persistent low prices for softwood pulpwood may indicate opportunities for the manufacture of other products from this product class. Indeed, several firms have recently announced plans to build plants to produce OSB in many of the areas where pulpmills have closed. Announced plants are not always built, but the number of announcements indicates that expansion in this sector will provide additional demand for pulpwood in the next 5 years.
6. Upward pressure on hardwood pulpwood prices and downward pressure on softwood pulpwood prices combine to provide incentives to shift industrial production toward utilization of softwoods. Indeed, after a long period of substituting hardwood for softwood in paper production, we might expect to see an increase in the share of softwood inputs.
7. Imports of hardwood chips into the South remain relatively small compared to the total consumption. However, it appears that if hardwood chip prices rise above thresholds already reached in parts of the region, e.g., in Florida, then imports from South America become a viable alternative to domestic production. The existence of this backstop supply of plentiful eucalyptus chips indicates that future hardwood pulpwood prices may have a ceiling in the region.
Concernsaboutsoutherntimbermarketshavenecessarilyshiftedfromafocusonsupplyissuestoafocusondemandissues.Forestinvestment,drivenbybothmarketforcesand
tree-plantingprograms,hasproducedplentifulandsustainabletimbersuppliesandsupportedamorethandoublingoftimberproductionovera30-yearperiod.Forecastingmodels(e.g.,PrestemonandAbt2002)indicatethattheregioncanreadilysupplyevenmoretimber.Whilesomeuncertaintiesregardingsupplymaybeindicatedbythedivestitureofforestindustrylands,theyareatleastpartiallyquelledbyasurgeofinvestmentcapitalintothesectorfrompensionfundsandothersources.
Thebigquestionis,howwilldemandrespondinthefuture?Wefindlittleevidencethattherewillbeastrongreboundindemandforpulpwoodforpaperproductionorareturnofchipexportmarkets.IncreasedproductionofOSBandotherengineeredwoodproductsmayincreasedemandforpulpwood-sizedmaterials,butthiseffecthasnotyetfullyoffsetdeclinesindemandfromthepapersector.Thismeansthatsoftwoodpulpwoodpricesarenotlikelytoreboundtomid-1990slevelsanytimesoon.Emergenceofbiomassenergymarketsmayaffectdemandinthefuturebutthisishighlyuncertainatthistime.
Acknowledgments
TheresearchreportedherewassupportedbytheSouthernGroupofStateForestersandtheU.S.DepartmentofAgricultureForestServicethroughtheSouthernRegionandtheSouthernResearchStation.TheissuesaddressedinthisreportwereinitiallyraisedbyanexpertpanelconvenedtoexaminechangesintimbermarketsintheU.S.South.Membersoftheexpertpanelwere:RobertAbt,NorthCarolinaStateUniversity;DouglasCarter,UniversityofFlorida;MichaelClutter,UniversityofGeorgia;JimGan,TexasA&MUniversity;IanMunn,MississippiStateUniversity;DavidNewman,UniversityofGeorgia;JeffPrestemon,ForestService;JacekSiry,UniversityofGeorgia;andDavidWear,ForestService.
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Appendix: Data Notes
Throughout this report, we document the sources of data upon which discussions are based. In this section we document cases where additional analysis was applied to the published data.
Recent Trends in the Forest Sector
Harvest quantitiesRoundwoodoutputfortheU.S.South
istakenfromtheU.S.DepartmentofAgricultureForestServiceTimberProductOutputsystemmaintainedbytheForestInventoryandAnalysisResearchWorkUnit.ReportsofroundwoodoutputfortheregionhavebeendevelopedfortheRPANationalInventoryDatabasefortheyears1952,1962,1977,1981,1996,and2001(see,e.g.,Smithandothers2001,
2004).Comparableannualpulpwoodproductiondatahavebeencompiledfortheregion(see,e.g.,JohnsonandSteppleton2005).Weconstructedanannualseriesofsoftwoodsaw-logproductionbyinterpolatingbetweentheRPAreportingyearsbasedontheproductionofsoftwoodlumberwithintheregion.
PricesWeconstructedpriceindicesby
productclassfortheU.S.SouthbasedonpricesreportedforsubstateregionsbyTimberMart-South.Theindexisanaverageweightedbyinventoryvolumesoftherespectiveregions.Pricesareadjustedforinflationbytheconsumerpriceindexforallurbanconsumers.
Demand Factors
Noentryforthissection.
Supply Factors
Treeplantingdata—areaofplantingactivity—wereobtainedfromvariousreports(seePrestemonandAbt2002foracompilation)andpersonalcommunicationswithanalystswhohavetrackedthedataforthefinal4yearsofthetimeseries.1Toseparateexpansionfromreplacementinvestment,wecomparedplantingwithchangesintheinventoryofplantationsreportedforvariousyearsinConnerandHartsell(2002).Theincreaseinreportedplantationswasassumedtoequaltheamountofexpansionaryinvestmentfortheperiod.Thisamountwasassignedtoindividualyearsfortheperiodbasedongrossplanting.Theremainder(totalplantingminusexpansionaryinvestment)wasdefinedasreplacementinvestment.
1Personalcommunication.2005.S.Chapman,GeorgiaForestryCommission,Macon,GA.
Wear, David N.; Carter, Douglas R.; Prestemon, Jeffrey. 2007. The U.S. South’s timber sector in 2005: a prospective analysis of recent change. Gen. Tech. Rep. SRS-99. Asheville, NC: U.S. Department of Agriculture, Forest Service, Southern Research Station. 29 p.
Forest product markets are an important part of rural economies of the U.S. South, but recent changes in timber markets have raised questions about the future. Several factors have altered forest products markets since the late 1990s, including industry consolidations and associated changes in land ownership, changes in domestic consumption patterns and international trade patterns, and depreciation and closure of older processing facilities. The focus of this assessment of timber markets is on understanding how these and other demand-and-supply factors have affected the markets for various timber products. Our findings suggest that the demand for domestically produced timber products has declined somewhat in the United States, as domestic demands as well as exports have fallen. At the same time, the supply of domestically produced timber products has continued to expand since the late 1990s. The net result of these demand-and-supply changes may be (a) a decline in timber product output and (b) a disproportionately strong decline in associated prices. An evaluation of investment of wood products firms in manufacturing capacity within the region provides insights into future production potential. Paper production capacity has declined since the late 1990s, while lumber production capacity has remained near 1990s levels. Indications are, therefore, that demand for pulpwood to produce paper may not rebound to late 1990s levels in the foreseeable future. However, persistent low prices for softwood pulpwood could indicate long-term opportunities for the manufacture of other products from this product class. Long-term demand for solid wood products appears strong, signaling that a relatively favorable investment climate should exist in this part of the forest sector.
Keywords: Demand and supply factors, forest products markets, investment climate, long-term demand, paper production capacity.
The Forest Service, United States Department of Agriculture (USDA), is dedicated to the principle of multiple use management of the Nation’s forest resources for sustained yields of wood, water,
forage, wildlife, and recreation. Through forestry research, cooperation with the States and private forest owners, and management of the National Forests and National Grasslands, it strives—as directed by Congress—to provide increasingly greater service to a growing Nation.
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United States Department of AgricultureForest Service
Southern Research Station
General Technical Report SRS-99
