Log Prices and Outlook

composite log prices

DNR Composite Log Prices, Source: DNR Economic & Revenue Forecast, Fiscal Year 2017, Second Quarter, November 2016

This figure presents prices for Douglas-fir, hemlock and DNR’s composite log. DNR’s composite log price is calculated from prices for logs delivered to regional mills, weighted by the average geographic location, species, and grade composition of timber typically sold by DNR. In other words, it is the price a mill would pay for delivery of the typical log harvested from DNR-managed lands. (NOTE: The mix of factors behind these prices may or may not be similar to those of small forest landowners.)

Readily visible on the graph is the decline in the premium for Douglas-fir—due in large part to Chinese demand fortifying hemlock prices. Also readily visible is the drop in prices from late 2014 to early 2016. The price of a ‘typical’ DNR log moved up sharply from a two-year plateau in 2013 to $591/mbf in 2014. However, prices declined through 2015 to average $521/mbf. The decline in log price is primarily due to the slowdown in demand from China and ample regional supply of both logs and lumber. A price decline was largely foreseen, though the depth of the drop was unexpected.

Log prices in 2016 were expected to be slightly higher than 2015 prices, held back by the same issues plaguing lumber prices, and then to begin increasing in 2017. Prices thus far have averaged $531/mbf.

Outlook

A continuing downside risk for forecasting prices is the state of timber and lumber demand from China. While it seems that a decrease in demand has largely been accounted for in the current market prices, and the export volumes of logs and lumber has largely stabilized, the Chinese economy continues to have issues. There is continuing concern that the slowdown in China could become dramatically worse.

In a previous forecast, DNR noted that the expiration of the Softwood Lumber Agreement posed a major downside risk to the forecast because the expiration of tariffs might allow a flood of cheaper Canadian lumber into the US, suppressing domestic prices. Though the expiration of the SLA has likely held down prices, it has not resulted in the dramatic price drops that some feared. Current expectations (as of November 2016) are that the SLA situation will cause a counter-seasonal increase in prices this autumn, which will fall back until early in 2017.

From the DNR Quarterly Economic and Revenue Forecast, November 2016