Market Movements: Lumber and Log Prices

Lumber, log and stumpage price
Lumber, log and stumpage prices in Washington. Source: Figure 11; DNR Economic & Revenue Forecast, Fiscal Year 2018, Second Quarter, November 2017.

After peaking at an average or $376/mbf in 2014, West Coast lumber prices fell to $317/mbf for 2015. They recovered slightly in 2016, averaging $341/mbf, mostly due to higher first quarter housing starts than in 2015.  The increase in starts spiked lumber demand, catching lumber dealers off-guard, and pushed prices up from the end of the first quarter. Prices retreated toward the end of the year but did not fall to earlier lows. Lumber prices for 2017 have been significantly higher, averaging $406/mbf through September.

A continuing downside risk for the forecast is timber and lumber demand from China, which has already experienced a steep decline, could drop even further if the country’s economic growth continues to slow down.

In previous forecasts, we noted that the expiration of the Softwood Lumber Agreement posed a major downside risk to the forecast: the expiration of tariffs might allow a flood of cheaper Canadian lumber into the United States, suppressing domestic prices. This doesn’t seem to have happened. Current expectations are that the countervailing duties imposed on Canadian lumber by the U.S. Department of Commerce will continue through 2017, though a deal is expected early in 2018. These duties will support higher prices.

Robust growth in U.S. residential improvements and housing construction would provide much needed, if unlikely, high-side potential.  This has not yet occurred, despite strong employment growth for the last two years. Although housing demand has picked up there are still a number of impediments — persistently stringent lending standards, a continued tough labor market for younger workers, student loan debt, and general economic and social malaise — most of which are easing, but none of which show signs of completely abating just yet. Additionally, there are a number of supply side impediments constraining construction growth, primarily a lack of skilled labor and a lack of readily buildable land.

Excerpt from DNR’s November 2017 Quarterly Economic and Revenue Forecast