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

Quarterly Forecast for Timber and Log Prices

SEPTEMBER 22, 2016: Lumber and log prices have fallen markedly since peaking in 2014. Random Lengths’ Coast Dry Random and Stud composite lumber price peaked at $393/mbf in January 2014 but fell throughout the rest of the year to average $373/mbf. The composite lumber price continued to fall to average $311/mbf for 2015. Prices have averaged $326/mbf from January to July 2016, with the last four months averaging $341/mbf.

The increase in prices in 2016 appears to have been initially driven by much higher first quarter housing starts compared to 2015. This spiked lumber demand and caught lumber dealers off-guard. Prices were expected to pull back in the third quarter, but as of July this had not happened. Prices are now expected to spike in September due to a potential trade dispute with Canada as a result of the expiration of the Softwood Lumber Agreement (SLA).  Prices are expected to fall in the fourth quarter before increasing again in the beginning of 2017.

Through 2015 the price of a `typical’ DNR log averaged $521/mbf, falling from the $591/mbf average in 2014. The average price for 2016 is largely unchanged at $522/mbf through July. The decline in 2015 was primarily due to the dramatic slowdown in demand from China and an ample regional supply of both logs and lumber. Log prices are expected to remain flat through 2016 and begin increasing in 2017 with an increase in lumber demand.

A continuing downside risk for the forecast is 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 the November 2015 forecast, we 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 are that the SLA situation will cause an unseasonal increase in prices in September, which will fall back until early in 2017.

Robust growth in U.S. housing demand would provide much needed, if unlikely, high-side potential. This has not yet eventuated, despite strong employment growth for the last two years. The lack of housing demand is likely due to a number of impediments—persistently stringent lending standards, a continued tough labor market for younger workers, student loan debt, and general malaise—all of which are lessening, but none of which show signs of completely abating just yet.

Source: DNR Office of Budget & Economics, September 2016 Forecast Summary

Tax Tips for Forest Landowners for the 2016 Tax Year

The U.S. Department of Agriculture has published its annual tax tips for forest landowners. Current as of Sept. 30, 2016, this publication provides up-to-date federal income tax information affecting timber transactions and is intended to assist woodland owners, logging professionals, foresters and their tax accountants in filing the 2016 tax returns. Click to view or download this report.

DNR Revenue Forecast: Timber Prices Fall on China Concerns

By David Chertudi, Lead Economist, and Kristoffer Larson, EconomistDNR Office of Budget and Economics

Lumber and log prices have fallen markedly since peaking in mid-2014. Random Lengths’ Coast Dry Random and Stud composite lumber price peaked at $393/mbf in January 2014 but fell throughout the rest of the year to average $373/mbf. The composite lumber price continued to fall precipitously to a low of $287/mbf in May 2015 before rebounding to $333/mbf in July. As of December the price had fallen to $295/mbf, to average $311/mbf for 2015.

This decline is mostly due to the dramatic slowdown in demand from China and an ample regional supply of both logs and lumber. Log prices are expected to increase throughout FY 16 to average as much as six percent more than FY 15.

In the November forecast, we 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 cheap logs and lumber to stream across the border from Canada. This has not occurred and probably will not because of constraints on Canadian log supply as they run out of excess wood from beetle-kill, the importance of China to the British Columbia lumber market, and the significant presence of Canadian companies that own U.S.-based sawmills.

Read the full February 2016 DNR Quarterly Economic and Revenue Forecast online.