Lumber prices finally cooled off. Now come the fires.
Forest fires raging in the West are threatening an important swath of the U.S.’s wood supply, pinching output that has been under pressure since the Covid-19 pandemic touched off homebuying and remodeling booms and sent lumber prices soaring.
, one of North America’s largest lumber producers, said that starting Monday it would cut back output at its mills in British Columbia because of hundreds of blazes that have broken out in the Canadian province and challenged its ability to shuttle wood to and from its facilities. The company expects to reduce output at its 10 operating mills there by a total of about 115 million board feet during the quarter.
That is only a sliver of North America’s overall supply. Yet analysts said they expected further curtailments because of fires that are scorching logging forests on both sides of the U.S.-Canadian border. In addition, lumber prices have fallen below the cost of sawing boards in the continent’s most expensive place to process timber.
“The wildfires burning in western Canada are significantly impacting the supply chain and our ability to transport product to market,” said
executive vice president of Canfor’s North American operations.
Traders responded Wednesday by bidding up lumber futures for delivery through January by the daily maximum allowed by exchange rules. September futures rose 7.75% to close at $584 per thousand board feet, a rare up day in the midst of a 66% decline since early May.
Lumber is one of several commodities markets being roiled by extreme weather this summer. The same heat and drought that set the stage for an unusually early and intense fire season in the West have dried up hydroelectric power output and increased air-conditioning demand in the region, which has helped push natural-gas prices to their highest summer levels in seven years.
A lack of rainfall in South American farming regions has left the Paraná River too shallow for fully loaded boats to pass from Argentina’s interior to Atlantic shipping lanes, contributing to high prices for soybeans and corn. Flooding in Germany last week forced the closure of a plant owned by
, a major metal producer and recycler, as copper prices hover around all-time highs.
Aurubis said that one of its two facilities in Stolberg, western Germany, was evacuated without injury to employees. The damage is extensive and production isn’t expected to resume until the fourth quarter at the earliest.
“Delivery to customers and acceptance of incoming deliveries are impossible right now,” the firm said.
The lumber market was just getting back into balance when the fires broke out. North America’s sawmills sent workers home at the start of the lockdown and were unprepared for the building boom that ensued. They have struggled to saw logs fast enough to meet demand from home builders, do-it-yourselfers and restaurants that raced to install outdoor seating areas.
Lumber prices topped out in May at more than four times what is typical for two-by-fours, which helped reduce demand, particularly from the more price-sensitive DIY market that buys wood from retailers such as
Mark Wilde, an analyst with BMO Capital Markets, said he expects more mills to announce reduced hours and shifts in the coming weeks
“Pricing windfalls like that of the last 12 months are once in a generation,” he said. “It would be crazy to simply return all that cash to the market by overproducing during a weak market.”
The wood-pricing service Random Lengths said in its midweek report that some Western mills have recently unloaded two-by-fours of spruce, pine and fir for below $400 per thousand board feet. Forest-product executives said that mills operating in British Columbia, where the provincial government metes out log supply, usually need more like $700 to be profitable these days.
Such a high break-even price, along with the threat of fires, outbreaks of wood-boring beetles and distance to the Sunbelt’s mushrooming housing markets, has relegated what was once the continent’s top lumber-producing region to the status of swing producer. That means that the region’s mills—much like U.S. shale producers in the oil market—are likely to be the first to curtail production when lumber prices fall and are then counted on to increase output when supplies are stretched and prices rebound.
Canfor and its rivals have responded by shifting their focus to the U.S. South, where a glut of pine trees has pushed log prices to their lowest levels in decades despite strong demand for finished lumber. They have been quick to invest profits from the recent price surge into the South, which has overtaken Canada as the continent’s top lumber-producing region.
—Joe Wallace contributed to this article.
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One of the biggest names on Wall Street is getting into the timber business, and a big part of its plan to make money involves less logging.
J.P. Morgan Asset Management said Monday that it has acquired Campbell Global LLC, a Portland, Ore., firm that manages $5.3 billion worth of timberland on behalf of institutional investors, such as pensions and insurance companies.
The deal gives the $2.5 trillion asset manager a position in the booming market for forest-carbon offsets, tradable assets that are created by paying landowners to not cut down trees and leave them standing to sponge carbon from the atmosphere. Offsets are used by companies to scrub emissions from their internal carbon ledgers, which track progress toward pollution-reduction goals.
Campbell Global oversees about 1.7 million acres of forestland in the U.S., New Zealand, Australia and Chile. About two-thirds of its 150 employees are involved in managing the forests, while the others are investment professionals, said
the firm’s chief executive.
Campbell for more than three decades has managed timberland to produce logs for lumber and pulp mills. In recent years, it has moved into carbon markets, selling offsets in California’s regulated cap-and-trade market as well as in the unregulated voluntary markets that have boomed with the rise of green investing.
“We do believe this is the future for this asset,” Mr. Gilleland said.
Timberland investing became popular in the 1980s after the tax code was made more favorable to owners of income-producing real estate, Congress allowed pensions to diversify beyond stocks and bonds and Wall Street analysts convinced forest-products companies to sell off their timberlands.
Investors reasoned that trees would grow, and thus gain value, no matter what the stock market did. Timberland was viewed as a good hedge against inflation.
But it hasn’t always been a good investment: At the same time timberland investing was gaining momentum, the federal government was paying landowners in the South to plant pine trees on worn-out farmland to boost crop prices. Decades later, the resulting surfeit of pine has pushed log prices to their lowest levels in decades even as the resurgent housing market has lifted prices for lumber and other wood products to records.
Investors such as the California Public Employees’ Retirement System have suffered big losses on southern timberland in recent years. Though log prices in the West still move in unison with those of lumber, timberland there is threatened by fires and wood-boring beetles. In the North, mills have closed and rendered many wood lots uneconomical to log and worth more leased to companies as carbon sinks.
North America’s sawmills can’t keep up with demand, which has sent wood prices on a meteoric rise. Don’t expect new mills to start popping up though.
Executives in the cyclical business of sawing logs into lumber said they are content to rake in cash while lumber prices are sky-high and aren’t racing out to build new mills, which can cost hundreds of millions dollars and take two years to build from the ground up.
In doing so they are breaking with conventional wisdom in the commodities business, which states that the cure for high prices is high prices. Usually when prices for raw materials rise, refineries and smelters ramp up, farmers plant larger crops, wells are drilled, mines dug. New supplies flood into the market and prices retreat.
Though lumber futures eased off last week’s all-time highs, they remain more than twice the pre-pandemic record. Meanwhile, cash prices for framing lumber and structural panels reached new highs, according to pricing service Random Lengths.
have set nine-figure budgets to boost efficiency and output at their existing mills, particularly in the South where there is a glut of cheap pine timber. Some forest-products executives said they are considering acquisitions with their fast-accumulating cash. But there aren’t many new mills on the drawing board for North America.
“We are going to be ultra cautious on what we do in those regards,”
told investors last month when the company reported record quarterly profits. “We don’t mind at all having a little extra cash around for sure, considering what this industry goes through.”
U.S. lumber-making capacity has risen about 11% over the past five years, according to Forest Economic Advisors LLC. New mills in the pine belt between Georgia and east Texas have helped offset closures that have shrunk Canada’s capacity, but there isn’t much coming behind them. Idled facilities are restarting in Florida and Mississippi. A couple small mills are under construction out West. Four bigger mills have been announced but not begun in the South, the firm said.
who advises forest-product executives and investors as managing partner in the Houston office of consulting firm
said the lumber boom has prompted clients to ask about building mills. He said he tells them they are too late.
Besides the time and money it takes to build a modern mill, equipment, from microprocessors to heavy machinery, is in short supply. So are the sort of workers needed to operate a computerized mill, especially in the rural places where timber is abundant, Mr. Hesters said.
“Trying to build capacity and make investments that have a lot of lead time at the top of a cycle is historically a good way to lose money,” Mr. Hesters said.
U.S. wood-product manufacturing peaked in January 2006, according to the Federal Reserve. A sharp decline that year foreshadowed the housing market’s collapse. The least efficient mills shut down while others were consolidated. Big Canadian sawyers West Fraser, Canfor and
An example is in Summerville, S.C., where Interfor is boosting output at a lumber mill that it bought in March from a cardboard maker. The lumber boom has pushed up asking prices for mills, though, which may impede deals like that, forest-product executives said.
Meanwhile, stock analysts are advocating for mill companies to return cash to shareholders. BMO Capital Markets analyst
said it is hard to see how mill companies can spend their windfalls without destroying value, given the frothy market.
“It’s a lot of sailors hitting the town with a lot of money in their pocket, so silly things can happen,” he said on Canfor’s earnings call. He applauded Interfor’s move Wednesday to pay a special dividend of $1.65 a share.
Added shifts and new equipment should increase output on the margins, but mill executives expect supplies to remain tight and for prices to remain high into next year.
“Even if there was an opportunity to build inventories, distribution channels would be reluctant at current market prices,” said
Interfor’s head of sales and marketing.
Companies that buy wood from mills to distribute to builders, manufacturers and retailers have been limiting orders to exactly what customers need for fear of getting stuck with high-price inventory and falling prices, said
whose family owns and operates Sherwood Lumber Corp.
The Melville, N.Y., company annually sells about a billion board feet of framing lumber to truss manufacturers, building-supply companies and shipping-crate makers. The firm doesn’t expect additional supplies before late next year or even 2023 and has been trying to manage its risk in the white-knuckle market by taking positions in the futures market.
“This is our job,” Mr. Goodman said. “We’re a middleman. We can’t not have stuff on the shelf.”
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Apple on Thursday announced a $200 million (roughly Rs. 1,490 crores) fund to invest in timber-producing commercial forestry projects, with the goal of removing carbon from the atmosphere while also generating profit.
The Restore Fund, launched in partnership with Conservation International and Goldman Sachs, expected to have its first projects targeted later this year.
“Nature provides some of the best tools to remove carbon from the atmosphere,” Apple vice president of environment, policy, and social initiatives Lisa Jackson said in a statement.
“Through creating a fund that generates both a financial return as well as real, and measurable carbon impacts, we aim to drive broader change in the future — encouraging investment in carbon removal around the globe.”
Forests draw in carbon from the air, storing it and stopping it from contributing to climate change.
The fund aims to remove one million metric tons of carbon dioxide annually from the atmosphere, equal to the amount spewed by more than 200,000 passenger vehicles. Apple said last year it would become carbon neutral by 2030 for all its operations, including manufacturing.
The California-based iPhone maker said its goal was to have no climate impact for all its devices sold.
“Investing in nature can remove carbon far more effectively — and much sooner — than any other current technology,” Conservation International chief executive M. Sanjayan said in a joint release.
“As the world faces the global threat climate change presents, we need innovative new approaches that can dramatically reduce emissions.”
The new feature is based on tens of millions of satellite images from the past 37 years to enable users to see in rich detail how the face of the planet has changed.
“Timelapse in Google Earth is about zooming out to assess the health and well-being of our only home, and is a tool that can educate and inspire action,” the company said in a blog post.
“Visual evidence can cut to the core of the debate in a way that words cannot and communicate complex issues to everyone.”
Facebook also announced on Thursday that it had joined Google in becoming solely reliant on renewable energy.
“Today we’re announcing that as of 2020, Facebook’s operations are supported by 100 percent renewable energy and have reached net zero emissions,” it said in a press release.
It also said it had reduced its greenhouse gas emissions by 94 percent, exceeding its 75 percent reduction goal.
Is OnePlus 9R old wine in a new bottle — or something more? We discussed this on Orbital, the Gadgets 360 podcast. Later (starting at 23:00), we talk about the new OnePlus Watch. Orbital is available on Apple Podcasts, Google Podcasts, Spotify, and wherever you get your podcasts.
TWIGGS COUNTY, Ga.—The pandemic delivered an unexpected boon to the lumber industry. Hunkered-down homeowners remodeled en masse and low mortgage rates drove demand for suburban housing. Lumber supplies tightened up and prices smashed records.
“You must be making a lot of money,” an Ace Hardware store manager told timber grower
whose family business has about 70,000 acres of slash pine near the Okefenokee Swamp.
“I’m not making anything,” Mr. Hopkins replied.
Timber growers across the U.S. South, where much of the nation’s logs are harvested, have gained nothing from the run-up in prices for finished lumber. It is the region’s saw mills, including many that have been bought up by Canadian firms, that are harvesting the profits.
The log-lumber divergence has been painful for thousands of Southerners who are counting on pine trees for income and as a way to hold on to family land. And it has been incredibly profitable for forest-products companies that have been buying mills in the South. Three Canadian firms—
—control about one-third of the South’s lumber-making capacity. Since bottoming out last March, shares of the Canadian sawyers have risen more than 300%, compared with a 73% climb of the S&P 500 index.
The surplus of standing pine is such that growers, foresters and mill executives expect that even with mills sawing at capacity and new facilities coming online, it could be another decade, maybe two, before enough trees are felled to balance supply with demand.
Meanwhile, it’s a buyer’s market for logs down South, said
Canfor’s chief executive. “We try to be fair,” he said.
At their onset, coronavirus lockdowns seemed to derail the housing recovery. Lumber prices plunged in March 2020. Dealers liquidated inventories. Speculators dumped lumber futures and took short positions, betting prices would fall further. Mills sent workers home and curtailed production. By April, roughly 40% of North America’s saw mill capacity was shut down.
Wood was in short supply when the remodeling bonanza began. Then the housing market picked up. Restaurants around the country had to build outdoor decks. Saw mills ramped up to capacity but couldn’t catch up. By last summer, lumber was America’s hottest commodity.
Lumber futures, a benchmark for an array of regional and species-specific prices, rose to a record in early August and kept climbing. Futures contracts traded up to $1,000 per thousand board feet, more than 50% above the previous high, set during the 2018 building season.
Home builders kept hammering through mild early-winter weather and depleted lumber dealers are stocking up for spring. Lumber futures have hit new all-time highs and are more than twice the typical winter price. Spot prices for southern yellow pine set records in January.
None of that has lifted the price of timber, which never recovered from the 2007 housing bust. Logs for softwood lumber averaged $22.50 a ton across the South last summer, the least since 1992, according to TimberMart-South, a pricing service affiliated with the University of Georgia’s forestry school.
“If you put inflation on it, it’s really sad,” said Mr. Hopkins, the Georgia timber grower. Adjusted for inflation, prices for the logs used to make lumber are at their lowest in more than 50 years.
Mr. Hopkins raises timber on a 25-year rotation to support himself and make payments to more than a dozen shareholders in the 109-year-old family business. Because the pines take about a quarter-century to be suitable for lumber, just 4% of the land produces income each year, though taxes are owed on every acre. He said it is like managing a store where he can only sell merchandise from a few shelves.
“We used to be considered wealthy,” he said. “I don’t see wealth. I see tax bills.”
Thousands of Southerners’ fortunes depend on timber prices. In Georgia, timberland owned by families and individuals covers roughly one-third of the state.
Georgia, like much of the Southeast, was thick with longleaf pine when British colonists arrived. The crown claimed the big timbers for ship masts. Trees were bled for their gummy sap to make turpentine. After U.S. independence, the Georgia legislature encouraged clearing for farms by offering 500 acres to settlers who built saw mills.
great-great-great-great-great grandfather got 200 acres near the Ocmulgee River for serving in the Revolutionary War. The family added land over the years and by the 1980s, when the veterinarian took over, there were 1,200 acres.
Cotton and peanuts were too demanding for a practicing vet. Pine trees need little tending. Plus, the federal government was paying landowners to plant trees. Forestation initiatives meant to stop erosion and lift crop prices, such as the Conservation Reserve Program, promised annual payments for every farm acre planted over with trees.
Mr. Bembry was among the droves of Southerners who signed up. He planted mostly slash, a little longleaf, and he added another 800 acres.
The payments and restrictions on logging expired around 2000, just in time for a housing boom that pushed timber prices to highs. Mr. Bembry didn’t cut much of his timber, though.
“I liked looking at it,” he said. “And it was good for wildlife.”
Home prices crashed in 2007. Lumber and timber prices, too. The number of saw mills in the South had already been declining due to consolidation. The collapse in home construction hastened closures of small and less efficient mills. Today the region has about 250, down from more than 400 in 2000, according to TimberMart-South.
West Fraser, the continent’s largest lumber producer, and Canfor had already begun buying Southern mills in the years leading up to the crash. Back home in Canada, their prospects were dimming.
Log supply, which is meted out by Canada’s provincial governments, is threatened by forest fires and wood-boring beetles, which together have laid waste to tens of millions of acres. The lumber companies also have paid billions of dollars in duties on boards sold across the U.S. border, part of a decadeslong trade dispute between the countries.
“Canadian companies have always been on the losing end,” said Eric Miller, president of the Rideau Potomac Strategy Group, a Washington, D.C.-based consulting firm. “So the logical solution was for them to jump the tariff wall and invest in the U.S.”
Sawing in the South allows Canadian firms to avoid tariffs and be closer to top customers in the Sun Belt’s mushrooming housing markets. Labor is cheaper, too.
West Fraser bought mills from Texas to Florida, including 13 from
Canfor started with four in the Carolinas and moved west, adding mills in Georgia, Alabama, Mississippi and Arkansas.
Interfor executives circled Georgia and waited for the bottom. The Vancouver, British Columbia, company pounced at the depths of the housing bust in 2013. Within about two years, Interfor owned one mill each in Arkansas and South Carolina and seven in the pinelands south of Atlanta.
“Whatever Interfor pays, that’s what everybody else pays,” said
who advises on timber sales around Macon, Ga., and grows trees himself in Twiggs County. “They moved to the South in pretty tough times. They could be pretty ruthless.”
Because of trees bred to become planks and the computerization of mills, well-managed timberland produces about 50% more wood than it did a generation ago, he said.
When Interfor arrived, it studied the surrounding trees, noting ages and diameters, then calibrated mills to accommodate the most common-sized trunks, said Todd Mullis, a former Interfor executive who now works for Mr. Humphries’s firm, Forest Resource Consultants Inc.
There aren’t enough of the oldest, thickest trees to justify scaling mills for them. Many of the biggest trees went from fetching top dollar to being mashed into paper and cardboard for much less money. This was bad news for growers like Mr. Bembry, whose trees were left growing when the housing crash cut off demand for wood.
“When you design a mill, you design it for the masses,” Mr. Mullis said. “The metal matches the wood.”
Off the paved roads in Laurens County, Ga., Charles Hill’s logging crew is loading trucks bound for Interfor and West Fraser mills. Sorting is done by a $500,000 John Deere swing machine. A computer is in the cab. A merchandiser on its arm senses the length and girth of trunks in its grasp, strips away limbs and slices off the tree top to fit the mill.
Interfor urges loggers to use such equipment. The company says it offers long-term supply deals and premiums for mechanically trimmed trunks to ease the financial burden of buying the machines.
“The most important decision you make is the first decision, which is where to cut the log,” said Interfor Chief Executive
“The human decision is taken out of it.”
At its mills, Interfor installed scanners that size up logs and position and slice them to maximize board feet and minimize waste. Yields climbed as much as 20% within two years, Mr. Mullis said. Current Interfor executives say the company has invested $300 million making the mills more efficient and productive. Two would have closed had Interfor not bought them, Mr. Mullis said.
“The industry in the Southern U.S. has been relatively backward,” said
who researches forest products for BMO Capital Markets. Many lumber mills were built by paper companies eager for the sawdust and scraps to pulp. “Canadians going down South is the best thing that’s happened to Southern timber,” he said.
This month, Interfor said it would pay a cardboard maker $59 million for a lumber mill near the port in Charleston, S.C. and would spend $25 million to boost output 60%.
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The average price of timber sold to lumber mills rose to $24.03 a ton in last year’s fourth quarter, according to TimberMart-South. But the increase is little consolation to pine growers. That is the same price as in 2012, when there were half as many homes being built.
Mr. Hopkins worries he might have to sell some of his family’s 70,000 acres near the Florida line, likely to hobby farmers—doctors and dentists from Jacksonville more interested in outdoor recreation than turning profit on timber.
“If I’m not sustainable, I can’t keep that land,” he said. “Everything is going up except the price of timber.”
Mr. Bembry, the veterinarian, is concerned about passing liability to heirs. He is studying the potential to sell his standing trees into the booming market for carbon offsets, which would pay him not to cut, and has been planting longleaf instead of faster-growing slash, aided by federal habitat restoration programs. When the subsidies expire, the foot-long needles can be raked, baled and sold to garden centers and landscapers.
“The salvation for me has been pine straw,” he said. An acre can annually produce more than $300 worth.
Lee Rhodes wants to cut and restock for the next generation the 10,000 acres of loblolly pine he manages for his family. It wasn’t cut with urgency when prices were high. Now they are so low, and the nearest mill so far, that loggers have turned down jobs on the property northeast of Macon. He wants to hire his son as successor but cannot afford it.
“The first thing I’ve got to have with 10,000 acres is $55,000” for property taxes, he said. “I do wake up some mornings wondering, why am I doing this?”