Saw mill operators harvest gains while Southern landowners struggle with tree surplus; ‘I’m not making anything’
By: Ryan Dezember and Vipal Monga | Photograph by: Charlotte Kesl for The Wall Street Journal
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. Photo by: Charlotte Kesl for The Wall Street Journal
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 Joe Hopkins, 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.
Saw mills are running as close to capacity as pandemic precautions will allow and are unable to keep up with lumber demand. The problem for timber growers is that so many trees have been planted between the Carolinas and Texas that mills are paying the lowest prices in decades for logs.
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— Canfor Corp. CFPZF -0.30% , Interfor Corp. IFP 4.43% and West Fraser Timber Co. WFG 2.07% —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 Don Kayne, 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.
Diverging Markets
While lumber prices have set records this year, prices of the timber used to make lumber have remained low.
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.
