February 7, 2023

Ag Economy

Timber and Forest Products Industry Snapshot

Lumber

  • With higher mortgage rates and an economy showing signs of a slowdown, demand for lumber is expected to continue to decline through the first quarter of 2023. Housing starts are projected to decline by ~16.5% from 1.55 million units in 2022 to 1.30 million in 2023. Similarly, spending on residential improvements is anticipated to decline by ~19.9% in 2023 compared to 2022. Despite the continued slowdown anticipated in the first half of 2023, end use softwood lumber fundamentals remain strong (record pent up demand, very low home inventory, strong demographic tailwinds, aging housing stock and record home equity).
  • Spruce/Fir lumber prices continued their decline in the 4th quarter of 2022 and it is anticipated that prices will continue to slide during the first half of 2023 albeit at a slower rate since mill closures and shutdown announcements will become prevalent.
  • Continued good demand, low inventory, and limited surge capacity on the supply side allowed Eastern White Pine prices to remain stable in the second half of 2022. Eastern White Pine prices are expected to soften in 2023 as the economy continues to cool but at much slower pace than the current price drops experienced in the Spruce/Fir lumber sector.
  • Hardwood lumber prices (e.g., Red Oak, Hard Maple and Yellow Birch) have consistently declined during the second half of 2022, as domestic and international end use demand weakened. Many high-cost sawmills struggled with profitability. Closures and curtailments are anticipated in 2023. 

Pulp and Paper

  • There is little change in overall end use paper markets, with free sheet, super calendar and newsprint remaining under pressure and declining, while container board and packaging have been returning positive margins.
  • North American tissue manufacturers were negatively impacted by higher than forecasted pulp and freight costs in 2022. In response, many tissue manufacturers were able to pass on price increases, but these didn’t take effect until the 3rd quarter of 2022. Pulp prices started to stabilize in the fall of 2022 and this trend is expected to continue into 2023.

Logging

  • The logging industry in the Northeast and across the county continues to face many headwinds. High fuel prices and labor issues plagued the industry’s profitability in 2022 with no changes expected in 2023.  

Timberland

  • Northeast commercial timberland sales remained strong during the during 2022. Numerous large commercial transactions closed throughout the region (30,000-90,000-acre tracts) at values in the $350-$500/acre range. An increasing amount of smaller timberland transactions underpinned by conservation easement and/or carbon sequestration strategies elevated sales activity and improved market liquidity. 
  • Improved consumer balance sheets and competitive credit conditions sustained the recreational timberland sales trend. Elevated recreational land sales have bolstered profitability and liquidity for timberland owners throughout the Northeast, partially offsetting weakness driven by the low grade lumber markets.
 

 


Meet the Authors

Connect with and discover our Today’s Harvest blog authors and their broad range of financial and Northeast agricultural expertise.