How will the local timber industry survive the economic recession, and what is in its future?
Dr. Matthew Pelkki, a forestry and economy professor from the University of Arkansas at Monticello, spoke to about 50 sawmill operators and landowners Thursday at the county fairgrounds. His presentation, “Surviving the Recession,” gave an update of the status of the timber industry, timber markets and what may be in store for the timber industry.
“It’s going to get worse, but there will be better times in the future,” he said. “We have a rough road ahead of us. We’re not at the bottom yet.”
He noted that Arkansas is the fourth largest producer of soft wood lumber in the country, under Oregon, Washington and California — and tied with Georgia.
When a great deal of paper products comes from consumer packaging, he said, the state has been “lucky for a while because China has been sucking up the paper products,” but China’s economy is starting to fall, as well.
He talked about the state’s main sectors in the woods industry: Logging, lumber/solid wood products, pulp and paper, and furniture (which, he said, has done “reasonably good” so far despite the unstable economy).
The importance of the timber industry is that it ships out $10 billion annually in wood products, and every job at a sawmill creates other jobs in the general economy — from loggers, truckers and repairmen to those in the goods and service industry.
Ten years ago, 44,000 Arkansans were employed in the timber industry. After a 25 percent drop, however, that number has decreased to 32,000. The logging sector of the industry, he said, is “fairly stable. Only recently have we seen a drop.”
Wages and salaries are an indicator of the industry’s condition, as well. Wages peaked in Arkansas in 2006, when the average job in the pulp and paper sector brought in $70,000 per year. The furniture sector has gone down with the housing market. “When you buy a new house and you put your old furniture in it, it just doesn’t look the same, does it?” he asked, describing how the housing market has put a damper on the furniture sector. The logging sector has been “inconsistent” in wages as rain can keep loggers out of the woods, but a logger makes about $30,000 per year.
The highest wages for the timber industry in the state are in Little River, Ashley, Conway and Lincoln counties, he said, as those areas have the most needed plants for wood products demand.
The “value-added” aspect of the industry happens when a property owner makes a profit from the wood. “By and large, we saw the employment drop, but the value-added was still going up until 2006 when the housing market stumbled.”
Because land sales at the beginning of the recession caused a “blip” in logging, landowners sought an easy profit from small parcels of land.
Because of a time lag involved in “turning a tree into a house,” the wood industry will suffer later than other industries. The recovery time for the industry will also come later than other recoveries, he said.
“At the very best, by the fall of 2010 we could see a recovery in the housing market. We could be looking at 2013. There is no quick fix to this. We can only hope it will not be too severe.”
He said the recent bailout of the housing industry and the vehicle industry, which are supposed to help the markets, are not a wise decision on part of legislators. “I’m a free market kinda guy ... They are only propping bad businesses up.”
Pelkki talked about current prices for “stumpage,” the value of timbered property. He said the value of timber is “residual,” meaning that property owners are paid last after the wood is manufactured. In the fourth quarter of 2008, the price of wood was higher in south Arkansas than it was in the north part of the state — by about $10 per ton. This gap, he noted, is mainly because of fewer sawmills in the northern part of the state.
A ton of “great” pine was worth $37 per ton, while a ton of “poor” pine pulpwood was worth $27 per ton in south Arkansas. For pulpwood, “great” pine pulpwood was worth $14 per ton and “great” hardwood pulp was worth $17 per ton.
He said that prices have been good in the state, but Arkansas has been paying higher prices. He said timber owners should not expect to see the prices continue at the same rate. Looking at Louisiana stumpage between 1967 and 2008, the value of wood has increased because of inflation, but has seen small downfalls that reflect the economy. After a small economic dip in 1986, the value of pine in Louisiana increased by 12 percent per year until 1997, peaking at $50 per ton for pine.
Will there be better times for the woods industry? Pelkki said the key to measuring the future is looking at lumber markets. “If they go up, stumpage goes up.”
For timber, home sales and interest rates are important for gauging what will happen in the future. For pulpwood, manufacturing shipments in the U.S. and globally are important factors in predicting the market.
Housing starts will eventually benefit the industry, he said. In February 2006, there were 2.2 million new homes being built. In January 2009, there were only 460,000 — an 80 percent “fall-off.”
He said there will be a great future demand for wood products as the country will eventually seek the replacement of its 115 million homes. Given that a home’s average life span is 70 years, Pelkki said 1.6 million homes will have to be built each year to keep 115 million homes in the country. “New housing starts are going to go up, but not in six months. It will take a little time.”
Predicting a change in the size of homes may steer the industry in another direction. In 1970 the average home had an area of 1,700 square feet; in 2007 that number had changed to 2,700 square feet — a 50 percent increase. Pelkki predicted new homes to be smaller as the “younger generation are becoming economically conscious.” Also, those at retirement age who are interested in building a home will build smaller.
The introduction of biofuels could also benefit the timber industry. A wood pellet plant located in Camden this week, employing about 40 people. The demand for wood pellets is highest in northeast US for heating energy. “That will be an export value for us,” he said.
Modular housing is another change of pace for the industry. The factory-built modular homes (not mobile homes) are built inside of a building rather than on-location, causing less lumber wasted as it is salvaged rather than discarded.
Engineered wood products is something else the future may hold. In the future, wood fibers will be injected with plastics to create a product that will not rot, twist during manufacturing or attract termites.
Specialty chemicals could also create a demand for wood products. Turning wood into ethanol is an idea that is in its infancy as corn is “paving the way” for other products to be converted.
When the technology advances far enough, the sugars from sweet gum balls could be fermented to create ethanol, yielding ethanol for vaccinations and fueling motor vehicles. Pelkki said sweet gum would not replace pine, but a value would be added to the tree. Landowners now despise the tree, he said, as it gets in the way of pine growth. Landowners normally pay to have the tree removed from pine plantations.
In conclusion, Pelkki urged mill operators to “stay the course. Markets are not good, but in the long run they will have more value. The industry still out-produces the stock market.” He also said mill operators should harvest timber to promote forest health.
“Spot markets” are something else land owners and mill operators should be on the lookout for. As other countries’ demands for certain types of wood — ash and hickory, for example — small markets may spark. “Now is the time to gauge that organ between your ears and think about what we need to do ... Things aren’t going to be as easy as they used to be, but we have a challenge here — work harder.”
