Log shortage drives up prices

By Rick Sohn, PhD
Umpqua Coqullie LLC

Markets are strong and log shortages are driving prices up.  Comparison to 2006 data shows striking differences.  Seven-year trend of lumber, logs, housing, and mortgage statistics are shown below.                            

                                           Prices in Dollars per Thousand Board Feet

 Thousands of  Housing Units

 ____Months of  Inventory of Unsold Homes_______

__________   Percentage interest rate____         _  

Interpretation

Studs are up for the fifth straight month to $363, logs up for the 7^th straight month, to $696. Studs have not been this high for more than 7 years, and logs most recently were at  their current number in June 2006, and $720 in March, 2006.  A combination of extreme weather repairs,  homebuilding demand, exports, and a shortage of  products  driven by a shortage of logs, are all helping drive product and log prices.  Plywood prices are near all-time highs according to Random Lengths.

From December to January log prices are up $89 in one month.  This number is supply-demand driven. Lumber only went up $17 in this period, and then went up $28 January to February. There is a log shortage.

Some say that Private lands and the available contractors cannot supply winter logs to keep up at this time.  Some contracting prices are at a $50/thousand premium, over typical prices, if available at all.  In earlier reports, we talked about impending skilled labor and equipment shortages in the woods, due to layoffs in the wood products depression starting in 2008, and it is happening now.  The contractors and logging sides, especially cable logging, are in short supply.

Others in manufacturing paint a different story.  Whitewood (such as hemlock and white fir) are in high demand by the Chinese, whose prices are as much as $150 per thousand board feet higher this cycle than in the early 2000’s when the Chinese also bought a lot of logs.  They are now directly competing for our mill supplies in the Northwest.   Some manufacturers are precluded from adding  shifts due to the shortage of logs.

According to Barchart.com, Lumber futures from May through September, are priced between $390 and $400 – very strong, steady prices.

Housing Starts dipped slightly this month but Building Permits set a new record, following 13-month upward trend.  Unsold inventory is bouncing around in a healthy range, but RMLS and anyone looking for a house knows that business has picked way up and home prices are rising, even though mortgage rates are up slightly.

If the long term shortage of logs continues, it could hurt long term manufacturing capacity in the Pacific Northwest.  Mills have to go too far for wood to be competitive.  In western Oregon as much as 50% or more of the land is public in many counties.  Here, the Forest Service and BLM are (not really) managing forests in fits and starts by fire, practicing “not in my backyard” forestry, rather than actively managing forest landscapes for the common good. 

Finally, the “healthy market” 2006 data is provided.  It is remarkably the same, yet different.  Logs, studs, and unsold inventory are comparable.  But Housing Starts, building permits, and mortgage interest rates show that current prices are independent of the overall volume in the market.     

Do you have any comments?  Please send them to [email protected]

Data reports used with permission of:

¹Random Lengths.  Through Sept. 2012, 2”x4”x8’ precision end trimmed hem-fir stud grade from Southern Oregon mills.  Starting Oct. 2012 the stud grade was consolidated with and is now reported as  Kiln Dried Studs, Coast Hem-Fir 2x4x8’ PET #2/#2&Btr. Price reported is Dollars per Thousand Board Feet, generally the third week of the month.  One “board foot” of product measures 12 inches by 12 inches by one inch thick.

²RISI, Log Lines.   Douglas-fir #2 Sawmill Log Average Region 5 price.  Current report is for the prior month.  Dollars per Thousand Board Feet of logs are reported using standardized log measurements from the “Scribner log table,” which includes expected saw trim.  This is much larger than a product board foot.

³ Dept. of Commerce, US Census Bureau.   New Residential Housing Starts and New Residential Construction Permits, seasonally adjusted, annual rate.  Current report is for the prior month.   Recent reports are often revised in bold.  Also, major revision made each May, reaching 2 1/2  yrs back.

⁴Regional Multiple Listing Service RMLS^TM  data, courtesy of Janet Johnston, Prudential Real Estate Professionals  Broker, Roseburg, OR.  Inventory of Unsold Homes (Ratio of Active Listings to Closed Sales) in Portland Oregon, for most recent month available.

⁵Freddie Mac.  Primary Mortgage Market Survey.  30-year Fixed Rate Mortgages Since 1971, national averages.  Updated weekly, current report is for the prior full month.

⁶Mortgage-X Most recent weekly rate of 30-year Fixed Rate Mortgages, national average.

Issue  #6-2. © Copyright Rick Sohn, Umpqua Coquille LLC.   For permission to reprint, e-mail  [email protected]

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