Abundance of timber and forecasts for weaker housing market keep prices low and reduce margins for loggers –

By MARY HIGHWOODER | University of Arkansas Department of Agriculture

MONTICELLO, Arkansas — A nearly doubling of Arkansas timber inventories combined with declining demand for housing is leading to low prices and lower margins for loggers, according to economists at the Arkansas Center for Forest Business.

FreddieMac noted in its June outlook that the housing market softened in April due to the return of higher mortgage rates, which were around 7%. Total home sales in April fell 2.3% from March and were 2.7% below the year-ago figure.

According to FreddieMac, existing home inventory increased 16% year over year to 1.21 million units and new home inventory reached its highest level since January 2008.

Declines in the National Association of Home Builders' housing market index point to poor construction conditions over the next six months, and FreddieMac said “the primary reason for the decline was higher mortgage rates.”

Last month's report said that “net timber addition continues to exceed harvest by 25 million tons annually,” with the state's total timber output nearly doubling since 1978.

Hesitation when cutting

Nana Tian, ​​​​an economist and associate professor at the University of Arkansas at Monticello, said, “The strong lumber supply in the South – including Arkansas – has long existed. Decreased lumber prices – especially after the great economic recession of 2008 – have made many landowners hesitant to harvest.

“The projected decline in housing starts is contributing to relatively low demand for lumber. So, combined with a downward trend in demand and market price, lumber supply is very strong,” she said. Tian does analysis and conducts research for the Arkansas Forest Resources Center, part of the Arkansas Agricultural Experiment Station. The Experiment Station is the research arm of the University of Arkansas' Department of Agriculture.

This “wooden wall” exerts downward pressure on wood prices.

In southeast Arkansas, pine lumber prices typically hover below $2 per ton. However, according to a report by the Arkansas Center for Forest Business, prices often drop below $1 per ton as delivery prices decline and logging costs are affected by inflation and unpredictable restrictions on lumber acceptance by sawmills.

“Compared to the last decade, this price has dropped,” Tian said.

Due to reduced demand, sawmill capacity in Arkansas has dropped to about 85%.

Forestry-dependent state

Arkansas' economy is the most dependent on forestry of any southern state. Forestry accounts for 4.1% of the state's gross domestic product — or about $7 billion — according to Matthew Pelkki, director of the Arkansas Center for Forest Business and economist at the Arkansas Forest Resources Center. Only Wisconsin has a higher percentage of economic dependence on forestry in the U.S.

The report states: “The outlook for 2024 is stable at best.”

“Given the uncertain economic environment, global unrest in major energy and fertilizer producing regions, an election year and a decline in projected U.S. housing starts, Arkansas' forestry industry will experience little to no growth in 2024,” the report said.

However, “if the economic inflation rate is 'soft' and the country does not fall into recession, slight growth in 2025 is possible.”

Tian said factors that could help strengthen the industry include the adoption of climate-resilient solutions such as creating a wood product-friendly consumer base, participation in bioenergy projects such as biomass-to-electricity conversion, cogeneration and the wood pellet segment. Tian said renewable projects involving liquid biofuels and biochar are increasing.

The Arkansas lumber industry took a hit this summer when AHF Hardwood Flooring announced it would shut down its Warren plant. AHF said in a news release that it would retain ownership and restart the plant under the right conditions. The plant employed 130 people.

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