Housing sector drag on timber industry

The current recession is “probably the worst-case scenario one could imagine for the forestry sector,” which is a major component in the ag economy of Mississippi and other southern states, says John Anderson.

“Not only did we have the recession’s impact on an industry that’s cyclical anyhow — it suffers in downturns and booms when times are good — the precipitous drop originated in the housing sector, which hit the timber products industry hard. It was really the worst of all possible worlds,” he said at the Mississippi Farm Bureau Federation’s Winter Commodity Conference.

There has been “some improvement” in recent weeks in timber and pulpwood prices, says Anderson, agricultural economist for the American Farm Bureau Federation, Washington, D.C.

About 65 percent, or 19.6 million acres, of Mississippi’s land area is in forest, and the value of the state’s timber harvest has exceeded $1 billion every year since 1993, reaching an all-time record $1.45 billion in 2006.

A 2008 study by James Henderson and Ian Munn at Mississippi State University put the total economic impact of Mississippi’s forest products industry at $17.4 billion annually, contributing to 8.3 percent of all jobs in the state.

In 2007, Mississippi’s forest landowners — mostly private, non-industry — collected $630.8 million for standing timber sold that year. In any year, timber has been among the top three most valuable agricultural crops in 65 to 70 of the state’s 82 counties.

“November housing starts were better than expected,” Anderson notes, “which gave a little boost to the pulpwood market. But for the long run, the supply/demand fundamentals are pretty intimidating. I think demand in the saw timber market is going to be slow to recover because the housing sector is going to continue to be under a lot of pressure.

“I don’t know that anyone has a really good handle on what the unsold housing inventory is, but I think there’s a strong feeling that banks are sitting on a lot of foreclosed houses and they’re reluctant to put them on the market because of depressed prices.

“The worst case scenario is that we’ll see these houses trickle back into the market every time it starts to show a little bit of life. If that’s what happens, 2010 is not going to look very good in terms of housing starts.”

As the overall economy improves, pulpwood should, too, because it’s “very responsive” to improving economic conditions, Anderson says. Because other activity in the economy has slowed, there is less competition for wood chip supplies.

“On the supply side, things are kind of intimidating. If we look at maturing Conservation Reserve Program contracts, we see more timber coming onto the market. Who knows what will happen with cap and trade, but in looking at the very long term supply situation, it’s something the timber industry needs to think about.

“There has been a very sharp drop in total housing permits in this recession, and while there was some upturn in November, I think it’s going to be six to nine months before we can have any confidence in what these numbers are telling us.”

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