Written by Chris Loomis
In recent months, a number of events of international and local significance have resulted in challenges for the forest products industry in the Yankee Farm Credit territory. International trade actions in the form of tariffs have disrupted the supply chain, largely presenting as a depressed demand for finished lumber coming out of sawmills in the area, including along the border in Canada, critical drivers of the forest products economy. This, coupled with the slowing of China’s economic growth rate has resulted in a significant quantity of finished lumber piling up on the back end of sawmills while they wait out the oversupply situation. Some mills have been running at low capacity, while others have moved up their planned shutdowns in an effort to reduce supply. This is the case across the spectrum of hardwood and softwood lumber, with White Pine finally succumbing after a 12 month run as the “bright spot” in sawmilling. Mill procurement staff has been tentatively purchasing the usual variety of hardwoods, with notable reductions in log pricing while the market begins to define species preferences and demand levels. Spruce and Fir sawlog pricing is down as mills are flush with logs and lumber demand is down. White Pine lumber has been holding on, but is now in an oversupply situation, suggesting an impending adjustment to procurement strategies.
In the middle of the first quarter of 2020, unprecedented federal and state level restrictions were placed on the public at large as well as retail and manufacturing sectors of the economy in order to mitigate the threat stemming from the novel corona virus (COVID-19) as it spread from China, across parts of Europe and Asia to the U.S. The resulting shrinkage of the global economy has inserted massive uncertainty into the local marketplace, adding to the reduction of demand already being experienced by the forest products sector.
Recent interviews with mill procurement staff, log and pulpwood brokers, foresters and loggers have provided solid insight into the current state of the forest products economy in the Yankee Farm Credit operating territory.
The following highlights are noteworthy:
- The Pixelle Specialty Solutions paper mill in Jay, Maine, recently purchased from Verso Corp., experienced a massive explosion in its digester facility, causing a cessation of roundwood procurement as there is no capacity to utilize this feedstock. As a major player in the pulpwood sector, this shutdown of roundwood procurement is rippling through the northeast as pulpwood had been a relative bright spot in the forest products economy. This situation was noted by all those interviewed as the most impactful development facing the industry in our area.
- Trade restrictions over the last 18 months have had a dampening effect on the sale of hardwood lumber and export logs. In recent months, veneer and sawlog export markets have improved as the demand from the Pacific Rim and European Union have seen some improvements and China begins to use up its inventories. The shrinking global economy is expected to keep downward pressure on hardwood lumber.
- Mills along the CN/US border in Canada are beginning to open up to deliveries after an abrupt shutdown at the end of the winter procurement season – a result of COVID-19 restrictions. This is important for Spruce/Fir and hardwood lumber production. Mills report a slow start to the buying season as they strive to understand what species of hardwood will be most profitable to saw and work to get their log pricing in line with necessary margins.
- White Birch has seen an uptick in demand as medical grade swabs and tongue depressors have surged.
- Mat logs (those sound and straight 16’ knotty hardwood logs) are experiencing solid demand and may be the singular bright spot in today’s log marketplace. It was reported that utilities planning expansion projects are still ordering crane mats and demand is strong.
- Pulpwood in both softwood and hardwood species has been significantly affected by the Pixelle shutdown and this has a direct effect on biomass plants as roundwood for pulp is naturally converted to biomass chips by those contractors that have chipping capacity and biomass contracts. Biomass had been in an oversupply situation prior to this development. Mill residual chips that had been destined for use in pulp production are similarly shifting into the biomass stream, compounding the problem. Biomass procurement pricing is essentially at or below the cost of production at the time of this writing.
- Foresters are wary of preparing timber sales for clients which do not rely on timber income as part of a business model, choosing rather to wait out this cycle in hopes of increased demand for the products to be offered. Landowners who do rely on regular income from timber sales are suffering low prices and demand for their wood, but there is a shared need for revenue and by both landowner and logging contractors. Essentially the forestry community acknowledges that the potential for logging contractors to get out of the business at this time is very high and are striving to provide much needed work in order to ensure contractor availability in the future.
Overall, the forest products industry is a very resilient sector of the economy. Deemed an “essential industry” during COVID-19 restrictions in VT and NH, operations were in transition between the winter and summer operating seasons, a time of low production for logging contractors, when state and federal restrictions took effect. While this is a lucky bit of timing, the uncertain summer season is weighing heavily on the contractor pool and this translates to a good deal of uncertainty across the stakeholders in timberland stumpage. Global responses to the pandemic and corresponding diminished economic growth will continue to weigh heavily on our local forest products industry.
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