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Timber Investor
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20 plus year veteran of the banking and securities industry with a passion for timberland investing. I am on a mission to educate the investing public on the virtues of timberland as a financial investment in addition to the conservation, recreation and other benefits.
  • Updated Softwood Lumber Market Outlook For The US 3 comments
    Jan 3, 2010 11:57 AM

    "The worst is almost over for the North American softwood lumber market as improving demand in 2010 is expected to breathe some life back into a beaten up industry. (Source: International WOOD Markets Group)  While the coming winter will likely be a tough one, rising housing starts, lean distribution channel inventories and some lingering government stimulus programs should kick-start lumber demand and even prices.

    After facing declining markets and prices since 2006, the 2010 outlook predicts that there will be enough building blocks in place to allow for some much needed market improvement. But it is in 2011 - and especially in 2012 and 2013 - that a real housing recovery is forecast to take hold, creating higher prices with significant price volatility occurring as sudden demand surges catch the lumber market by surprise.

    Some of the highlights from a recent study produced by International WOOD MARKETS Group include:

    - Rising housing starts in the U.S. are expected to occur in 2010 following the Obama government housing stimulus legislation of 2009 and the development of more normalized housing inventories. These two factors are key in allowing for a rebound in new residential housing starts and increasing lumber demand that is forecast to continue through 2013

    - Total U.S. lumber consumption is forecast to increase from 32.8 billion bf in 2009 to over 50 billion bf in 2013 - a 50+% increase from 2009

    - From a peak of 28.6 billion bf of lumber consumed in new U.S. residential housing construction in 2005, lumber demand plummeted to about 6.9 billion bf in 2009. By 2013, and, in using what appears to be a conservative housing forecast, lumber consumption in new housing is expected to rebound to over 19 billion bf in 2013 - a huge gain but still well below the peak of 2005

    - All regions in the U.S. and Canada are expected to rebound with an average annual increase of about 10% expected from 2009 to 2014 as sawmill operating rates improve from dismal levels averaging just 50% in 2009 to near 90% levels by 2013

    - Total North American lumber production peaked at 75 billion bf in 2005 and will bottom out dramatically lower at near 43 billion bf in 2009. Steady rises are forecast in output, to well over 60 billion bf in 2013 allowing most remaining mills to resume production at more normal historic levels."

    Source: International WOOD Markets Group,

    http://www.woodmarkets.com/

    This is probably the most bullish report I have seen on the demand for lumber. Considering how bad things are they are calling for just an average annual increase of just 10 percent. It also calls for "sawmill operating rates to improve from dismal levels averaging 50 percent in 2009 but estimates to be near 90 percent levels in 2013."

    My question is 90 percent of what? 90 percent of the mills that have not been "moth-balled" or closed, or 90 percent of 2006 output?  

    Even the most bullish of reports suggest it will be a number of years before we return to 2006 levels. In fact I do not recall reading anyone's research that dares  to make that call.

    As I have expressed on all my previous post..I love the asset class (Timberland) and am looking to add to my current position. However, at lower prices.

    Let me know what you think.



    Disclosure: Long: Timberland (the actual trees and dirt)
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Comments (3)
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  • Rubicon Associates
    , contributor
    Comments (1824) | Send Message
     
    Given the amount of sawmill capacity that has been taken offline, I would think the 90% capacity would be referring to 90% of current capacity. I would not expect the mills that have been mothballed to be restarted anytime soon as near/intermediate demand does not seem to warrant it.
    3 Jan 2010, 12:47 PM Reply Like
  • Mayascribe
    , contributor
    Comments (10088) | Send Message
     
    Not sure how much this affects the big picture, but how newspapers are loosing circulation, that they are generally thinner, as well as magazines, that recycling is way up, housing starts down, and likely will stay down for a while longer, I wonder how this affects the timber biz.

     

    Disclosure: Long Weyerhauser corporate bonds.
    3 Jan 2010, 04:21 PM Reply Like
  • tripleblack
    , contributor
    Comments (13553) | Send Message
     
    A lot depends on the location of the assets. West Coast assets are liable to do better than East Coast, since they are able to ship to Asia.

     

    The general comments about lower demand for the paper industry and construction make a lot of sense. Its also true that with fewer large tracts being cleared for new development projects, that source of competition for managed forestry will be less.

     

    I was once involved in purchasing lumber for a furniture manufacturer, so its an area where I would suggest looking into what the purchasing managers are saying...
    3 Jan 2010, 04:32 PM Reply Like
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