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Updated Softwood Lumber Market Outlook For The US

"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,

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)