Ag Insights: Forest Products
by Matt Speacht, and Ron Weisenstein, on behalf of the Forest Workgroup
A Review of 2023
As we flip the calendar into 2024, it is important to look back on 2023 and reflect on the year’s impact on the forest products industry.
After the severe drop in hardwood lumber prices in the last half of 2022 through January 2023, markets started to stabilize. Prices for black cherry, hickory, hard maple, soft maple, yellow poplar and low-grade continued to slowly decline in 2023. Prices of white ash and red oak were generally stable throughout the year, and prices for white oak and walnut increased. Markets for railroad ties were fair and moving steadily. Blocking lumber prices dropped severely and the pole-wood markets were slow and lower priced.
While 2023 was marked by challenges and volatility for the industry, it also saw resiliency among the producers. Forest products businesses navigated a complex landscape shaped by various factors, including reduced home building, higher interest rates compared to recent years, technological advancements, and labor shortages, among others. Despite facing these challenges, many forest products businesses demonstrated resilience and adaptability in leveraging innovative strategies to sustain operations and capital on emerging opportunities.
Softwood lumber prices were mostly range-bound for the majority of 2023, which is directly related to both home building — commonly referred to as housing starts — and interest rates. Housing starts in 2023 were approximately 1.4MM, which was below economists’ expectations for the year, but above 2022. Housing starts in 2024 are expected to fall around 1.5MM, while a 7% increase from 2023 Freddie Mac economists believe this figure still puts the U.S. approximately 4MM housing starts short of meeting demand.
For timber prices and housing starts to rebound further, there likely needs to be a material decline in interest rates. The Federal Reserve is expected to make cuts to the Federal Funds Rate multiple times this year, which should bring relief to homebuyers and builders. From a labor standpoint, scarcity of manpower drove up labor costs for forestry businesses, impacting profit margins.
Given the weak timber markets and increased labor costs, many operations evaluated how they could reduce expenses while maintaining, or even improving, efficiency. Many businesses chose to pursue technological advancements for their operations. Innovations in forestry management software, remote sensing technologies, and precision forestry techniques allowed operations to optimize resource utilization, enhance productivity, and minimize environmental impacts. However, the adoption of these technologies varied across the industry, impacting efficiency and competitiveness among different market players.
Overall, forest products businesses in 2023 demonstrated resilience, adaptability, and a commitment to sustainability and innovation, laying the groundwork for continued growth and success in the years ahead.
Key Factors Influencing the Industry
Forest Pests
In 2023, there were 1.2 million acres of forest defoliation across Pennsylvania, mostly from spongy moth. The counties hit the hardest were in central Pennsylvania. After three years of heavy defoliation in some areas, oak mortality is increasing and will continue to increase as other stressors have an impact. A spongy moth population collapse is hoped for this year from nuclear polyhedrosis virus (NPV) which kills caterpillars over a short period of time in the heavily infested areas. Pennsylvania’s Department of Conservation and Natural Resources (DCNR) and the Pennsylvania Game Commission are expected to spray 347,000 acres for spongy moth in 2024. Control efforts are also planned for Maryland, Delaware, Virginia, and West Virginia.
(Spongy Moth)
Additionally, the hemlock woolly adelgid (HWA) has been found throughout Horizon Farm Credit’s territory. The adelgid can cause mortality of hemlocks within five years of infestation. Mortality from HWA has been heaviest in the central and northcentral areas of Pennsylvania. The loss of the Pennsylvania state tree is significant and can affect stream temperature and quality in some exceptional value trout streams.
The black cherry trees in Northwestern Pennsylvania are widely considered the best in the world. Since 2010, black cherry decline continues to be a serious issue, causing dieback, reduced masting, poor regeneration success, and heavy mortality. Black cherry decline is being researched and much remains a mystery. Some possible causes are tree age (too old), increased pathogens (cherry scallop moth, peach borer, root rot, leaf spot disease, and more), decreased nitrogen in the soil, atmospheric nutrient inputs, or the loss of pollinators. Most likely, it is a combination of factors.
Within the Mid-Atlantic and Northeastern U.S., beech trees continue to be plagued by both Beech Leaf Disease and Beech Bark Disease. Beech is a climax species in our forest and is important for wildlife. Thus far, beech has suffered a minimum of 50% mortality in our region. That number will likely move to 90% over the next decade.
Over the last decade, Horizon Farm Credit’s territory lost 95% of the ash trees growing in its forests to the Emerald Ash Borer. A very small percentage of trees show resistance, and the hope is those few trees will propagate and hundreds of years from now, ash trees may once again be a larger part of our forested landscape.
The Spotted Lantern Fly (SLF) has now been found in all counties in our territory. The SLF feeds on the sap of a variety of species, showing preference for grapevines, fruit trees, maple, black walnut, willow, and birch. The long-term effects on our forests are not yet known, but SLF feeding causes additional stress to trees, which in combination with other factors, can cause decrease in health and in some cases, mortality.
The above notes are just a few of the pests that are affecting hardwood forests in our region. For more information on invasive pests, contact USDA APHIS, your state Bureau of Forestry, or Extension.
Perspectives and Projections for the Year Ahead
The first quarter of 2024 has seen black cherry, hickory and yellow poplar prices continue to decline, while white ash and black walnut were stable. Modest price increases in hard maple, soft maple, red oak, and white oak have occurred. There are some signs that blocking prices have hit bottom and are slowly edging back up. Due to a wet and unfrozen winter, pole-wood inventories at mills have dropped and mills are readily buying wood currently, although, still at relatively low prices.
It appears that the much-anticipated recession may not occur, and the U.S. economy is relatively strong. Inflation has subsided from the highs of the last couple of years. High mortgage rates continue to impact housing starts, but a very modest increase is expected this year. Hopefully, this keeps hardwood markets stable or encourages a slight increase throughout 2024.
West Virginia recently experienced a loss after the closure of one the largest producers of hardwood lumber in the U.S., which operated seven hardwood sawmill locations. It is not fully understood what impacts that loss may have on hardwood markets and if the mill locations will be purchased to run again. The seven locations produced approximately 180 million board feet per year and employed over 800 people. A loss of this volume may cause a temporary increase in prices, at least until that production is replaced.
Interested in reading our other 2024 Ag Insights? Check out our other articles on:
The information in this article is a summary of select economic conditions and agricultural industries prepared by Horizon Farm Credit staff. This material is for informational purposes only and cannot be relied on to replace your own judgment or that of the professionals you work with in assessing the accuracy or relevance of the information to your own operations. The information provided in this report is not intended to be investment, tax or legal advice and should not be relied upon by recipients for such purposes. As with any economic analysis, the information is based upon assumptions, personal views and experiences of those who provided the source material as well as those who prepared this summary. These assumptions, conclusions and opinions may prove to be incomplete or incorrect. Economic conditions may also change at any time based on unforeseeable events. Horizon Farm Credit assumes no liability for the accuracy or completeness of the summary or of any of the source material upon which it is based. No commitment to lend, or provide any financial service, express or implied, is made by posting this information. In no event will Horizon Farm Credit be liable for any decision made or actions taken by any person or persons relying on the information contained in this report.