Alabama Cooperative Extension System.
Jan 21, 2023,
AUBURN UNIVERSITY, Ala. – The start of a new year brings new economic territory for Alabama’s forest industry. Forestland owners are searching for insights on what to expect regarding their timber in 2023. An Alabama Cooperative Extension System forestry specialist shares an update for the timber market this year.
Where do we sit?
The forest industry contributes approximately $28 billion to Alabama’s total economic output. More than 44,141 jobs help achieve this output, ranking Alabama in the top three nationally in timber production.
Adam Maggard, an Alabama Extension forestry specialist, said Alabama is still dealing with an oversupply of timber. In terms of softwood timber–mostly pine–this supply has negatively impacted an increasing demand for many of its products. It has also led to uncertainty among landowners about when they should see improvement. Maggard believes there is no one-size-fits-all recommendation, but there are some important cues to study.
“We are making headway with utilizing our oversupply of timber,” Maggard said. “But like most good things, it is going to take some time to achieve more balance.”
The number one component of the timber market that most forest landowners are likely wondering about is stumpage price. Stumpage prices—a tree’s price on the stump prior to harvest—luctuate depending on what Maggard calls large-scale and local-scale factors. Below is a breakdown of what these factors include.
Large scale includes factors at the state, regional, national or even global level:
Demand for products locally, nationally and globally
Supply of timber
Local scale includes factors at a local, more focused level:
Competition – mill-to-mill competition or the number of mills competing for certain area of timber supply
Distance to the mill from tree harvest sites
Demand for timber by the mills
Seasonality – wet versus dry weather, dry timber tracts versus wet timber tracts
Tract size – timber acreage and volume
Tree species, size and quality
Keep a Watchful Eye
Maggard said there are a few more items that forestland owners should keep a watchful eye on. By studying these aspects of the market, it will provide more insight for landowners on the current direction of the market. These include:
The desire to own a home remains strong in 2023. However, increasing mortgage interest rates and home prices have weakened buying power and slowed market demand. Inflation and supply chain constraints will still be felt in 2023, but Maggard is hopeful it will be relatively short-lived.
“Our current market standing is not expected to last multiple years,” Maggard said. “This is in part because the desire to own a home is still high, and also because home availability is lower than we have seen in similar times in the past. It will largely depend on mortgage rates and affordability.”
COVID-19 impacted mill capacity rates and lumber prices. As a result, mills had to play catch-up with Alabama’s timber oversupply.
Economically, there has been a decrease in demand for writing and printing paper. Maggard said one way that the industry is making up for that decrease is container board and paper packaging production. This correlates primarily with the increase in demand for shipping boxes from industries such as the online shopping market. Globally, paperboard and packaging is more than a $1 trillion industry.
Alabama has also seen the launch of four new wood pellet mills. Most of these mills will bring additional timber market opportunities to forestland owners in proximity. However, some of the pellet mills are planning to operate off residual material from neighboring or nearby sawmills. Currently, there is not a domestic wood pellet market, and pellets produced in Alabama are exported.
Policy and Trade
Another impactful piece of the national timber market is global policy and trade. Alabama produces billions of dollars in its timber industry, including forest product exports. In 2021, Alabama exported more than $1.5 billion in forest products. Many of these products are exported to other countries, with China being the largest importer. Trade policy, global uncertainties, war and economic conditions of countries with a high demand for the United States’ forest product exports all have impacts domestically.
On the Rise
Overall, Maggard said Alabama’s timber industry is strong. Although the housing market is likely to be volatile through much of 2023, the demand trajectory has been on the rise for timber products. This is expected to continue in the long run with new and expanding markets.