Housing Market Recovery Helps Timber Producers
June 9, 2014
Source: Steve Adler; Ag Alert
Home construction in California is on the upswing as the housing sector slowly recovers from the dramatic downturn of the recession that saw home prices and new construction plummet.
Going hand in hand with the increase in home building is the demand for lumber for framing, moldings, doors, fences and other uses. California timber producers say they welcome the increased demand for lumber, but are held back by the regulatory climate in the state that cuts into their bottom line.
As a result of added costs and restrictions on timber harvest, California forestry owners say they have difficulty competing with their counterparts in Washington, Oregon and British Columbia who work in a more business-friendly climate.
An estimated two-thirds of the building materials utilized in California comes from the Pacific Northwest and Canada's westernmost province.
"Lumber production in California has dramatically fallen off from where we were a couple decades ago," said Mark Pawlicki, director of corporate affairs for Sierra Pacific Industries in Anderson. "We are harvesting around 1.4 billion board-feet of timber now in California, and that is less than half of what it used to be. A lot of the fallout has been because of the reduction in sales of timber in national forests. It is a combination of regulations involved and a philosophical change within the U.S. Forest Service that occurred back the 1990s."
Timber owner Peter Bradford of Booneville, who serves as board liaison to the California Farm Bureau Federation Forestry Advisory Committee, said the high cost of regulations "adds a substantial amount" to the price of California timber.
"We are very over-regulated when compared to Washington, Oregon or British Columbia," Bradford said. "There is a lot of material that comes in from Oregon and Washington because the cost to get a harvest plan to log the trees is easier and much less costly than it is here. It is time, paperwork and cost here in California."
Despite these challenges, timber owners in California say they are more optimistic than they were a few years ago, when the market for timber had decreased significantly.
"Prices right now aren't the greatest, but they are better than they were five years ago. For some of the redwood that we are selling this summer, we've been given a price of around $900 for 1,000 board-feet. Back in the heyday of the late 1990s, we were receiving $1,500 for that same amount of lumber," Bradford said.
Pawlicki noted that lumber is a cyclical market.
"As everyone knows, housing construction has been way off in recent years, but it has been gradually coming back. We have seen improvements in U.S. housing construction and along with it improvements in lumber pricing," he said.
There are currently about 30 lumber mills in California, a decline of 80 mills since the 1990s.
"With the downturn that we experienced in lumber demand, a lot of sawmills closed in California and we are roughly in balance now with supply and demand," Pawlicki said. "As demand goes up, we expect to see some pricing increases for lumber—not dramatic, but nevertheless steady. And that helps us to maintain our industry here in California."
Producing more lumber in California to meet the state's demand, he said, would require "some significant changes in the regulatory world."
"Folks are not too inclined to build a new sawmill in this state with the regulatory environment that we have," he said.
Another concern is the tight labor supply, particularly for employees who are experienced in timber harvest and millwork.
"Labor is a tremendous issue in the timber industry right now, trying to get people who are able to do the work," Bradford said. "This is frequently something you are born into and you know how to do it."
The labor shortage is felt most acutely in the mills, according to Pawlicki.
"We are experiencing some difficulty filling jobs, particularly millwrights and technical folks in our mills. These mills now are very technical and computerized systems for sawing lumber. It requires a different skill-set than what was required in the past," he said.
The California drought creates concerns for foresters for several reasons, including increased fire danger and a slowdown in tree growth that corresponds to the lack of water for the trees' root systems.
"The drought stresses the trees and we will see some tree die-off. We are concerned that we may lose a lot of trees to drought—and when that happens, insect infestations occur and that kills even more trees, and this creates an increased concern for catastrophic wildfires," Pawlicki said.
Bradford said wildfire concerns also build because of the problems that small landowners face in trying to harvest their timber.
"The amount of environmental review that they have to go through to get a timber harvest permit and the cost to get that review done, with the market value of timber now, makes it economically undesirable. As a result, some of these properties are being sold for home sites. With this increased population comes an increase in the fire danger," he said.
Bradford said he has seen a buildup in understory in the forests—shrubs, bushes and grasses—that has created dangerous fire conditions.
"That is the worst part of it. The other thing, of course, is that without the normal amount of rainfall, the trees won't grow as fast as usual. But that is something that is pretty hard to measure," he said.
Despite the ongoing challenges facing the timber business, Pawlicki noted some positive signs.
"We are optimistic that the market is going to improve domestically. We are seeing some improvements in operating conditions in California, and we are seeing some improvements in the legislative and regulatory front that have helped us," he said.