Timber business suffers as home building slows

Issue Date: May 6, 2020
By Christine Souza
A likely slowdown in housing starts due to the COVID-19 pandemic reduces demand for lumber. Sawmills have already reduced operations.
Photo/Christine Souza

Timber operators headed into 2020 with a bit of optimism, due to increased demand for harvested logs and lumber products related to growth in home construction or home starts, the main end-use market for lumber. That enthusiasm came to an abrupt halt in mid-March, as the COVID-19 pandemic affected the U.S. economy.

Even though state and federal governments identified the wood products and construction sectors as essential, concerns about the uncertain economy and rising unemployment brought a slowdown in home construction that has hit the timber business.

Lumber market analyst Paul Jannke, principal of timber for Massachusetts-based Forest Economic Advisors, said from a forest products perspective, "Before COVID, housing starts were back up above underlying demand levels where they hadn't been in over a decade. Then coronavirus hit, and housing gets absolutely crushed."

From December of last year through February 2020, housing starts nationwide rose to a seasonally adjusted annual rate of about 1.6 million units, Jannke said, "and we finally hit our stride." He said a single housing unit, on average, requires 15,000 board-feet of lumber.

"It was looking like housing starts had recovered and we were going to see a really strong 2020-21," Jannke said.

Just as the full impact of the pandemic hit, in March, housing starts stayed at a relatively steady annual rate of 1.2 million nationwide. But Jannke said he expects the figure to drop in coming months.

"Housing starts are almost certainly going to be cut in half from where they were at their peak in December to February, so dropping from 1.6 million units down to between 600,000 and 800,000 units," he said. "The drop will last between three and six months, but beyond that, we should start to see things improving again and going back to pretty decent starts levels."

In comparison, the number of U.S. housing starts during the 2008-09 recession, Jannke said, fell to an annual rate of 550,000-600,000 units.

Specific to California, he noted that the state produced about 30,000-40,000 units annually during the recession and, due to a tremendous need for new housing, is forecast to produce more than 100,000 single units this year, even with the downturn caused by the pandemic.

Dee Sanders, general manager of Trinity River Lumber Co. in Weaverville, which sells timber products including Douglas fir for the home construction market, said the market was doing well in the early spring—but after stay-at-home measures were put in place, he had to reduce capacity at the company's three sawmills.

"We're normally running two shifts, a swing shift and a day shift, and obviously when COVID came along, we were doing OK until (some counties) started shutting construction down," Sanders said. "For several weeks now, we've cut our production in half at all three of our mills. Our sales have probably dropped 60% at least."

Though construction is considered essential, Sanders said, some counties in the Bay Area—a large market for his company—are allowing only certain construction to continue, and that does not include all types of housing starts.

George Hollister, a farmer of redwood timber in Mendocino County, said, "Before the COVID virus happened, everybody was pretty optimistic."

Hollister, who said he primarily sells logs, said prices were doing well until about the time the orders to remain at home came about, when "the lumber market just collapsed."

"As a result, there is just a huge amount of uncertainty out there, and mills don't want to put a bunch of money into buying logs and then not be able to cut and sell that lumber," Hollister said.

Shaun Crook, who runs a family timber business in Tuolumne County, said, "As far as COVID-specific issues, our operation will continue and that is the same for most everyone else that I have talked to."

"It does look like stumpage (the price paid for standing timber) is going down, which will affect landowners looking to sell timber to the sawmills, and the price that the Forest Service will receive from timber sales," said Crook, who serves as second vice president of the California Farm Bureau Federation.

As most people have remained at home in recent weeks, some are taking on neglected home repair and remodeling projects, Jannke said, adding that should benefit California timber producers that supply home improvement stores with lumber and wood products.

"Home projects are what people are doing, either projects that they had put off, or simply because they have nowhere else to spend their money. We expect the improvements component of consumption to be fairly strong," Jannke said.

During the next few years as a result of COVID-19, he said, "You are going to see a structural shift in the number of people who start working from home. You'll see an increase in demand for lumber as people make alterations to their house to add home offices. We think that that should lead to some more consumption as well."

Regarding this expected trend to remodel home offices, Hollister said, "I think we're going to see a lot more people working remotely—and permanently working remotely—and we'll do whatever it takes to accommodate that situation."

In 2019, the U.S. consumed about 47 billion board-feet of lumber, with total consumption for California of 4.8 billion board-feet, which includes end-use markets from housing starts to residential improvements, nonresidential construction and industry markets.

(Christine Souza is an assistant editor of Ag Alert. She may be contacted at csouza@cfbf.com)

Permission for use is granted, however, credit must be made to the California Farm Bureau Federation when reprinting this item.




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