Now that Hurricane Katrina recovery is underway and the immediate human needs are being met, people are beginning to ask what the hurricane damage has done to standing timber markets.
Hurricane Katrina flattened timber equivalent to two average years worth of timber harvest volume. The damaged timber has been estimated at $1.3 billion by the Mississippi Forestry Commission. The Mississippi Forestry Association has organized the Mississippi Forest Recovery Task Force to implement the timber salvage effort. Anyone who wishes to keep current with the timber salvage effort should use www.msforestry.blogspot.com.
Softwood lumber and structural panel markets went up dramatically after the hurricane fueled by the confusion and speculation on supply disruptions. By the end of September price increases had begun to level off. But prices were well above August levels. Pre-Katrina statewide timber stumpage prices for Mississippi from Forest2Market were: Pine Sawtimber $39.85; Pine Chip-N-Saw $22.16; Pine Pulpwood $7.32; Hardwood Sawtimber $21.69 and Hardwood Pulpwood $8.16. All prices are on a per ton basis. However, Pre-Katrina timber stumpage prices for just the damaged area of southeast MS and the Louisiana counties were a bit higher: Pine Sawtimber $41.88; Pine Chip-N-Saw $23.35; Pine Pulpwood $8.07; Hardwood Sawtimber $22.98 and Hardwood Pulpwood $7.46. Again, all prices are on a per ton basis. These are all Pre-Katrina price averages.
The hurricane obviously created a huge supply of downed timber. As the salvage operations get underway there is more timber than market and prices are expected to fall. We don't know yet how much they will fall but reports I've been getting are in the range of 50% of the published prices mentioned above.
The timber price reporting networks that exist today will begin defining the market prices at the next reporting cycle, which will be in October and November. Timber Mart South should publish their 3rd quarter report in early October and then Forest2Markets will publish a report for September/October in early November. Recent research suggests that these price-reporting mechanisms efficiently reflect the market prices for timber in the South. In the meantime, landowners will have to use their own communications networks, negotiating skills and judgment as they make deals for their damaged timber.
In the aftermath of Hurricane Katrina, many are asking how the timber market will behave in the coming months and years. An article published in 2000 may provide an answer.
Jeffrey P. Prestemon and Thomas P. Holmes of the U.S. Forest Service developed a theoretical model to describe the short run and long run effects of large catastrophes on natural resource prices. Because trees take a long time to grow, large reductions in timber stocks can lead to a price shift due to increasing scarcity and enhancement in value of remaining stocks. The authors studied the reaction of timber markets in South Carolina after Hurricane Hugo in 1989 as a case to test their model.
After analysis the authors come to two main conclusions about timber price dynamics that should help guide Mississippi landowners after Katrina. The first that I mentioned already is that southern pine stumpage submarkets are informationally efficient and that prices adjust efficiently to new information within the reporting period (two to three months). Second, they also conclude that catastrophic weather events cause a short-run supply pulse associated with a negative price spike and a long run enhancement to residual forest stock. This means that once the timber salvage of Katrina with its price decrease is over, a longer-term increase in price may be anticipated. Indeed they reported that it happened in the Hugo case. The longer-term price increase for the sawtimber left after Hugo ranged from 6 to 32%.
These findings suggest that Mississippi landowners should try to retain all the pine sawtimber possible through the salvage period (since it is the most valuable) in anticipation of a price increase to follow. In Mississippi's case, the price increase seems likely since a large reconstruction effort in New Orleans and on the Mississippi Coast will commence in the near future.
The research article I'm referencing is Prestemon, J. P. and Thomas P. Holmes. 2000. Timber Price Dynamics Following A Natural Catastrophe. American Journal of Agricultural Economics. Vol. 82 (February 2000). pp. 145-160.