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Housing Construction: Effect on Timber Prices

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June 28, 2019

Announcer: Farm and family is a production of the Mississippi State University Extension Service.

Amy Myers: Today we're talking about housing construction and its effect on timber prices. Hello, I'm Amy Myers and welcome to Farm and Family. Today we're speaking with Dr. Randy Rousseau at Mississippi State University extension forestry specialist. So Randy, today we're going into a discussion about housing construction starts and financial circumstances that have affected current timber prices. So I guess the question is where do you think we should begin our conversation on this subject?

Randy Rousseau: Well Amy, I think we really have to begin some years ago in 1996 so that we can put in everything into perspective. It's that point that timber prices began to escalate and eventually reached the heights that have never been previously seen. In addition, you also have to realize that growing timber for solid potential is a 30 to 40 year investment of both time and money for the forest landowner. And they're expecting a good pay day at the end of that timeframe. Thus, the forest land owners harvesting timber and the timeframe between 1996 and 2007 enjoy stumpage prices that were far exceeded in the previously priced scene.

But we also need to realize that those pine stands being harvested in the late 1990s and early 2000s were just being established in the late 1960s and early 1970s. And no one, at that time, knew that some 30 to 40 years later that the income derived from these standards would be the highest recorded to date. At the same time, these prices, they did not go unnoticed and, combined with recreational purchase of timber land, prices began to soar as it seemed that everyone wanted a sort of piece of land of their own that would bring both the ability to produce good income down the road, as well as during that timeframe they could enjoy recreational value of the land. There was a quote I saw in the forest to market that was an article in 2017 that stated it well. They said, "Increased demand for wood has not depleted the forests of the south, but instead encouraged land owners to invest in productivity improvements that has dramatically increased the amount of wood fiber."

Amy Myers: So that explains some things that happened. But what other aspects affected the price of timber in Mississippi?

Randy Rousseau: Well Amy, for Mississippi, there are a couple of other things that happen. The 2008 financial crisis was caused by the subprime mortgage crisis. In February of 2007, existing home sales peaked. But by March, hedge funds groups were borrowing money to make investments, but the market lead to higher returns for good markets, but greater losses in bad markets. The result of this was the housing downfall, which has yet to fully recover some 10 years later. With the loss of the housing starts as well as the overall recession that started in 2008, more bad news was on the horizon with the closure of the international paper mill in Courtland, Alabama, which drew considerable amounts of pulp wood from the northeast, Mississippi and was in competition with Counts Tennessee Mill and the Wycliffe Tennessee Mill that also drew from North Mississippi. Today, little if any competition exists for pulpwood in North of Mississippi.

In the past, typical progression of harvested included trees for the pulpit market, which uses smaller diameter trees such as those produced from pines first thinnings, larger trees that were unsuitable for saw law quality, allowing the remaining trees to grow to a larger size or immediate size for the chip and saw market, which with only the best trees left after that and which were destined to higher valued markets such as plywood, saw timber and poles. So with the loss of the pulpwood market, this greatly impacted the overall aspect of utilizing timber when the planning strategy was at a much higher number of trees per acre.

Amy Myers: Well, that does explain a lot Randy. So we don't have time to include your recommendations for those who are thinking about getting into the timber industry or are already in the industry, but there is still money to be made and we will be talking about some recommendations in future segments. Thank you so much. Today we've been speaking with Dr Randy Russo at Mississippi State University extension forestry specialist. I'm Amy Myers and this has been Farm and Family. Have a great day.

Announcer: Farm and Family is a production of the Mississippi State University Extension Service.

Department: Forestry

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