Timber and Forest Products Industry Snapshot

Timber and Logging

• The welcomed improvement and stabilization commencing in 2H’23 began to falter in early 2024. Maintaining an adequate fiber supply continued to be a challenge across most species and operators. Break-even costs for processors, loggers, and landowners have continued to pressure earnings and liquidity. SPF lumber prices retreated below break-even levels in 2Q’24, and hardwood lumber volume and pricing continue to challenge operators. Inflation and labor supply/costs remain a huge hurdle for the entire industry, especially loggers, which remains a continued weak spot in the industry.
• The Northeast's winter harvest season was atypical in 2024. The winter harvest season is the highest volume period of the year for landowners, loggers, and foresters. However, the 2024 season was cut to about half of the typical ~3-month harvest period, and operators had to rush to supply as much wood to markets before roads were posted for heavy loads. This exacerbated already difficult wood supply conditions for processors who struggled to get adequate raw material inventory in the fall.
• The short winter harvest season had a notable impact on small to medium logging operations as the smaller harvest window impacted a typically strong cash flow period. Larger and/or diversified logging operators were more insulated from this impact than others. 

Timberland

• Timberland owners were impacted by a shortened 2024 winter harvest season and early start to the spring mudseason. It was common for landowners to leave more piled inventory in the woods than prior years due to weather conditions. Harvesting and marketing activities resumed after conditions dried. Despite continued lumber price headwinds for most species, timberland owners continued to maintain and, in some cases, increase fiber costs to processors, further impacting processor margins.
• Timberland transaction activity remained stable with continued smaller HBU sales as well as a few larger land transactions. Timberland values continue to be full timber value, benefitting from new sources of cash flow as well as being a relatively safe store of value in the ongoing inflationary environment. The gradual increase of timberland allocated for carbon monetization has started to impact certain processor wood baskets, requiring processors to source fiber further from mills, increasing break-even costs.

Solid Wood Processing

• Sawmill operators struggled to maintain adequate log inventory during winter and the spring mudseason due the shortened winter harvest season. Low log inventories put pressure on log pricing in several wood baskets, preventing the much-needed margin relief sawmill operators were hoping for. Eastern SPF lumber prices, which stabilized in the last half of 2023 and gradually appreciated in 1Q’24, eventually dropped by over $100/MBF, well below break-even levels for most sawmill operators. As a result, most SPF sawmills began cutting production and reducing shifts, and in some instances, shutting down altogether. SPF mills with better capitalization remain better positioned to manage the ongoing operating losses. Notwithstanding, some SPF sawmills have done a good job addressing cost structures during this time and are positioned well for improved performance once lumber prices improve.
• Eastern White Pine sawmill operators continued to experience the lumber pricing softness that commenced in the second half of 2023. Industrial and standard grade pine lumber have led the pricing deterioration, with higher grades and value-added products comparably impacted. The cumulative margin pressures on pine lumber producers resulted in multiple pine sawmill shutdowns and mill sales, resulting in net production decreases in EWP lumber in the Northeast. Unlike their SPF counterparts, pine sawmills have consistently maintained solid log inventories at mills largely since pine markets have been consistently profitable for landowners and loggers post-COVID. With the pine sawmill production decreases, the displaced pine log suppliers have scrambled to find new mills to buy logs, and those who have done so at reduced log pricing. This resulted with timber harvesting activity changes away from pine.
• Hardwood sawmill operations continue to endure multiple pain points thus far in 2024 with little welcome good news. Total 2023 hardwood production in the Northeast was the lowest in several years, as mills try to right-size production with reduced demand. Prices post-COVID have bottomed in 2H’23, and some species including hard maple and red oak have benefitted from slight pricing improvements. Notwithstanding, log costs continue to be high and supply limited, putting stress on sawmill inventory levels and operating margins. Demand for industrial grade hardwood lumber, including crane mats and pallets, remain strong and have been a bright spot for operators.
• Demand for hardwood pulpwood and biomass remained strong during the first quarter of 2024 and has gradually abated coming into summer season. Pulp markets continue to be volatile with volume and pricing, however, some processors have been more aggressive on price. Biomass operators struggled at times to get adequate fiber due to the shortened winter harvest season, however, supply has improved after conditions dried. Long-term production and solvency for some pulpwood and biomass consumers continue to be of concern for the Northeast market.