Forestry’s Impact In SC
Richard A. Harper, CF, RF
Department of Forestry and Natural Resources
that I have p
Let’s take a look back at where we have been, assess where we are, and then look for clues to the future.
of necessity, true forest conservation began after the great depression. The Civi
Most of the timberland was second growth that had battled its way back from extensive harvest and uncontrolled fire since the turn of the century.
WWII, the pu
By 1978, there were 158 (including pulp and paper mills), receiving 418 million cubic feet of roundwood per year.
Today there are 82 primary mills producing almost 528 million cubic feet per year. However, this production is down 15% from peak production in 1997.
The efficiency of sawmills has increased 40% since 1952 with virtually no wood wastes.
In fact, all wood processing industries output per unit of roundwood has improved 39 percent since 1900, with most of that increase (35%) occurring during the last 50 years. This includes use of mill residues, recycling, a shift from solid wood products to more paper, composite and engineered wood products, and processing technology.
With the virtual “shut down” of timber harvesting on USDA Forest Service land by the mid 1990s, the Southeast was faced with more opportunity to expand lumber markets.
Coupled with the booming economy of the 1990s, sawmills increased their capacity by upgrading equipment and/or adding shifts.
As demand grew, informed landowners cashed in on higher stumpage value.
While the upswing in the economy and a bull market was providing surplus spending, several other factors were aligning to create a significant change in all manufacturing.
Big corporations were making major decisions to consolidate in order to better compete in a global marketplace. While some created a stronger company, some were hostile takeovers.
As the pulp and paper industry experienced steady growth since the 1950s, it became closely tied to global markets as it expanded capacity. The export market is often a major factor in profitability.
Ince, with USDA Forest Service, Forest Products Lab
This works well when a mill is producing at or near its capacity to produce paper. However, when sales decline, a mill manager will still want to keep the mill running to cover these fixed costs, despite concern for over supply.
This is also true in sawmills, especially since the increase in sawmill capacity during the 1990s. But, it is somewhat more cost effective to cut production at a sawmill than it is to slow or stop production at a pulp and paper mill that must maintain production around the clock.
In general, most manufacturing facilities work to produce within a range of 85 to 100% of their capacity to produce a profit. Ince goes on to say that when there is a fluctuation of just 12 to 13% in the capacity utilization (ratio of actual production to the available production capacity), the prices for the product can vary up or down by 30 to 40% or more!
In other words, recent fluctuations in the global demand for pulp and paper products have had a significant effect on profits on an industry that has experienced relatively steady production and sales trends.
factor in the last two years has been the rise in the value of the U.S. dollar compared
to other major global currencies. This
has stifled exports, which are often the extra production that creates
profits. The high dollar also allowed an
influx of imported commodities which have competed with
the high dollar impeded
current trend is a weakening of the dollar that should encourage global sales
Ince says all this has created the following ripple effects:
2. fostered company mergers, because it is more cost effective to buy capacity than to build it,
3. encouraged downsizing in an effort to restrain capacity expansion, and in some cases reduced capacity,
4. decline in industry employment and services, and
5. a recession in fiber markets (pulpwood).
ripples could be felt in the timber producers’ pockets in
If you are a forest landowner, you are painfully aware of the drop in pulpwood price for softwood. Since 1998, average softwood pulpwood stumpage price has declined 42% while hardwood stumpage price has remained stable according to Timber Mart-South. Chip-n-saw is down 25%, and sawtimber is down 8%.
While the global market has forced change in the local markets, there are a few other factors that have created change in the SC forestry community:
1. The five year drought and southern pine beetle epidemic have certainly increased the supply of softwood fiber.
management and various incentives through federal and state cost share programs
for reforestation and afforestation have increased
supply. The Southeast has planted 35
million acres since 1985 (almost the size of
3. Substitution of other products such as steel in various construction, plastics and wood/plastic composite for a variety of products.
are increasing the demand for OSB, but softwood lumber is still tormented by
over production (too much capacity), soft prices, and imports – primarily from
It is not yet clear what will be the effect of federal regulations on southern yellow pine (SYP) treated lumber, as the formula will change beginning 2004. Approximately 47% of SYP lumber is treated, but it equates to 80% of the lumber value.
It is anticipated the cost of treated lumber will rise 20-30%, then adjust down slightly once in full operation. While some plastic and wood/plastic substitutes are cutting into the market, treated wood is still by far the most cost effective material for outdoor construction, ranging from 40 to more than 200% less.
While softwood pulpwood price has plummeted, the paper industry can not sustain the stumpage highs of $35-$40/cord and be competitive globally.
Forest landowners need to generate profits, but keep in mind that pulpwood is a market that helps move the crop to sawtimber, peeler logs, and poles in less time. The final harvest is where profits are realized. It is more important for the first thinning to leave the best trees with a uniform spacing and minimal damage to residual trees.
Even though softwood stumpage prices are down, please note that from 1993 to the peak average price in 1998, sawtimber rose 63% (an annual compound rate of 8%). Today, it is down only 8% from 1998, or it is up 49% since 1993. Remember, a contribution to this rise in price was the “shut down” of timber harvest from USDA Forest Service lands.
Hardwood average stumpage prices have been stable since 1998 with some growth, especially for high grade oaks and pulpwood.
Recovery and Future
foundation for recovery seems to be in p
With recent increase in g
good news is that the South is projected to remain the
But with current levels of softwood pulpwood growing stock, don’t expect the price to return to recent highs any time soon.
this economic downturn, the forest community has gone through unprecedented
change. There wi
everyone understands that forests support competitive markets, but few rea
greatest opportunity (and cha
Key will be the understanding of how we keep existing markets (industries) and how to develop new markets with effective incentives.
Secondary wood manufacturing facilities compliment primary facilities and provide employment for the rural workforce.
Proactive collaboration with policy makers
will insure that primary and secondary industry stays and grows in
The worst scenario is for existing mills to close shop or new industries locate to another state or country.
Small businesses should be encouraged to upgrade operations and develop niche markets.
Much like the ecosystems we work with, we are
all dependant on each other.
Each sector must continue to be aggressive in the management of forest resources and the operations of their businesses. No one sector can dominate the other without creating detrimental imbalances.
We are an independent lot, but it is time that we come together and speak in unison to the people who depend on forest products and enjoy the forest resources… everyone.
Hayes, Richard, W., tech. coord.
2003. An analysis of the timber situation in the
Ince, Peter J. 1999. Global cycle changes the rules for
Ince, Peter J. 2000. Industrial
Wood Productivity in the
Johnson, Tony G.;
Johnson, Tony G.; Harper, Richard A.; Bozzo, Michael J. South Carolina’s timber industry – and assessment of timber product output and use, 2001. Publication in progress.
Kessler, George D.
2002. Composite Decking Report.
Nagubadi, Venkatarao; Munn, Ian A. 1997. Pine and Hardwood Stumpage Price Trends in the South. In: Valuing Non-timber Resources: Timber Primacy is Passé, Proc. Of the 1997 South Forest Economics Workers Meeting, Little Rock, AR, March 19-21, 1997, R.A. Kluender, ed ed.: 74-79.
Prestemon, Jeffrey P.; Abt, Robert C. 2002. The Southern Timber Market to 2040. Journal of Forestry, 100(7):16-22.
Southern Lumber Manufacturer’s Association. 2003. Personal communication.
TMS. 1978, 1992-Second Qtr.
2003. Timber Mart-South Quarterly