After a rocky 2023, the Alabama timber market is expected to begin trending in the right direction in 2024. However, there are several factors to keep an eye on as the year progresses. An Alabama Cooperative Extension System forest economics expert said landowners should know where the market stands going into this year.
The Weakest Link
The saying goes that a chain is only as strong as its weakest link. In terms of the Alabama timber market supply chain, the chain is at its strongest when there is the best ratio of timber supply, demand, input costs, capital investment and accessibility.
According to Adam Maggard, an Alabama Extension associate professor of forest business and economics, the state is dealing with an oversupply of marketable timber.
“Alabama is still facing a timber supply issue in terms of oversupply,” Maggard said. “Although it is dependent on how much of that supply is marketable and accessible to markets, our loblolly pine growing stock — making up roughly 83% of our softwood growing stock in the state — has more than doubled in the last 20 years.”
A strong component of the market is capital investments. During the last decade, Alabama surpassed more than $7 billion in capital investments in the forestry sector, with a recorded peak of $1.3 billion in 2018. In the same decade, there was a significant decrease in investments because of COVID-19. However, year over year, these investments into the industry have increased since 2020.
Most of these investments are being put toward mill capacity improvements, new sawmills and mills that are transitioning to produce products higher in demand (paperboard and container board currently). Maggard said there are also new investments in wood-pellet plants across the state, which is also reflective of the southeastern region.
Timber Prices
On average, it has been well over a decade since there was large changes in stumpage prices (a tree’s price on its stump prior to harvest).
“Stumpage prices have largely remained suppressed and will likely not change much, with the exception of potential impacts from weather (wet weather events),” Maggard said. “However, the large surplus, housing market, economy, mill capacity and weather are all economic conditions to keep an eye on heading into 2024.”
Other factors that may influence stumpage prices include competition, distance from mills, tract size, tree species and tract accessibility.
A recently weakened demand of pine sawtimber forced a decline in its prices until eventually stabilizing near the turn of the new year. As with pine and hardwood pulpwood, their prices fell sharply each quarter in 2023. In fact, Maggard said region-wide, pine pulpwood prices witnessed a decline of 21% on average. In part, factors attributing to the decrease include product shifts in the paper sector, rises in the utilization of recycled fibers and an increase in the supply of sawmill residues as a result of recent capacity increases from mill expansions.
Housing Market
The housing market slowed throughout 2023. Currently, negative factors impacting the housing market include increasing mortgage rates, declining affordability of homes, inflation, lags in household formations, labor shortages, continued constraints on logistics and the supply chain, bank failures in the United States and global uncertainties (wars in Ukraine and Israel).
Most value-added forest products are utilized in the new, single-family housing construction sector. Increased mortgage interest rates have caused monthly mortgage payments to increase significantly for this sector. This has priced many buyers out of the market.
“The influence of increasing mortgage rates is evident, as aggregate costs have decreased affordability; thus, a reduction in total new and existing house sales for the 2023 calendar year,” Maggard said. “Overall, interest rates are expected to decrease some in 2024, which is indicative of a more favorable outlook. The desire to own a home remains a bright spot for a strong housing market to return when mortgage rates decline and affordability increases.”
Regional-Timber-Market Outlook
Maggard shares his quick notes on the regional-timber outlook. The list below provides a perspective of how the regional market is behaving.
Softwood lumber capacity in the South is increasing thanks to new and improved mills.Softwood lumber production is forecasted to increase across the South.Hardwood capacity in region declined in recent years. This is because mills shifted toward softwood and increased capacity for pine timber. Also, pine is less expensive and easier to procure.There were seven pulp and paper mill closures in 2022 and 2023. Three mills converted to recycled production facilities only. As the largest pulp and paper producing region, this caused over 10 million tons of lost consumption.The pellet and bioenergy markets continue to grow, while wood demand for pulp has decreased.Logging employment has declined and trucking remain a continued issue.
More Information
The Alabama timber market has the potential to have a productive year in 2024. Look for cues — such as more building development, mortgage rates, weather events and the economy — to affect the market as the months progress. For information about forest economics, check out Alabama Extension’s Forest Business Resources program to learn more about maximizing forest potential.