Lumber has become a hot commodity over the past year – more than doubling in price by some measures – but the spike in demand isn’t likely to benefit most wood suppliers in Maine.
Demand for building materials has jumped during the pandemic, caused at least in part by the hot real estate market that has led many to buy land away from the big cities and build a new home in a safer, rural community. Home renovations and expansions are also booming, as many people forced to work from home have decided that a purpose-built home office would work better than a converted bedroom.
The heavy demand pushed lumber futures to record highs last week, jumping to more than $1,500 per 1,000 board feet of lumber due to be delivered in July. A year earlier, the price was under $350. More immediate trading was at even higher prices, with the May contract going for $1,610 for 1,000 board feet.
But industry analysts said those much higher prices aren’t working their way down through the market to reach the pockets of Maine landowners where the trees grow, or the loggers who cut them down.
“Not only has it not trickled down, it won’t until and unless new mills are built,” said Eric Kingsley, a forest economist and Portland-based partner with Innovative Natural Resource Solutions, a forest industry consulting firm.
Kingsley said it’s a bottleneck in the supply chain that’s pushing prices sky high at the sawmills, and that’s where prices are jumping.
Many sawmills closed during the Great Recession when the housing market took a big hit, Kingsley said, and most investors aren’t lining up to put significant money into building new ones to take advantage of what may only be a short-term price hike.
Kingsley recently looked at prices of stumpage, delivered timber and lumber in northern New Hampshire for the first three months of the year, and he said the disparity in prices for wood at the three key levels of production was striking.
Prices for stumpage wood – essentially what landowners charge to allow loggers to harvest their wood – were $140 per 1,000 board feet, about 4 percent above the 10-year average, he said.
Delivered prices – what loggers charge when they deliver wood to the sawmills – were $320 per 1,000 board feet, Kingsley said, about 9 percent below the 10-year average.
And prices for lumber, the finished wood that’s used in construction, were $856 per 1,000 board feet, he found – 134 percent above the 10-year average. And that was before the late spring price surge that has catapulted lumber prices to record highs.
In addition to the diminished number of sawmills operating in the country, Kingsley said there are other factors that have pushed prices up, beyond the rising demand. For instance, he said, many sawmills shut down a year ago, in some cases for more than two months, as the coronavirus pandemic raged and sawmill owners sought to limit its spread among workers. That led to shortages of lumber and higher prices.
In addition, forest fires in the western U.S. diminished supplies to mills in that part of the country, he said, further limiting supplies and pushing up prices. And there’s nothing major on the horizon that would draw prices back down, Kingsley said, although he does expect prices to retreat somewhat from the big jumps that have occurred.
For one thing, he said, the surge will likely lead people to delay or abandon discretionary projects until prices ease.
“The new normal will be a lot higher than the old normal, but what we’re seeing now is ridiculously high,” Kingsley said.
Dana Doran, executive director of the Professional Logging Contractors of Maine, said members of his organization are concerned about prices whipsawing.
“We’re very worried for the future,” he said, and a chief concern is that projects canceled due to high lumber prices will quickly translate into lower prices for the raw material.
That would mean loggers would bear the brunt of the lower demand without ever having reaped any benefit from the higher prices that lumber is now fetching, he said.
Patrick Strauch, executive director of the Maine Forest Products Council, said the rapid jump in demand hit at a particularly bad time for wood producers. Many were already dealing with a drop in demand from sawmills because of the pandemic leading to shutdowns, giving them a backlog of wood and lower asking prices.
Strauch said he saw the impact firsthand. This spring, he has been building an addition to his house so his mother-in-law could come live with him and his wife. He said the lumber, which he bought before the most recent run-up in prices, was still about 30 percent higher than he had budgeted, tempting him to make it a true do-it-yourself project.
“I’m hoping my wife will let me buy that portable bandsaw mill,” he joked.
Even Maine sawmills are at the mercy of larger market forces because they account for only about 1 percent of North American lumber production, said Anne McInerney, a spokeswoman for J.D. Irving, a Canadian company that operates two of its sawmills in the state.
The Maine mills, she said, “are not price-setters.”
And that larger lumber market is typically beset by big price swings, she said. In the summer of 2010, as the Great Recession dragged on, prices fell below $280 per 1,000 board feet, she said. Prices steadied as the economy recovered, McInerney said, and then plunged again when new home starts tanked in mid-2018.
Prices dropped again at the outset of the pandemic, she said, before the homebuilding and home improvement boom set in.