The Wall Street Journal published a lengthy story recently about a topic that many Mississippi landowners already know a lot about: difficult conditions for Southern pine tree investors.
First, the 2008 housing crash greatly lowered the demand for pine. No one was building homes for several years, and that lack of demand drove down prices.
The housing market has bounced back in parts of the country, but the Southern timber prices haven’t fully recovered. In part that’s because the weight of wood and low prices makes it unfeasible to sell it outside of the immediate area where it’s grown. It’s too expensive to haul a load of trees far away where there is more demand for timber.
An Auburn University forestry professor said the price of Southern pine, after adjusting for inflation, is down about 45 percent since 2007, the Journal reported. After the price eclipsed $60 per ton in the late 1990s, it’s now down to just above $20 per ton.
You can wait for better prices, but the trees are aging all the time and their value varies depending on what they can be used for.
Market forces explain part of the problem, but it’s been exacerbated by government planning. The Conservation Reserve Program started in 1986 to bail out many farmers who were going bankrupt because of drought and low commodity prices. The government agreed to pay them $30 to $50 annually per acre they planted in trees, the Journal reported. That added 2.2 million acres of forested land within eight years, mostly in Mississippi, Alabama and Georgia.
But many of those trees matured just as the housing market collapsed, creating a terrible inefficiency: huge supply and tiny demand. Brooks Mendell, a forestry consultant quoted by the Journal, said there remains about 25 years worth of softwood supply in the Southeast.
“It’s unclear we’ll ever have timber prices like we did 10 or 20 years ago,” he said.
That’s bad news for many landowners and investors. The Journal story said six million owners in the South have at least 10 wooded acres. Big business also jumped into the game when times were good. For example, the California Public Employees’ Retirement System bought up more than $2 billion in pine land as an investment and was forced to harvest trees at depressed prices to pay interest on money it borrowed to buy the land.
Although bad for timber owners, the low prices are good for mill owners who turn the trees into lumber, power poles or pulp and ultimately for consumers who pay less for wood products. Perhaps one solution will be more mills in Mississippi and the rest of the South so that more wood can be processed. Also, the woods are great for hunting and can be leased for such.
We trust landowners will figure that out, but if nothing else the situation is another lesson that there are always unintended consequences of government interventions into the workings of the economy.
