The price of lumber has been through the roof. You know that if you are a homebuilder or remodeling.
We are a big forest products manufacturing state in a state filled with trees. Around 58% of our land area is covered with about 18.1 million acres of timberland. I wondered why the rising demand for lumber and higher prices haven’t flooded the market with enough 2-by-4’s.
This led me into the world of forest products. The short answer is that logs don’t go from the forest straight to Home Depot. They go through sawmills, where they are cut into lumber. While our forests are vast, there are only so many mills.
I talked last week with Dr. Rajan Parajuli, an N.C. State professor and forestry extension specialist. He and Dr. Robert Bardon, associate dean of extension, are two of the leading experts in the economics of the state’s forest sector.
It is a big sector, with logging operations, sawmills, furniture mills, and pulp and paper companies. New numbers compiled by Parajuli and Bardon – for 2019 – show the sector employs more than 73,600 people, with a payroll of nearly $4.3 billion. It is the top employer among the state’s manufacturing sectors.
The broad impact of the sector is greater. These companies operate in most of our counties where they support other businesses. And their employees spend money. Overall, the N.C. State researchers estimate that the sector supports more than 148,000 jobs, $8.4 billion in payroll and more than $34.9 billion in output.
“These are huge numbers,” Parajuli said last week.
The sector is really a group of segments that have one resource in common – wood.
Much of the state’s timberland, around 10 million acres or about 55%, is controlled by families, around 500,000 owners.
Another 25% is in corporate or institutional ownership – real estate investment trusts and pension funds, for example. Some of the biggest owners are REITs like Weyerhaeuser (560,000 acres here) and institutional investors advised by the so-called TIMOs, timber investment management organizations. These are also the owners who are most active in managing and harvesting their forests; more than 70% of the timber harvests are coming from that 25%, according to Parajuli.
A challenge facing owners is that the “stumpage” price for lumber-quality pine timber – before it is trucked to the sawmill – has been declining, according to a study by Bardon. (There are theories about this. One involves the intensive planting encouraged by the federal government decades ago.)
Nothing happens until someone brings trees out of the forest, and the logging segment has seen better times. When the wood furniture industry – and its demand for hardwoods – left for China and other low-cost countries, the impact was felt in logging. So was the housing collapse. Total annual timber harvests – hardwood and softwood – dropped from around 30 million green tons in the early 2000s to 23 million tons in 2009 and stabilized at around 25 million tons in the last few years. But hardwood went from 12 million in 2001 to 6.3 million in 2017, while pine harvests stayed relatively flat, Parajuli said.
According to a study by Parajuli last year, the logging industry has fewer companies than two decades ago. In 2001, there were 688 independent logging companies in the state; it was around 450 last year, according to the U.S. Bureau of Labor Statistics. But a logger’s average 2019 weekly pay, $861, has gone up around 22% in real terms since 2009, his study showed.
Once timber comes out of the forest, it can go to a sawmill or a pulp and paper factory. The sawmills are particularly interesting right now because of lumber prices. As in the case of logging, the number of sawmill companies in the state dropped over the past 20 years, from 229 in 2001 to the lower 130s, according to Parajuli, the result of closures, mergers and other factors. Still, the mills have typically been producing more lumber than the state’s annual consumption, according to a study by Parajuli and Louisiana Tech researcher Eric McConnell, which meant that North Carolina has been a net exporter to other states and countries. China, for example, has been importing some of our hardwood logs and sending back furniture, which isn’t the way we wanted things to go 20 years ago.
One of the biggest lumber mills in the country is owned by Jordan Lumber & Supply, a couple miles outside the Montgomery County town of Mt. Gilead. Robert Jordan IV is the third-generation owner; you probably remember his father, former Lt. Gov. Bob Jordan, who passed away in February 2020.
It was about that time that Robert Jordan started hearing from industry sources that with the spread of COVID-19, lumber prices were going to fall.
“And they started falling, and me and everybody who runs a company like this were cutting out all overtime, making lists of people to lay off,” Jordan recalled last week.
But in March 2020, his two biggest customers – who supply Home Depot and Lowe’s – started ordering very large amounts of lumber, and this went on for months. Millions of people had been sent home to work remotely with no idea when they would go back to the office. “And so you got people who had never built projects before, going out and buying – with the stimulus money – going out and adding on, giving themselves more space.” Plus, millennials who had been renting decided to buy, and big city folks decided they needed second homes.
“We’ve got composite prices at $1,000 a thousand (board feet), which is nuts,” said Jordan. “Before, if it ever got to $600 – which is a really good market – the Canadian lumber would come flowing in here just as fast as they could get it cut. “ But, he said, a combination of problems has dropped Canadian exports by a third from typical levels. Insects have taken a toll on western Canadian lumber “and then overcutting on the east coast of Canada. That is tons of lumber. So that scarcity also has kept lumber prices moving up.”
Jordan’s company owns 71,000 acres of forest, where an improved hybrid seedling – developed with help from Weyerhaeuser and N.C. State – has raised the survival rate of trees from around 82-85% to 95-98%. In 2018, he installed a new $50 million sawmill line, which turns out to have been well-timed. The result is that Jordan is getting three times as much lumber per acre as it did 25 years ago.
The forest products industry gets criticism from environmentalists who believe its industrial forests sequester less greenhouse gases than they could. Wood pellet manufacturer Enviva has been a particular target of environmental groups.
But people want their 2-by-4’s, tissue paper, diapers and Amazon boxes.
And the forest products folks say they have a good environment record focused on long-term sustainability, growing more each year than they harvest. “Industry supports that because that’s their future supply,” said Dr. John Hatcher, executive director of the North Carolina Forestry Association.
When I talked to him last week, he mentioned the WestRock mill in Roanoke Rapids, one of the oldest in the state. It was the first U.S. kraft paper pulp mill in 1909. “They’ll say, ‘Hey, we’ve been cutting the same 100-mile radius for a hundred years. And we’ve never run out of wood.’ So I think that’s a testament to the fact that we really care about being good stewards of the land.”