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AgWest Farm Credit’s 12-month outlook sees forest products manufacturers and timberland owners as slightly profitable.
Drivers include low lumber prices, reduced lumber output in North America, strong performance among some panel mills and weak log demand.
12-Month Profitability Outlook
Lumber prices low
A static housing market, largely the result of affordability headwinds, and a typical seasonal downcycle have reduced lumber demand. Many wood product mills are operating at baseline hours and some curtailed operations during the holidays. Persistently low lumber prices have pressured mill margins; however, most are well positioned to withstand depressed market conditions following multiple years of strong markets.
Random Lengths Framing Lumber Composite Index
North American lumber output falls
Lumber output is down across all regions of North America and this should help to improve the supply and demand balance. The largest decline occurred in British Columbia (17% year-to-date as of September) as it has the highest regional cost structure and faced disruptive weather events in 2023. Production in the Pacific Northwest fell 4.4%. Lower production levels in the U.S. are not permanent and can be ramped up if demand were to increase.
Panel mills perform well
Some panel producers are benefiting from reasonably strong pricing and diverse markets, including furniture, cabinets, shelving and recreational vehicles and boats. Producers can utilize the same raw material for multiple end-use products, strengthening their adaptability. Many panel products are made to order and thus subject to less price volatility.
Log demand weak
Slow product movement and strong mill log inventories have softened log prices. Wet weather across the region has slowed harvest activity, which may slightly improve the supply and demand imbalance.
Douglas-fir #2 Sawmill Log Prices
Forest products manufacturers and timberland owners should be slightly profitable over the next 12 months. While weak lumber prices are impacting lumber profitability, most remain well positioned to weather depressed conditions following multiple years of strong markets. Lumber production is falling across North America and this may improve the supply and demand balance. Strong pricing and drivers markets are benefiting some panel producers. Weak log demand and strong mill log inventory have softened prices.
For more information or to share your thoughts and opinions, contact the Business Management Center at 866.552.9193 or bmc@AgWestFC.com.
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