During the summer of 1999 lumber prices reached near historic highs
during a period of strong residential construction. Prices remained
at relatively high levels through April 2000, when they began tumbling
to some of the lowest prices in the past 25 years. Not only has
the demand for lumber slackened during the past year, supply has
grown due to increased lumber entering the market and productivity
gains at mills.
The biggest factor behind slowing demand was a weakening in homebuilding
in 2000. Nationally, housing units authorized were down 4 percent
for the first 10 months of 2000 compared with a year earlier, and
construction employment was down slightly. "The economy is unexpectedly
weaker than what people thought," said Chuck Keegan, an associate
director of the Bureau of Business and Economic Research at the
University of Montana. In addition, demand for lumber abroad has
been slow, exacerbated by a strong U.S. dollar, which makes products
from the United States more expensive in other countries.
While demand has slowed, the supply of lumber has picked up. Today's
market now includes not only lumber from Canada, the traditional
importer to the United States, but lumber from South America, Asia
and Scandinavian countries, according to Wayne Brandt, executive
vice president of Minnesota Forest Industries. Supply has also increased
as mills have boosted productivity through improvements to operations,
increasing capacity about 2 percent to 6 percent. With greater supply
from imports and productivity, coupled with low demand, "inventories
of soft wood lumber throughout the nation have increased substantially,"
Domestic mills are further squeezed by reductions made in the
amount of logs available for sale from national forests in many
parts of the country. The drop in timber production in national
forests is due mostly to new environmental regulations (see the
April 2000 fedgazette).
This has bid up the price of logs substantially to the point where
"the price of the trees standing up is the same price as the lumber,"
Brandt said. Some mills have had to ship logs from further away,
driving up costs and squeezing profit margins. Other district mills
have recently curtailed production, resulting in some closings and
One positive development may spawn from the large forest fires
in Montana this past summer, which left a large supply of salvage
timber. While the total availability of logs from fire-damaged land
has yet to be determined, salvage timber could increase overall
supply, Keegan said.
For more data on the regional economy, go to Ninth
District economy. Up-to-date charts and data provide current
and historical information on agriculture, banking, construction
and real estate, labor markets, natural resources, travel and tourism,