Thad Taylor, executive loan officer and forest products specialist. AgChoice released the Forest Products Industry Outlook. Thad explains the current assessment of the forest products industry in PA and shares highlights from the outlook. Hear more at the link in our bio.
Thad Taylor, executive loan officer and forest products specialist. AgChoice released the Forest Products Industry Outlook. Thad explains the current assessment of the forest products industry in PA and shares highlights from the outlook. Hear more at the link in our bio.
Forest Products Industry Outlook
We recently interviewed Thad Taylor, executive loan officer and forest products specialist with AgChoice Farm Credit. AgChoice recently released its Forest Products Industry Outlook, a document which provides a current assessment of forest products industry in Pennsylvania. Thad shared highlights from the Outlook document and his perspectives on the forest products industry. Listen to the full podcast episode with Thad here.
Could you share with our listeners a high level overview of your perspective of market conditions in the forest products industry.
Our Pennsylvania forest products industry faces many challenges right now. The global COVID pandemic and trade-related issues in recent years have created challenges specific to both pricing and demand for many forest products.
First, Pennsylvania kiln-dried hardwood-grade lumber prices are down about 11% year-over-year versus 2019, and down about 27% from the mid 2018 highs. That reduction is somewhere around $375 per thousand since the high point recently in 2018.
Second, Pennsylvania timber stumpage prices are down about $326 per thousand board feet, which is about 36% reduction since the mid 2018 high. That may sound like some help to the industry from a lumber production and margin standpoint, but that reduction isn't quite enough to offset the $375 per thousand board feet reduction in average lumber pricing. In addition to that, hardwood saw timber stumpage sales happened to be the main product for most of our Pennsylvania landowners who sell standing timber. So, to the extent that stumpage price reduction helps some of our sawmill clients, it certainly hurts some of our standing timberland management clients.
The third item is Chinese tariffs and weaker overall Chinese economic demand. Economists can debate whether the tariffs hurt the Pennsylvania forest products industry or the weaker Chinese economic demand to hurt the industry. I think both happen to hurt our industry, and until the Chinese economy picks back up along with the global economy, I think we're going to have some headwinds for overall foreign demand for Pennsylvania forest products. Our industry is somewhat dependent on foreign demand for our forest products.
Next, export demand for U.S. hardwood lumber is down about 25% in 2019 compared to 2018, and down another 18% year-to-date, May 2020. That has been a significant impact on lumber demand and pricing in Pennsylvania.
Lastly, I'll mention pulp and chip demand. Both of those items are down right now in Pennsylvania and throughout the New England region, mainly because of the types of paper that are produced in the paper mills in this particular region. Both pulpwood and chip demand are down. In addition to that, palette blocking industrial lumber railroad tie markets, which were a bright spot in 2018 and 2019, have started getting tight.
Those are some significant challenges, but not everything in the industry is challenging right now. There are some bright spots. One would be diesel fuel prices, which are a huge part of the cost structure of any logging operation and indirectly, then, part of the cost structure for any sawmill operation. Diesel fuel prices are low right now. They're considerably off their 2018 highs. I think they're down about $0.75/gallon, retail basis since the 2018 high. The logging weather, which has been historically unreliable every spring and summer, has been terrific for both June and July here in 2020. We've had good sunny weather with very little rain. A final bright spot is both sawdust and bark demand, which have been very difficult the past few years, seem to be better right now. Both wood pellet manufacturing is consuming a lot of sawdust and various landscaping projects are also consuming a lot of bark and bark mulch.
Within the Forest Products Industry Outlook, the document outlines six items on a forest products industry ‘Watch List.’ Could you share with us about the Outlook’s Watch List?
There are six items here on the Forest Products Industry Outlook Watch List. It’s important to note that they are not all the negatives. They can be some positives or can be anything that we find occupying our mindshare to consider.
Are there any other thoughts you'd like to share today?
I'm thankful for the listeners who've taken a moment to tune in. The forest products industry is something that's pretty passionate for me here at AgChoice. Forests cover about 60% of our state's land base, and it's always going to be an important industry for our state. The industry is very important to AgChoice. It's a large portion of our loan portfolio and a focus for a lot of our time, talent, and treasure here at AgChoice. And we want to make sure we stay abreast of everything that is happening in the industry so we can ensure we serve the market appropriately. If any listeners are interested in learning more about the forest products industry outlook, I encourage them to please check out the full written version at AgChoice.com under the News and Education tab.