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Getting The Bugs Out Of Hardwood’s Comeback

4 min read

“Adapt and overcome” is a common military phrase meaning troops must be ready to change plans quickly and push forward.

That phrase might also apply to the state’s timber industry in coming years.

After historically low prices kept loggers from removing hardwoods from Arkansas forests for many years, something of a hardwood rebirth began recently. However, at least one timber expert has predicted that market pressures may reverse that trend soon.

“I think that hardwood markets will largely stabilize and the prices will be flat or even lose some ground in 2015 as substitution will occur,” said Dr. Matthew Pelkki, George H. Clippert, endowed chair at the University of Arkansas-Monticello School of Forest Resources. “Paper mills will reformulate as much as they can to substitute lower cost pine for hardwood in pulpwood markets. In saw timber markets, the same substitution can happen as producers will move away from the most expensive oaks and substitute maple and ash.”

Pelkki speculated that the pine market could make a small comeback this year.

“Housing starts are up, but still well below what is historically a ‘normal’ market, and over the last five to seven years, with stump age prices falling 50 percent, landowners deferred harvests,” he said. “So there is a huge surplus of wood that can come to market as soon as prices do start to increase. The supply abundance will push back on demand and keep price increases very modest in pine for the next two to three years at least.”

Pelkki said that timber marketing efforts lag behind that of the state’s other agriculture sectors. He also cited the overall health of the state’s forests as a growing concern. One opportunity, though, could come from new uses for the state’s timber, especially in terms of emerging technologies in packaging, health applications and bio-energy.

A significant threat to the industry, however, is an old one — insect infestation.

“The emerald ash borer is a serious threat to Arkansas’ forests and cities,” Pelkki said. “The insect kills 99 percent of ash trees in infested areas, and Arkansas’s forests could lose $350 million worth of standing ash trees in the next 10 years, depending on how fast this beetle spreads throughout the state.”

Pelkki speculated that the prospect of losing the state’s ash inventory could prompt loggers to focus on removing those trees as quickly as possible, thus leaving more oak trees in the forest, and that’s not necessarily a good thing.

Pelkki explained that the state’s timber inventory has steadily grown in past decades. An older forest is more susceptible to disease.

“A drought or other tree-stressing event could trigger severe and rapid declines in forest health,” he said. “In 2001-2005, the northern half of the state had an epidemic level outbreak of red-oak borer.”

Adding to the issue of an aging forest is the fact that in the economic downturn of recent years, a chunk of the state’s logging and sawmill capacity went belly up.

“From 2007-2012, Arkansas lost about 25 percent of its logging infrastructure. So as mills increase orders, the current logging capacity is going to be stretched thin to fulfill the demand,” Pelkki said. “What I think will happen is that loggers will demand and get higher rates to cut and haul timber, and eventually grow to meet the increased demand.

Higher prices at the mill for delivered wood won’t translate to higher payments to timber growers as the loggers take needed profits to expand their capacity.”

With a start-up cost for a logging crew pegged at up to $2 million, the lines forming to take on that task are not long.

Arkansas Forestry Association Executive Vice President Max Braswell said the organization is working to ease the capital burden.

“Logging requires significant capital and a skilled labor pool,” Braswell said. “In support of this, the forestry community has been successful in getting a sales tax exemption on logging equipment passed in the legislature and worked to establish an excellent heavy equipment training academy in McGehee.

“We appreciate the banks that are willing to work with logging contractors to help them succeed and hope that more lending institutions will see value in providing capital to loggers. This will be necessary to growing logging capacity.”

Braswell said that the industry is set to rebound.

“In 2014, Arkansas saw investments in mill expansions, increased production and announcements for new pellet mills in Pine Bluff and Monticello,” he said. “Increased consumer confidence, excellent job creation figures, falling fuel prices and other economic indicators seem to point to a generally favorable outlook for the forest products industry and related sectors this year.”

(Read more from the latest digital issue of Arkansas AgBusiness.)
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