Lumber prices have come out of the recent cycle of severe volatility and returned to the long-term historical trend. Pricing to remain around, or slightly below, current levels throughout this year until consumption picks back up, says Scott Reaves, director of forest operations at Domain Timber Advisors.
U.S. demand for softwood lumber increased through 2020 and 2021, up 5% and 4% respectively according to FEA, and remained resilient through 2022. But rising interest rates, elevated home prices, and a reduction in remodeling activity ultimately led to a decrease in demand of approximately 1% in 2022.
Sawlog prices through 2022 were mostly positive and relatively stable. Southern softwood sawlog started the year strong at just below $28/ton and fell modestly to just below $27/ton in 4Q, according to TimberMart-South. Log prices on the west coast were strong but had a similar trend, starting the year strong and trended modestly lower through year-end.
“We believe this past year was good for timberland ownership as lumber demand drove stumpage prices in a positive direction at the beginning of the year with only modest downturns on average as year-end approached”, says Scott Reaves. “Demand for both forestland investment opportunities and small tract land sales continued resulting in favorable valuations of existing ownerships in many cases”.
Domain has found good purchasing opportunities for new investments by focusing on smaller acreage packages, the lower-middle market for timberland investment. Looking into 2023 the company expects a softening of sawlog prices driven by the housing market slowdown. “The effect of this on valuations could be muted by a continued interest in acquiring investments of this type, which is our expectation”, Mr. Reaves says. Expecting a near-term slowdown in housing, a primary driver of lumber demand, he believes long-term fundamentals remain strong for housing demand.
