Sun Joseph Chang
|[Image: Clearing debris after Hurricane Katrina]|
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Within a month, hurricanes Katrina and Rita damaged about 4.4 billion board feet (3.0 billion by Katrina and 1.4 billion by Rita) of sawtimber inventory in Louisiana. Sawtimber inventory is the amount of standing timber that could readily be harvested for solid wood products, such as lumber and plywood. Katrina hit Louisiana on Aug. 29, 2005, and Rita followed on Sept. 24.
In comparison, the total harvest of pine and hardwood sawtimber for Louisiana in 2004 was 1.221 billion board feet. In essence, Katrina and Rita wiped out the equivalent of more than two years’ worth of pine sawtimber harvest and more than 11 years’ worth of hardwood sawtimber harvest for the entire state.
Beyond Louisiana, Hurricane Katrina damaged 12 billion board feet of sawtimber inventory in Mississippi and 1.3 billion board feet of sawtimber inventory in Alabama. Furthermore, in Texas, Hurricane Rita damaged an additional 4 billion board feet of sawtimber inventory.
The sudden loss of about 22 billion board feet of sawtimber inventory is unprecedented. We surmise that the statewide southern pine sawtimber stumpage prices will probably drop by more than half in the coming months and that the trough of depressed prices will likely last six quarters. After this difficult period is over, we expect stumpage prices to return to pre-Katrina levels of about $350 per thousand board feet (MBF), as reported by the Louisiana Office of Forestry for the second quarter of 2005. We encourage forest landowners whose timberlands lie outside the hurricane damaged areas to keep up with prices and look for the best possible price and thus time to sell.
Over the past 50 years, the southern pine sawtimber stumpage prices have undergone three phases – 1955 to 1969, 1969 to 1989, and 1989 to present (Figure 1).
Between 1955 and 1965 of the first phase, the prices first trended downward because sawtimber inventory was increasing rapidly in response to expanded reforestation efforts after World War II. This lowering price trend triggered the arrival and the subsequent expansion of the southern plywood industry. Between 1965 and 1969, timber harvests doubled, and the stumpage prices rose by about 50 percent.
From 1969 to 1989, there were two episodes of rapid stumpage price rises. The first episode was caused by the expansionary federal spending of the 1960s, chiefly the War on Poverty, the Space Race and the Vietnam War. The second episode was caused by the country’s expansionary monetary policy during the late 1970s. The first episode of rapid stumpage price rise was quashed by the 1973-74 oil embargoes, while the second one was eliminated by efforts to lower inflation in the early 1980s. In addition between 1984 and 1986, stumpage prices dipped by about a third when southern pine beetle outbreaks ravaged the pine forests of Louisiana. The important thing to note here is that if we were to shave off the peaks of the early and late 1970s and fill in the trough of 1985-86 caused by the beetle outbreaks, stumpage prices were essentially flat, averaging around $150 per thousand board feet between 1969 and 1989.
Since 1989, after the northern spotted owl was officially listed as a threatened species under the Endangered Species Act, the timber volume sold by the national forests dropped from nearly 10 billion board feet in 1990 to less than 4 billion board feet by 1994 (Figure 2). This drop in federal timber sales benefited forest landowners in Louisiana tremendously. Southern pine sawtimber stumpage prices increased more than 80 percent from $150 per MBF in 1989 to $274 per MBF in 1994. A new era had dawned on the timber market in the Louisiana and the South.
Stumpage prices since 1994 have been marked by wild gyrations. The reduction of 6 billion board feet in timber supply from the national forests between 1990 and 1994 meant significant tightening in the timber supply and demand situation. As a result, when too much rain in the wet winter seasons reduced the area available for timber harvest in Louisiana, stumpage prices soared. For example, the 18.1 inches of rain in the first quarter of 1995 caused stumpage prices to peak at $330 per MBF, exceeding the $300 per MBF mark for the first time. Stumpage prices dropped below $250 per MBF in the second quarter of 1996 when Louisiana experienced a brief drought in the first half of the year.
The high rainfalls of the first half of 1997 sent stumpage prices back up to near $330 per MBF again. In 1998, however, 23.37 inches of rain pushed stumpage prices to an all-time high of $367.57 per MBF. Ever since the second half of 1999, southern pine stumpage prices have been sliding back and settling down around $230 per thousand board feet. Once these peaks are accounted for, sawtimber stumpage prices in Louisiana since 1993 were essentially flat averaging around $220-$240 per MBF.
Lessons from the Past
The southern pine beetle outbreak of 1985-86 provides insight into the likely scenario of development for the stumpage prices after hurricanes Katrina and Rita. The 1985-86 outbreaks killed about 1.1 billion board feet of Louisiana’s southern pine sawtimber inventory plus another 0.5 billion board feet in Texas. The stumpage prices plummeted by about a third from $150 to $100 per thousand board feet and the trough of depressed stumpage prices lasted for about six quarters. On the other hand, Hurricane Hugo in 1989 damaged about 25 percent or roughly 4.8 billion board feet of the southern pine sawtimber inventory in South Carolina. The sawtimber stumpage prices plummeted about 30 percent and lasted about one year.
Sun Joseph Chang, Professor, School of Renewable Natural Resources, LSU AgCenter, Baton Rouge, La.
(This article was published in the spring 2006 issue of Louisiana Agriculture.)