On top of the direct labor challenges, truck drivers are vital to production, starting with moving logs from forests to mills and then getting finished products to distribution centers and lumber yards. Finally, the stimulus checks and unemployment insurance bonus payments have sapped some people’s interest in taking jobs. On top of that, mills are usually located in rural communities that have been losing population. There has been a long-term trend away from blue collar occupations, partly a result of educators telling high school students they have to go to college. Mills also have difficulty hiring new workers. A few Covid-19 outbreaks among production workers have disrupted production. Producers are trying to increase the output of existing mills, but labor is a challenge for most of them. Thus, building a new mill today would probably take more than two years. (The Financial Post reported, “A plague of tiny mountain pine beetles, no bigger than a grain of rice, has already destroyed 15 years of log supplies in British Columbia, enough trees to build 9 million single-family homes, and are chewing through forests in Alberta and the Pacific Northwest.”) The construction of the new southern mills begun in 20 led to long lead times for mill equipment. Before the pandemic, many new mills were being built as production shifted from Canada to the South. Wood products companies would like to add capacity, but a new mill takes about two years to build. With extremely low mortgage rates, purchases penciled out in 20. Working remotely persuaded a few long-time apartment dwellers to buy houses, but the huge impact came from families that had anticipated buying a house in a few years. The benefit of this paper is that we have identified a few pieces of readily observable information that allow people in the timber industry to make solid predictions about what will be happening in the next six months or so.The low mortgage rates brought more buyers into the single family real estate market. "It can feel like feast or famine in this industry but there is a logic that underlies the changes. "Right now log prices are phenomenally high," Reimer said. The National Association of Home Builders recently released a report that said lumber prices have added an average of $24,000 to the cost of a new home. Since the paper was written, lumber prices have increased more, reaching the $1,000 per MBF range. The difference between the minimum and maximum was $578, nearly as large as the 15-year average price itself. From 2005 to 2020, the price ranged from $346 per MBF to $924 per MBF. Yet this average disguises a great deal of variation in price. One board foot of lumber is 1 square foot and 1-inch thick. In the paper, Reimer cites data that shows the average price of Douglas-fir logs between 20 was $631 per MBF (a forestry term for 1,000 board feet of lumber) of mill logs in southern Oregon. "These variables are readily observable and thus can be used by industry decision-makers to make better predictions about future values of logs and timberland," said Reimer, a professor in Oregon State's College of Agricultural Sciences.
Adding additional information - including the monthly inventory of homes, mortgage rates, the exchange rate with Canada (also a big timber supplier) and the Case-Shiller home price index - explains about 74.3% of the price variation. He found that simply knowing the number of housing permits issued in a month can explain about 46.8% of the variation in log prices over time. Reimer's study, recently published in the journal Forest Policy and Economics, focused on Douglas-fir, the most commercially important timber species in the Pacific Northwest. Yet the prices of cut and delivered logs may be the most direct way to monitor the condition of timber markets, Reimer said. The health of the timber industry can be measured in various ways, including harvest levels, employment in timber harvesting and at mills, and lumber demand. The timber industry is critical to the economy of many regions of the world, including the Pacific Northwest. "That makes this a difficult business, whether you are land manager, mill owner, timberland investor or, as we are seeing now, a home builder."
"Log prices are really variable," said Jeff Reimer, a professor of applied economics at Oregon State. At a time when lumber prices are skyrocketing, an Oregon State University researcher has developed a new way to predict the future price of logs that uses readily accessible economic information.
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