It’s Not Over ’til It’s Over
By Bill Tice editor
Back in 2006 when we started to hear about “subprime mortgages” and see the first signs of trouble for the forest industry, many people were somewhat optimistic about the length and severity of the current downturn. Some were even predicting it would be all over sometime in 2008. However, it wasn’t long before statements such as “the perfect storm” were being tossed around and those visions of a renewed and refreshed industry returning to profitability were being pushed off until early 2009. Well, here we are in May 2009, and most of the industry is still struggling. Now, many industry experts are saying first quarter of 2010 for the early signs of a recovery. Others are saying it could be longer.
But it’s not just the experts that have an opinion. In forestry dependent towns from Prince Rupert, B.C. to Corner Brook, Nfld. almost everyone is talking about the timing of a recovery. And, they will be more than happy to share their thoughts with you and tell you when they think the worst downturn in our industry’s history will be over. Many have been through tough times before, but even long-term veterans with three or more decades in the industry will admit this is the worst they have ever seen. So just when will this crisis be over and what will our industry look like when the dust settles?
We all know that many of the current problems for the forest industry have been blamed on the severe decline in U.S. housing starts. However, the news releases and information coming out of the National Association of Home Builders (NAHB) in the U.S. these days is starting to paint a positive picture. They are cautiously reporting an increase in building permits and housing starts in some areas of the country, and they are pointing to a declining inventory of new homes and renewed consumer interest that has been spurred along by government stimulus initiatives and tax incentives as positive signals. The banks in the U.S. are also starting to loosen the purse strings a little and are showing a slight willingness towards lending money again, while at the same time interest rates are at the lowest levels in years. These may all be small steps, but they are steps in the right direction.
Since this is an editorial comment, you might be wondering at this point if I have an opinion on the topic? And of course, I do. If I was a gambler, I would put my money on a partial
recovery by early 2010 with a return to profitability for many companies by late next year. I will even go out on a limb here and go as far as to say that sometime in 2011 prices for lumber could reach highs we haven’t seen for some time. I’m no financial expert, but if you look at basic supply and demand from Economics 101 and subscribe to the survival of the fittest theory, you may see why. Quite simply, some producers won’t make it through these turbulent times, while others may have trouble ramping up production to full capacity as many of their skilled workers have moved on to other industries due to layoffs in the forest industry. When housing starts return to reasonable levels, fewer producers and less volume in the marketplace means demand should exceed supply or at least the gap between the two will become much smaller, which should of course drive prices upward.
It may be much of the same story on the logging side of the business with only the strongest logging companies surviving. With fewer loggers competing for the harvesting business of the licensees and private sales, harvesting prices may go northward at contract renewal time.
Most forestry equipment manufacturers are also struggling, but again the outlook may be quite different eighteen months from now. Many are only building equipment to order right now and are not building inventory. That means when things do turn around and loggers need new equipment in a hurry it may not be immediately available. Again, supply and demand could dictate higher prices for new equipment, although with many loggers being forced to leave the business over the past couple of years a fairly substantial inventory of good used equipment on the market may keep new equipment prices down. Regardless, an increased demand for logging can only be good news for the equipment manufacturers.
That is what things could look like in the near future, so now back to the question of when might this happen. The answer is that we may all have an educated guess, a prediction or a theory, but the reality is we really don’t know. To quote Yogi Berra, “it’s not over, ’til it’s over.” He was referring to baseball games of course, but the saying applies quite nicely to this current economic cycle in the forest industry as well.
Bill Tice, Editor