October 8, 2008

For Want of a Tree, a Napkin’s Price Could Rise The Market is Pushing a Shift in Harvesting That Will Affect Planting.


Today's housing market slump could raise the price of a paper napkin a decade or so down the road.

Sawmill timber prices have hit bottom, said Marshall Thomas of F&W Forestry, an Albany forest resource management firm. The drop has prompted many foresters to hold onto their stands of large trees until demand rebounds.

But a slowdown in large tree harvesting also delays reforestation. And reforestation is what produces the smaller trees the pulpwood industry uses to make paper products.

At the same time, an emerging biomass fuel industry will likely increase demand for pulpwood. This perfect storm means forestry could face a severe shortage of small trees in 12 to 15 years, Thomas said.

"If this were only a one- or two-year trend, the industry could absorb it," he said. "But it's been going on for three to five years now."

Forester Andy Stone of Superior Pine Co. said Thomas' predictions jive with what he sees from his 220,000-acre tree farm just outside Fargo. Stone scaled back his company's saw timber harvesting by half beginning in 2007.

"We've seen a 25 [percent] to 30 percent drop in price from what it was in mid-2007," Stone said. "It has fallen below a level where it is financially feasible for us to harvest."

Stone agrees that replanting delays will likely have a ripple effect felt for years to come.

Trees are different from more perishable crops such as corn, Thomas said.

"Each year you have to harvest the corn," he said. "But with trees, if the demand is low, you don't have to sell it."

The forest industry harvests two main types of wood products: sawmill wood, used for lumber, plywood and utility poles; and pulpwood, used for medium density fiberboard, pulp and paper products, and for biomass fuel. Sawmill wood comes from large trees and commands a price that is about five times higher than that of pulpwood. Some pulpwood comes from smaller trees that are harvested when tree stands are thinned.

There's nothing to keep the wood industry from using large trees for pulp. But doing so would certainly drive pulp prices up, Thomas said.

The emerging demand for woody biomass fuel could throw a wild card into play. Within the past month both Georgia Power and Oglethorpe Power companies announced they would open biomass power plants in Georgia.

"They all want to use the same small-size tree," Thomas said. "We could see a strong demand and there might not be the trees out there for them."

The wood-products industry has seen large shifts before. In the mid-1980s the U.S. government sponsored the planting of forests on erodible land through its Conservation Reserve Program, Thomas said. That produced a glut in the small wood tree market in the 1990s that brought the price of pulpwood to a 50-year low.

Dramatic supply swings have made forestry resilient to market fluctuations. Plum Creek Timber, the country's largest private landholder, said it is prepared to accommodate the increase in demand for pulpwood.

"We manage our harvest inventory for the long term," Plum Creek communications specialist Robin Keegan said. "We expect to keep appropriate agricultural diversity."

Plum Creek manages 866,000 acres of timber in Georgia, a substantial portion of which is in the southeastern portion of the state.

Smaller foresters also plan for market fluctuations. Stone doesn't expect to be put out of business over lagging tree harvests and reforestation delays.

"We are positioned to weather this," he said. "But I promise you, it's something that does affect us."

Randal Morris, spokesman for Georgia-Pacific's Brunswick pulp mill, said if such a shortage occurs in Southeast Georgia, it won't be the first.

"Historically, the industry has up and down cycles and those will likely continue in this region and across the country. Georgia Pacific is confident that it can manage through any cycle well into the future,'' Morris said.

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