2010 Stumpage Prices for the U.S. South

We are beginning to see some signs of strength in the sawtimber market:

• Lumber prices rose in the last two months of 2009, and early January 2010 prices are higher as well.
• We expect steady growth in housing starts in 2010, moving from roughly 550,000 per month to 800,000 by the end of 2010. Homebuyer tax credits have precipitated this improvement.

While normal seasonality will occur, these factors will combine to strengthen sawtimber prices, moving them off the historic lows experienced in 2009. We do not expect gangbuster increases, however, as oil prices will increase throughout 2010, leading to higher diesel costs. This will put downward pressure on stumpage prices, though not enough to push prices back to historic lows. As a result, we expect slow steady growth for sawtimber prices in 2010. If the Biomass Crop Assistance Program (BCAP) plays out as it is currently structured, small log CNS may feel pressure from pulpwood pricing.

Pulpwood

Expect a strong year for pulpwood prices. Why?

• GDP growth for 2010 will be positive: 2 percent for the first half of 2010, though it will slow in the second half to 0.5 percent. This increases demand for paper.
• Winter has been exceptionally wet this year across the entire South. As a result, most pulp mills are strapped for inventory and prices are at highs.
• We have already seen evidence that BCAP is driving up stumpage prices.

For these reasons, we expect prices to continue to be high through mid-March, as pulp mills struggle to lay in enough inventory. As spring and summer approach and ground conditions improve, pricing will decelerate, though a strengthening economy and (possibly) BCAP will support higher prices throughout the year.