Seasonality and Stumpage Prices

Traditionally, the effect of seasonality on stumpage pricing in the US South has been significant.  During the summer months, ground conditions remain dry even after heavy rainfall; even the wettest of tracts can be harvested as a result.  During the winter months, on the other hand, tracts do not dry out quickly after rainfall, leaving many of them unsuitable to harvest until the spring.  These seasonal factors can be problematic for a mill’s wood procurement strategy.  A procurement manager’s job gets more difficult in the winter months, as having a shortage of wood is a very real and palpable possibility.  It’s like clockwork: as soon as winter hits, we begin seeing prices jump.  Although the winter price bump will be more or less drastic depending on the magnitude of rainfall, it occurs on an annual basis.

Over the past few years, we’ve seen an exception to this rule: pine sawlogs.  While pulpwood prices have experienced their usual seasonality bump each year, pine sawlogs have not.  Take the end of 2011, for example (Table 1).  As the table shows, pine pulpwood prices increased by $1.11/ton—a 14% jump—and hardwood pulpwood prices increased by $1.24/ton, or 23%.  Sawlog prices remained stable, however, as chip-n-saw decreased by 1%, and pine sawtimber saw a 1% increase.

Although this winter has been drier than in years past, it was surely disappointing to consultants and landowners that the usual bump in sawlog prices did not materialize this winter.  With sawmills running at lower capacities, concern over the ability to build big inventories has faded this year.

A turnaround in the sawlog price trend will no doubt depend on a recovery in new residential construction. As Daniel Stuber points out in US South Sawmill Activity—4Q2011, however, housing starts increased by 6.7% in 4^th quarter and neither stumpage nor delivered prices showed a corresponding increase. In 2012, positive answers to two questions will signal that increases in housing starts are breaking through tough timber market conditions:

• Will the seasonality bump that home construction generally experiences in the spring return?
• Will sawtimber prices once again increase late in the year as wet winter weather sets in?