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If you need help setting up services or accessing your accounts, please call our Customer Care Team at 866.552.9172 during business hours (7 a.m. — 5 p.m. PST, M-F) or email us at CustomerCare@AgWestFC.com.
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If you need help setting up services or accessing your accounts, please call our Customer Care Team at 866.552.9172 during business hours (7 a.m. — 5 p.m. PST, M-F) or email us at CustomerCare@AgWestFC.com.
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AgWest Farm Credit’s 12-month outlook sees forest products manufacturers and timberland owners as profitable.
Drivers include falling lumber demand, reduced lumber output, weakening log markets and elevated input costs.
12-Month Profitability Outlook
Lumber demand declines
Lumber demand is falling due to declining single-family housing starts. Affordability remains the industry’s biggest challenge as elevated new home values and interest rates drive up mortgage costs (see chart below). Multi-family starts and residential improvement projects should continue to support lumber markets.
Single and Multi-Family Housing Starts and Estimated New Home Mortgage Expense
Lumber mills reduce output
Regional lumber supply and log demand may fall in 2023. Most West Coast and Inland West lumber mills have eliminated overtime to reduce costs amid falling prices. Announcements to reduce production and capacity have been prevalent. Conifex will curtail a mill in British Columbia due to rail challenges. Stimson will reduce capacity at two lumber mills in northern Oregon by 30% due to a combination of labor, input and logistics challenges. Anecdotal reports indicate other mills are discussing and/or actively curtailing operations in the Northwest. In contrast, Sierra Pacific (SPI) has announced plans to increase lumber capacity at their Eugene complex by 71% to 650 million board feet, making it among the largest in the U.S. The expansion remains subject to permitting and approvals and estimated completion is 2025-2026. The long- term implications of capacity change announcements are unclear.
Framing Lumber Composite Index, $/MBF
Source: RISI Random Lengths.
West Coast log markets remain strong
Timberland owners benefit from strong prices. While log prices across the West Coast have declined moderately, they remain strong relative to historical averages. Lower mill production is reducing demand and inventories appear healthy heading into the spring. In northern California, low-cost logs damaged from wildfires in 2021 and 2022 continue to reach markets. It’s unclear when these supplies will deplete.
Douglas-fir #2 Sawmill Log Prices, Monthly, $/MBF
Source: RISI Log Lines.
Elevated input costs pressure timber operators
Diesel, equipment, fertilizer and herbicide costs remain significantly higher than pre-pandemic levels (refer to our Crop Inputs Snapshot for an in-depth analysis). While current log prices support profitability, break-even levels have risen and margins are under pressure.
Forest product manufacturers should be slightly profitable and timberland owners should be profitable. Lumber demand is falling due to declining single-family starts, and some mills reduced output in response. However, multi-family starts and residential improvement projects remain resilient and support current prices. Log prices are declining moderately and elevated input costs are pressuring operator margins; however, conditions remain generally stable and support profitable conditions for timberland owners.
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