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Two Trees Forestry
167 Main St.
P.O. Box 356
Winthrop, ME 04364
V: (207) 377-7196
F: (207) 377-7198 harold@twotreesforestry.com

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Friday, November 16 2018

Fall 2018: Many landowners still waiting to see higher prices


Waiting for the trucks

2018 news reports have consistently included announcements of significant investments and purchases at and of Maine pulp mills – a long way from the dark days of 2014/15 when half of Maine’s pulpmills closed and a sixth mothballed a paper machine. This year, Nine Dragons Paper bought the Rumford mill and announced a $111 million upgrade, NDP also bought and plans to restart the Old Town pulpmill, Verso Paper restarted their mothballed machine in Jay and is upgrading another, and SAPPI continued work on $190 million worth of improvements to its Hinckley mill and adjacent wood yard. The new investments have helped the mills move away from magazine-quality paper and into specialty papers and corrugated box paper (within which most internet purchases are delivered). In addition, Pleasant River Lumber announced plans to build a new spruce/fir sawmill north of Bangor and is helping a wood pellet maker set up beside its Sanford sawmill, to process pine lumber residues.
On the other hand, the stumpage prices loggers are paying landowners remain flat, with low-grade pine, hemlock, and spruce/fir mostly lumped as softwood pulpwood and sold for the same low price as during the 2014/15 downturn. Hardwood pulpwood is higher, but still below its pre-2014/15 rates, though fortunately high demand for firewood, which generally pays better than pulpwood, by redirecting this poor quality wood has helped landowners and loggers earn somewhat better returns.
While softwood pulpwood prices remain below historic averages, pine log prices have only become more confusing. Over the years mills have gone from paying for logs at “woods run” rates wherein they paid a single price for logs of all grades to one where select (large diameter, knot-free) grades earn top dollar while lesser grades (short lengths and/or large knots) earn considerably less. Comparing prices over time has thus become more difficult, and even though pine mills have been operating quite lucratively in recent years, that hasn’t translated to better returns for landowners and loggers. When I asked an owner what he thought was behind this apparent contradiction and why our clients weren’t receiving better incomes, he said (and I paraphrase), “We buy wood that is delivered to our gate, and it’s my job to operate our mill as cost-effectively as possible.” In other words, the market isn’t forcing them to pay more. OK, but when I questioned him a bit more he suggested two potential and perhaps primary factors, including that the productive capacity of the region’s white pine lumber mills has remained relatively flat in recent years and with radiata pine’s (from the southern hemisphere) competitive pressure, the price of the best grades of pine lumber has been kept low.

Perhaps contrarily, if you look at our most recent chart of pine log prices you may see a slight uptick during the summer 2018 logging season. That mostly reflects the price paid by several contractors cutting large volumes of pine and paying exceptionally well for them. With stumpage prices negotiated or bids derived from a combination of mill prices and logging/trucking costs, landowner returns can go up if the former rises and/or the latter falls. This summer’s examples benefited from both, a better mill price, driven by a large volume being cut, and lower logging costs, driven by the logging efficiencies that flow from high production. So once again, even in a flat market the old adage remains, “volume pays.”