The so-called stumpage fee, or what lumber companies pay to land owners for trees, for Louisiana pine sawtimber on March 31 was $22.75 per short ton, according to the latest data from price provider TimberMart-South. That’s the lowest since 2011.
An abundance of harvest-ready trees has kept stumpage fees extremely low across the U.S. South, home to half of the country’s production. Meanwhile, lumber futures are up 85% in 2021 because of soaring demand. Sawmills profit from the premium lumber commands over the stumpage fee [...]
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Harvest-ready trees exceed sawmill capacity throughout the southern U.S. Since it’s so expensive to transport heavy logs, supplies go to sawmills in the area and the fees are highly localized in the region, where many timberlands are privately owned.
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Lower stumpage fees are beefing up profits for sawmills as a frenzy for home-renovation and building has sparked an unprecedented surge in demand for lumber. And mills are cranking it out to take advantage of the unusually high margins, with those in the South running at about 93% of capacity, according to Forest Economic Advisors LLC.
“As soon as the supply disruptions sort themselves out and everything gets back to normal, we expect a major correction in prices,” said Joshua Zaret, a senior analyst at Bloomberg Intelligence. “But right now, if you’re producing lumber in the U.S. South -- or anywhere for that matter, but particularly in the U.S. South, where your log cost hasn’t come up -- it’s very profitable.”
So how is this proper capitalism in action? Supply is easily meeting demand and yet prices are soaring? Shouldn’t that only happen when demand outstrips supply? Why aren’t stumpage fees rising...
So how is this proper capitalism in action? Supply is easily meeting demand and yet prices are soaring? Shouldn’t that only happen when demand outstrips supply? Why aren’t stumpage fees rising with the demand for lumber? The land owners just want to be nice? What am I missing here...
This doesn't seem strange to me; raw materials are bountiful, but processing those raw materials is hitting a bottleneck. Thus it's cheap to buy the raw materials, but expensive to get the...
This doesn't seem strange to me; raw materials are bountiful, but processing those raw materials is hitting a bottleneck. Thus it's cheap to buy the raw materials, but expensive to get the finished product.
You're missing the fact that saw mill capacity is the limiting factor. Logs are still relatively cheap but mills cannot meet demand for lumber right now.
What am I missing here...
You're missing the fact that saw mill capacity is the limiting factor. Logs are still relatively cheap but mills cannot meet demand for lumber right now.
Is it COVID disruptions or just rock bottom interest rates spurring additional construction? From the article it seems that the mills are operating at full or near-full capacity.
Is it COVID disruptions or just rock bottom interest rates spurring additional construction? From the article it seems that the mills are operating at full or near-full capacity.
The article says more is coming, but it’s going to take years:
The article says more is coming, but it’s going to take years:
Forest Economic Advisors estimates capacity for mills in the U.S. South at 23.6 billion board feet. As much as 1.5 billion board feet of new capacity is expected to come online over the next year or two.
From the article:
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So how is this proper capitalism in action? Supply is easily meeting demand and yet prices are soaring? Shouldn’t that only happen when demand outstrips supply? Why aren’t stumpage fees rising with the demand for lumber? The land owners just want to be nice? What am I missing here...
This doesn't seem strange to me; raw materials are bountiful, but processing those raw materials is hitting a bottleneck. Thus it's cheap to buy the raw materials, but expensive to get the finished product.
You're missing the fact that saw mill capacity is the limiting factor. Logs are still relatively cheap but mills cannot meet demand for lumber right now.
Oh I guess the article didn’t make it clear mills weren’t meeting demand. It just said cheap available lumber outstrips capacity.
Ideally prices rise, sawmills are more profitable, more sawmills are built, prices decrease. Of course that's not what always happens.
Is it COVID disruptions or just rock bottom interest rates spurring additional construction? From the article it seems that the mills are operating at full or near-full capacity.
The article says more is coming, but it’s going to take years: