What's going on with Lumber Prices?
Brent Sohngen, Professor Environmental and Natural Resource Economics.
In case you haven't noticed, lumber prices have increased a lot over the last year. Based on the US Bureau of Labor Statistics Lumber Price Index, which you can find here, lumber prices have increased 180% since April, 2020. This increase started last fall, and has continued ever since. So, why have they risen, and how high will they go?
Let's start with the first question, why have they risen? The economic explanation is relatively straightforward: Demand rose rapidly due to pandemic related building, and supply is really inelastic, as we say in economics. Thus, while the demand of wood has increased dramatically, the supply of wood hasn't been able to keep up. Let's break this down.
Consider the demand side first. The construction sector, specifically building and remodeling houses, is one of the largest demanders of lumber in the US and around the world. New home starts and construction spending cratered at the beginning of the pandemic, but they rebounded pretty quickly. Remodeling in particular seems to have picked up a real head of steam.
While demand for new construction and remodeling is hot, it's actually now at about the same level as before the pandemic. So something else must be going on. One of those something else's is the price of steel, which has also increased dramatically in the US. Steel is a substitute for wood, especially in commercial construction, and rising steel prices have also driven up demand for lumber and other things that can be made out of wood or steel.
Ok, so the demand side is going crazy. What about supply?
The supply side in forestry is really inelastic. That is, it's hard to make big increases in supply in short periods of time. There are lots of reasons for this.
First, you can't build a lumber mill overnight. And after some mills slowed down during the depths of the pandemic, and others closed, it's not as simple as just turning the key to start the remaining ones back up. You need trained workers, the machines are pretty complicated and may need some maintenance work before re-starting production, and you need logs.
Second, getting logs is not easy either. There is a whole complicated supply chain associated with delivering logs to mills that itself has been affected by the pandemic.
Third, the supply of logs is super-inelastic because of the way trees grow. Plantation trees, which supply around 50% of our timber in the US, put on a lot of value in the 5-10 years before they are harvested. Most people who own these trees don't want to cut them too early because they'll miss this value growth, which could be 8-12% or more per year.
When plantation trees are cut, they actually are still growing, perhaps 6% per year, so if prices start rising really quickly, many landowners may actually hold them longer than they would otherwise because they get some nice volume growth plus the price growth. So when prices rise rapidly as they are now, the supply of logs contracts a bit because landowners hold onto their trees. Seems strange, but the value growth that occurs with the rising prices gives people who own trees a real reason to put off logging for a while.
Fourth, the supply of logs from our main source of imported lumber, Canada, is super inelastic because most supply there is from public lands, and is controlled by government allowable cut constraints. These allowable cut constraints are set administratively, not economically, and thus limit their ability to increase supply in times of high demand.
There are some other issues at play, including US tariffs on wood, but most of this dramatic increase in prices is due to short-term market phenomena related to the rebound from the pandemic, not any long-term structural issues or limitations in supply. In fact, evidence from the US South, which is our main timber growing region in the US, indicates that an enormous area of trees has been planted in the last decade, providing a reasonably long-term supply of wood.
Further, supplies of plantation timber in other productive regions of the world, especially South America, but also China, New Zealand, Australia, and parts of Southeast Asia, are expanding. The current high prices for lumber may linger for a while as demand continues to rebound from the pandemic, and due to overall inflationary pressures, but over the next 6 months to a year, prices should stabilize. And over the longer-run, there will be plenty of wood to go around.
Ohio SARE Webinar YouTube Recordings
How Men and Women Work Better Together in Agriculture
Making Progress: Business Improvement and Succession Planning on the Family Farm
YouTube Climate Change Series!
In association with the South Centers, OSU Extension's own Thomas Blaine, PhD, has initiated a video series on YouTube called Earth is our Home. The first episode is an introduction to climate change and is ready to view: https://www.youtube.com/watch?v=EbqnXFk1Rx8. New episodes will come about every three weeks and will be in 30 min. installments.
Coronavirus Food Assistance Program 2
USDA is establishing new programs and efforts to bring financial assistance to farmers, ranchers and producers who felt the impact of COVID-19 market disruptions. For more information on USDA Pandemic Assistance for Producers, click here!
Come Grow With Us!
Specialty Crop Webinar
Warren County is hosting some specialty crop webinars at 7:00 p.m. each evening from February 1st to February 3rd. . Registration is free but is required to get access to the zoom.
The registration links can be found at: warren.osu.edu
Virtual Shop Talks for Farmers
The North Central Region Water Network, along with partners from Mississippi State University, the University of Kentucky, the University of Illinois, the University of Arkansas and its Discovery Farms program, and the UW Discovery Farms Program, are hosting a series of upcoming Virtual Shop Talks for Farmers in February and March.
The series will be an opportunity to have meaningful conversations with other farmers and experts across the Midwest about practical ideas and programs that can help folks weather hard times and have success with stewardship practices. In each session, we’ll first hear about solutions from experts and direct experiences from farmers. Then, we’ll break into conversation, where attendees can chat farmer-to-farmer about your experiences, challenges, and solutions related to the topic at hand.
This free series is open to farmers across the Midwest and Mid-South. While we welcome farm advisors, we want the focus to be on farmers so we encourage farm advisors and educators to bring a farmer should they choose to attend.
Farmer’s Tax Guides – Tax Guidance for Your Farm Business
Barry Ward, Director, OSU Income Tax Schools
Leader, Production Business Management
Do you need a resource to answer those tough farm tax questions? If so, you can access the Farmer’s Tax Guide (IRS Publication 225) online at: https://www.irs.gov/pub/irs-pdf/p225.pdf
The 2020 Farmer’s Tax Guide explains how federal tax laws apply to farming. This guide can be used as a guide for farmers to figure taxes and complete their farm tax return.
The explanations and examples in this publication reflect the Internal Revenue Service's interpretation of tax laws enacted by Congress, Treasury regulations, and court decisions. However, the information given does not cover every situation and is not intended to replace the law or change its meaning.
Some of the new topics for the 2020 tax year which are included in this publication are: Tax treatment of Coronavirus Food Assistance Program (CFAP) payments, Payroll Protection Program (PPP) Loans and Forgiven Debt, Increased section 179 expense deduction dollar limits, COVID-19 related employment tax credits and other tax relief, Redesigned Form W-4 for 2020, New Form 1099-NEC, and much more.
Hardcopies of the 2020 Farmer’s Tax Guide are also available at select county OSU Extension offices.
The Rural Tax Education Site has additional resources for agriculturally related income and self-employment tax information that is both current and easy to understand: https://ruraltax.org/
Farm Bill Webinar
Please join OSU Extension and the Ohio Farm Service Agency on December 1, 2020 at 10:00 am EST for an informational webinar looking at federal commodity programs: Agricultural Risk Coverage and Price Loss Coverage. State program leaders from OSU Extension and Ohio FSA will present about program characteristics, producer eligibility, deadlines and key economic considerations. Deadline for enrollment and election is March 15, 2021. The program is free, but registration is required at go.osu.edu/ARC_PLC.
Farmer Tax Webinar Website
Are you getting the most from your tax return? Consider attending OSU Extension’s Farmer and Farmland Owner Income Tax Webinar! For more information click here!
2020 Farmer and Farmland Owner Income Tax Webinar
OSU Extension Montgomery County and the Farm Office Team ivite you to the 2020 Farmer and Farmland Owner Income Tax Webinar on Thursday, December 3rd, from 6:30 - 8:30 p.m.
"Welcoming Guests Back on Our Farms and Ranches"
Join agritourism operators from Italy, India and the USA for a one-hour conversation about how to safely open to visitors during the Covid-19 pandemic.
"Welcoming Guests Back on Our Farms and Ranches" is the first in a series of virtual gatherings for farm, food, and travel communities. Register now for the meeting on Tuesday, September 22nd:
As Covid-19 restrictions ease in some parts of the world, travelers who are eager to venture forth seek safe, healthy, outdoor experiences away from crowds— leading to a surge in demand for agritourism experiences. Join agritourism operators from Italy, India, and the USA for a discussion about how to safely open farm stays and prepare for overnight guests during the Covid-19 pandemic. Hear what is working and what is not, and come prepared to share your experiences and questions.
Speakers include Scottie Jones from Leaping Lamb Farm in Oregon and Farm Stay USA, Elisabeth De Coster from Le Mole sul Farfa in Italy, and Harkirat Ahluwalia from Citrus County in India. Lisa Chase from University of Vermont Extension and the Vermont Tourism Research Center will moderate the virtual gathering.
Lyme Disease in Ohio
Lyme disease is caused by an infection with a bacterium called Borrelia burgdorferi. In Ohio, B. burgdorferi is transmitted to humans through the bite of an infected blacklegged tick, Ixodes scapularis.
Lyme disease cases are increasing in Ohio as the range of blacklegged tick populations continues to expand in the state and encounters with this tick occur more frequently, particularly in the forest habitats preferred by this tick.
Most humans are infected through the bites of immature ticks calls nymphs. Nymphs are tiny (less than 2 mm) and difficult to see; they feed during the spring and summer months. Adult ticks can also transmit Lyme disease bacteria, but they are much larger and are more likely to be discovered and removed before they have had time to transmit the bacteria. Adult blacklegged ticks are most active during the cooler months of the year.
The best way to prevent Lyme disease is to prevent tick bites.
If you find a tick on your body, remove it quickly to reduce the risk of contracting Lyme disease. See a healthcare provider if you do get sick. Lyme disease is curable. Early diagnosis and treatment are important in order to avoid further health problems related to Lyme disease.
ODA Unsolicited Seed Drop Off
If you have received or know someone who has received a package of Unsolicited Seeds from China, there is now a drop box at our Montgomery County Extension Office. Drop offs can be made Monday through Thursday between the hours of 9am - 4pm. The drop box is located at the building entrance.
ODA Addresses Unsolicited Packages of Seeds
The Packets Contain Unknown Seeds & Often Feature Chinese Writing
REYNOLDSBURG, OH (July 27, 2020) – The Ohio Department of Agriculture (ODA) has been notified that several Ohio residents have received unsolicited packages in the mail containing seeds that appear to have originated from China. The types of seeds in the packages are currently unknown and may contain invasive plant species. Similar seed packets have been received recently in several other locations across the United States.
If you receive a package of this type, please DO NOT plant these seeds. If they are in sealed packaging, do not open the sealed package. You can report the seeds to ODA online here or you may contact the United States Department of Agriculture (USDA) Animal and Plant Health Inspection Service (APHIS) Anti-smuggling Hotline by calling 800-877-3835 or by emailing SITC.Mail@aphis.usda.gov. Also, if possible, please retain the original packaging, as that information may be useful to trade compliance officers as they work through this issue.
Unsolicited seeds could be invasive species, contain noxious weeds, could introduce diseases to local plants, or could be harmful to livestock. Invasive species and noxious weeds can displace native plants and increase costs of food production. ODA and APHIS work hard to prevent the introduction of invasive species and protect Ohio agriculture. All foreign seeds shipped to the United States should have a phytosanitary certificate which guarantees the seeds meet important requirements.
Ohio Farm Poll
Last February, Ohio State launched the inaugural Ohio Farm Poll to understand how Ohio’s diverse farmers were affected by changes in markets and weather in 2019, and to take the pulse of the state’s farming community. Over the last 3 months more than 40% the farmers invited to participate returned a survey, and the team is still getting surveys in the mail. These excellent response rates will give researchers unprecedented, accurate insights into Ohio farmers’ priorities and experiences. They have been actively entering data will be starting analysis in June, and will share results with farmer participants and with our organization as soon as they have them. The OSU researchers would like to extend a heartfelt thank you to everyone who took the time to fill out a survey. They could not do this work without you!
Enhancing Agriculture and the Environment
Ohio’s diverse agricultural, horticultural and forestry industries contribute more than $100 billion to the state’s economy every year. OSU Extension agriculture and natural resources (ANR) programs assist with technology, marketing and educational support – protecting Ohio’s position in the global marketplace.
OSU Extension also works to help local residents and community leaders enhance and sustain the environment and natural areas throughout the state, balancing economic advancement with environmental sustainability.
Our ANR professionals help producers develop and expand profitable, sustainable farming and other agricultural businesses – thereby creating jobs and economic opportunity for Ohio’s citizens. They also provide leadership, collaboration, consulting, unbiased information, applied research, and access to land-grant university knowledge to address local issues and needs.
ANR in Montgomery County
Ohio State University Extension Montgomery County agricultural mission is to bring to all agricultural enterprises the most current science-based research and educational programming available to further their specific goals. The program encompasses the traditional/non-traditional producer, the niche producer, the commercial nursery, hobby farmer and the urban stakeholder. General topics covered are land use, natural resources, resource conservation, commercial crop and livestock, production, fruit and vegetable production, marketing, financial and estate concerns. A special emphasis is placed on educational programming for the local producer supplying the local marketplace.
Contact Suzanne Mills-Wasniak, ANR Extension Educator, at 937-952-1614 or email@example.com for information and answers to questions about your local environment.
You can also learn more about all OSU Extension Agriculture and Natural Resources programs at agnr.osu.edu.
Extension has been helping all Ohioans build better lives, better businesses and better communities since 1914.