Economic Subject Matter Meetings

1. Economic Subject Matter Meetings October 2002 Outlook for Forestry & Forest Products 2002+

2. Snapshot: Forest Industry • ~ 12.4 to 12.7 Million acres in Timber • 90% privately owned; New inventory report will come out in 3-4 months • $117 Million to woodland owners

3. Snapshot: KY Master Loggers • No. of KML graduates: ~5,000 • Number of Logging Co.: 1,481 • KML Loggers/Firm: 2.52 • Website: www.masterlogger.org/

4. Loggers in Insurance Squeeze • 4 Types of Insurance surveyed: • Worker’s Comp, Equipment, Trucking and General Liability • Biggest change: Equipment insurance cost jumped ~ 20-50%. • ~ 50% reducing deductibles or coverage • Some reported greatest increase was for Health Coverage.

5. Snapshot:Forest Products Industry • 30,000 employees • 1 out of 9 manufacturing jobs • Annual payroll of $602 Million • Value of Forest Products made in KY: $4.5 - 5.3 Billion

6. Snapshot: Forest Industry • ~ 530 Primary Industries (ex., Sawmills) • ~ 540 Secondary Industries (ex., Pallet & Cabinet makers) • Including Logging co’s, ~ 2550 firms

7. Forest Products Outlook • Stumpage Prices • Primary Industries • Secondary Industries • Non-Timber Forest Products

8. Stumpage Prices • Most Hardwood prices are about the same, no sustained changes expected. • Prices are down slightly from last year: • -2% for HW Sawtimber (~ $18.50/ton) • -6% for HW Pulpwood (~ $5.00/ton)

10. Stumpage Trends • Recent species trends in sawtimber: Cherry and Walnut up; Hard Maple & Ash down • Cabinet design market is heading back towards darker woods • 3-4 year cycle

11. Stumpage Trends • Hickory is gradually moving up due to Red Oak cost (lots of hickory in KY). • High silica, dulls knives – but potential substitute for flooring (ex. Teak in Cuba) • Yellow-poplar still strong for moulding & millwork markets.

12. Stumpage Trends • Soft maple has moved up ~ 1/3 the past 2 years (Hard maple substitute, price-sensitive).

13. Stumpage Trends • Not a lot of information about Softwoods (ex., Pines) in Kentucky • < 7% of the volume of standing timber in the state (not counting Eastern red cedar). • Trends probably similar to more southerly states, pulpwood going lower. • “Wall of Wood” as plantations mature, thinnings problem

15. Stumpage Trends • Kentucky harvests ~ 15-25 Million board feet (or more) of Eastern red cedar each year. • Production goes into shavings, boards and 3.5” x 3.5” posts that compete with treated southern pine for mailbox posts. (50% or more of production!)

16. Hardwood Sawmills • Losing small & mid-size mills, but increasing the volume of wood sawn Factors: • Consolidation of mills • Optimization of mills through technology • More resaws to convert cants more efficiently

17. Hardwood Sawmills • ~ 1200 Portable sawmills in Kentucky • Ave. mill longevity is 5 to 6 years • 30-40% of mills sold leave the state • ~ 80% of owners get out, 20% buy a bigger mill • Hard to make a living sawing only 1,000 board feet/day!

18. Hardwood Sawmills • Portable sawmills are good for specific markets or high value-added opportunities such as: • Yellow-poplar siding • Restoration siding for old buildings • Gunstock blanks, spalted lumber, crotches • Building patterns

19. Hardwood Sawmills • Likely opportunity for sawyers in Quarter-sawn lumber market, but most feel it’s “too much trouble” Quartersawn (A) and Plainsawn (B) boards cut from a log

20. Other Primary HW Products • Boards & Staves: • Consistent, good outlook • Distillery business getting bigger • CA is considering KY barrels • Poles • Pine peeler poles (SE KY) have a good market, but lost much pine to beetles

21. Other Primary HW Products • RR Crossties • Hot Market! • Big demand. • Prices up in last 6 months, but prices tend to run hot-and-cold, can’t predict

22. Other Primary HW Products • Pallet Cants • 4.5 Billion board feet of HW lumber was used in pallets in 1995 • (38% of total U.S. HW lumber production) • 48% of all KY HW lumber goes into pallets! • Very competitive market!

23. Other Primary HW Products • Pallet Cants • Demand is up, but the market price has stayed about the same! • KY pallet lumber is extremely cheap. • ~10% cheaper than neighboring states! • Ex., $245/MBF in KY vs. $250/MBF in TN, $275/MBF in W. VA

24. Dry Kilns • Good value-added opportunity • Companies have continued to add dry kiln capacity, will likely continue to add more capacity.

25. Secondary Hardwood Products • Millwork (Residential & Commercial) • Flooring • Cabinets • Furniture • Pallets

26. Millwork • Increasing production in last 5 years • More/larger moulders have been added • Yellow poplar supply is exceptional, best wood choice • Outlook: V. good, remodeling strong

27. Flooring • Growing market, will continue to grow • Preferred over carpeting • Species used (in order of demand): • Red oak • White oak • Hickory • Hard maple

28. Cabinets • Remodeling market, won’t slow down • Very competitive, lots of small firms and a few big ones (15-20+ employees) • Most do well with custom cabinets • Cheaper lines coming from overseas using U.S. wood

29. Cabinets • Entertainment Center market is predicted to increase. • Custom Built-in market is also predicted to increase. • Upgrades of older homes • Maturing families mean different demands • Transition to Flat-screen TVs

30. Hardwood Furniture • Struggling! • Chinese have taken a bite out of the business with cheaper labor. • Higher-end companies have moved out of NC, TN, VA (with U.S. engineers!) to China. • Producing good quality furniture overseas

31. Hardwood Furniture • Still good opportunities for furniture that is expensive to ship. • Ex., Entertainment Centers, BR furniture • Designers can standardize components like panel size, simplify production, lower costs • BUT – not much opportunity for most KY makers to take real advantage of this, too small

32. Pallets • KY is a real force in the pallet industry • Increasing number of pallet mills & repair facilities (could be either good or bad …?) • SE KY pallets are a ~little cheaper. • Industry shakeout expected – but hasn’t occurred!

33. Pallets • Trend towards more leased pallets, standardization of specifications in the past 5 years • Large demand for custom products, but industry doesn’t market itself that way • “Commodity” = Low Profits! • Industry needs better marketing.

34. Pallets • Excess capacity in KY, room to grow • Kentucky pallet plants are running at only 80% capacity. • 75% of other states report that pallet mills run at 85-90% capacity. • KY competitive advantage is due to low wood cost (esp. for customers in Chicago, etc.)

35. Non-Timber Forest Products • Ginseng, Goldenseal, Black/Blue Cohosh • Mushrooms • Native fruits (persimmon, pawpaw) • Nuts (black walnut, butternut, hazelnut) • Christmas trees • Fence posts • Fuelwood

36. Ginseng & Medicinals • Ginseng: • 5 to 10 year growth needed • $300 or better per pound of dry root • Vandalism is biggest problem. • Goldenseal, Cohoshes: • Lower value, but grow in shorter time • Goldenseal ~ $20-50/pound of dry root • Less than that for Cohoshes

37. Mushrooms • Shiitake mushrooms are cultivated • 3” to 8” diameter HW stems • ~$5/pound for fresh shiitake wholesale • Morels • Mostly harvested, difficult to manage • Value is ~ $30/pound fresh

38. Christmas Trees • Marketable crop in 5 to 7 years • Mostly Scots pine or white pine is grown in Kentucky. • Close to 14% ROI can be expected.

39. Acknowledgements • Dr. Jeff Stringer, UK Dept. of Forestry • Dr. Deborah Hill, UK Dept. of Forestry • John Cotten, KY Dept. of Agriculture • Dr. Billy Watson, Georgia-Pacific • Larry Lowe, KY Division of Forestry • Gene Parker, Hardwood Market Report • Global Wood Trade Network • Timber Mart South • Jeff McBee, Pallet Profile Weekly • Pallet Enterprise • Forest Resources Association

40. This presentation was presented with the Agricultural Situation and Outlook, Fall 2002, publication number ESM-28, published by the Department of Agricultural Economics at the University of Kentucky with an additional contribution from Kentucky State University in October 2002. The entire publication can be accessed on the WWW at http://www.uky.edu/Ag/AgEcon/publications/esm_28.pdf. This article presents information on the economic situation and outlook for Kentucky agriculture and is intended to assist farmers, agribusiness professionals, Extension filed staff, and others with interest in agriculture and agribusiness. Information presented here is based on the most recent information and research available. However, the rapidly changing economic and policy conditions for agriculture limit the usefulness and life span of conclusions and recommendations cited here. Decision makers should keep these facts in mind. Feel free to use the information included in this publication for other uses, but please provide professional citation about the source. This paper is published without formal review and the views expressed are those of the authors and do not necessarily reflect the views of the University of Kentucky, the Agricultural Experiment Station, or the Cooperative Extension Service. If you need additional information or if you would like to provide comments or suggestions about this slideshow, please contact Terry Conners, Forest Products Specialist at tconners@uky.edu. University of Kentucky, Department of Agricultural Economics 400 Charles E. Barnhart Bldg., Lexington, KY 40546-0276  Phone: 859-257-5762, Fax: 859-323-1913 URL: http://www.uky.edu/Ag/AgEcon/