In May 2021, lumber prices reached an all-time high. While this sharp increase had an impact across many different industries, forestry and lumber businesses were particularly affected. You may be wondering: what exactly is going on with the price of lumber?
Why are lumber prices so high? When will lumber prices go down? When will lumber prices return to normal? Let’s examine these questions a bit more closely.
What Is Really Happening With Lumber Pricing?
There are a few factors contributing to the rapid climb of lumber prices. While many assume increased lumber prices are a sign of general inflation, the issue is more nuanced.
For instance, the Covid-19 pandemic contributed to an increase in demand for lumber. Many people working from home found themselves with more time on their hands, and plenty of folks used that time for home renovation projects.
Not to mention, there is simply more incentive to improve your living space if you’re spending more time at home!
The pandemic and transition to the home office also persuaded many people to buy their first home. The subsequent uptick in the construction of single-family homes to fill this new demand placed additional stress on the forestry and lumber industry, causing prices to rise.
A shortage of truck drivers is yet another variable contributing to the 2021 increase in lumber prices. Truck drivers are an integral part of the forestry and lumber supply chain, as they are responsible not only for transporting raw lumber to mills but also for delivering finished wood to lumber yards.
To make matters worse, mills often have trouble attracting workers at the best of times, and, at the onset of the pandemic, many were forced to shut down entirely. As you might expect, all of this had a tremendous impact on the forestry business.
Essentially, the rise in timber prices affecting the forestry business in 2021 comes down to a supply and demand issue brought about by unpredictable and largely unpreventable circumstances. That said, there are signs that things are normalizing.
When Will Lumber Prices Return to Normal?
If you’re wondering what is happening with timber prices today, you might be pleased to know that things appear to be stabilizing.
Lumber Prices 2021 Chart
Graph from: https://markets.businessinsider.com/
As you can see, framing lumber prices are down substantially from their peak in May 2021.
Although it’s too early to say for sure, we can remain cautiously optimistic that the price of lumber will remain at a normal.
How Lumber Prices Affect The Forestry And Lumber Industry
It would be logical to assume that the forestry and lumber industry would benefit from soaring timber prices. However, the reality is slightly more complex.
High demand for lumber is only beneficial for landowners and the forestry and lumber industry at large if this demand can be sufficiently met. The lumber shortage of 2021 isn’t due to a lack of trees, so to speak, but rather the inability of lumber mills to satisfy demand.
The combination of mills being caught off guard and some having to shut down due to the pandemic meant that, although mills were operating at capacity, it still wasn’t enough.
Increasing capacity requires new machinery, recruiting and training new staff.
Things like small business loans can help to ramp up production, but time is still an issue – building new mills takes over a year in permits and construction before they can be operational.
So, while the forestry and lumber industry did what it could to capitalize on a dizzying demand for lumber – and while it certainly wasn’t bad news for the industry – the trickle-down benefits to mill owners and landowners was not exactly the boon one might imagine.
Largest Producer Of Wood In The World: Wood Production By Country
Let’s examine the countries most affected by the increase of lumber pricing by taking a glance at wood production by country. According to the Government of Canada website, the largest producer of wood in the world is China, with 12.6% of total wood exports, followed by Canada at 10.2%, Germany at 8.5%, USA at 8%, and Russia at 6.5%.
Perhaps the most significant change in the forestry and lumber industry brought on by higher prices is a shift in global trade flows.
For instance, Canada, one of the largest producers of wood in the world, reduced its number of overseas wood exports in order to meet the demand for the USA housing market. Germany, the third-largest wood producer in the world, increased exports substantially within Europe but reduced shipments to China, the USA, and the Middle East/North Africa.
Just as you might optimize your pricing strategy in business to adapt to certain economic factors, governments and forestry and lumber companies adopted similar measures to remain competitive in this new economic environment.
Yet another thing that the lumber shortage has brought to light is the issue of unsustainable timber production in the forestry business.
Simply put, unsustainable timber production refers to the harvesting of trees in a way that violates local forest department regulations. The problem is far-reaching. The World Wildlife Organization found that 8-10% of timber production is done in violation of national rules and regulations.
Regardless of demand, countries must take it upon themselves to promote sustainable forestry and lumber practices by refusing to buy timber cut through illegal logging. Consumers are now aware of the importance of sustainability and are likely to support a company that is conscious of good practices.
Such opportunities help grow your business while also doing your part to save the environment!
Increased lumber prices have affected the forestry business in many ways. There’s the obvious problem of having to scramble to meet demand by upping supply, but also less-obvious ripple effects, such as pandemic restrictions, the altering of trade flows, and shining a brighter light on unsustainable timber production.
As for a final, present-day lumber shortage update, after all-time highs in May of 2021, it appears that lumber prices are indeed returning to normal.
About the Author, Madison Taylor
Madison Taylor is the Brand Ambassador at ROK Financial. She is responsible for raising brand awareness and business relationships with business owners across the country. Madison loves that she plays a small role in getting Business Back To Business Through Simple Business Financing and looks forward to hearing what you think about the blogs she creates! Madison has been working in the financial space for six years, and loves it! When she is not at work, you will find her at home learning a new recipe to test out on her family or going on new adventures with her friends.