Mills most likely to close purchase under 350 thousand tons of small diameter saw timber per year and produce small-dimension lumber, such as 2x4 studs. Because demand for their product mirrors housing start numbers, these mills are particularly vulnerable.

"Raw material costs represent 70% of a mill's total costs," said Daniel Stuber, who oversees analytics and data quality at Forest2Market. "In the current market, the price floor for small logs is approaching pulpwood prices. As a result, small log mills can't continue to cut their raw material costs. Nor can they adjust their product offerings to meet market needs for wider-dimension lumber."

Saw timber prices will also continue to drop in 2009. Forest2Market estimates the year-over-year drop from 2008 to 2009 will be in the single digits, perhaps as low as 3%.

Forest2Market data shows the 2009 trend will moderate significantly over the 2007-2008 trend line. Sawmill production in 2008 fell 23% from 2007's level. Saw timber prices in 2008 fell nearly 10% from 2007's prices.

"With a production decline of 7% and a price decline of 3% in 2009, it looks like the industry has accomplished the necessary work of right-sizing output," said Stuber. "What this means is that if sawmills can manage their costs and make it through 2009, chances are good they will survive the recession." Forest2Market's timber price forecast models show that the housing market will begin to turn the corner in the 1H 2010.

Forest2Market has developed sophisticated analytical tools to accurately forecast timber prices in the U.S. South and Pacific Northwest.

http://wood.lesprom.com/