Revisiting President Trump and the Price of Timber in 2019

Nearly three years ago, after the 2016 U.S. presidential election, we posted analysis in response to messages and calls querying the implications of the new administration on the U.S. forest products industry. Recently, with radiating global markets and tariff trade kerfuffles causing investors to take deeps breaths and count to ten, the inbox swelled again with the concerns of and about firms exposed to building products generally and timber investments specifically.

In this post, we revisit key points from 2016 to review what we know and confirm what remains worth watching as we move towards 2020.

Issues and Context

Forest Supplies: Trees grow, regardless of election outcomes and the state of the global economy. While forest clearing accelerated in Brazil recently, the physical facts affirm that the United States, and the U.S. South in particular, continues to grow trees and support a sustainable wood basket…

Capital Investment: The forest industry added billions of board feet of lumber capacity since 2012. Iron (capital investments in mills) flows to the resource. Just recently, this slowed down with stagnant demand for housing and wood products, as reflected in growing downtime at mills across the U.S. and Canada…

Economic Growth and Housing Markets: In 2016, we asked if the U.S. election would “somehow lead to uncertainty, slower economic growth, and fewer housing starts?” While the U.S. economy continues to grow and housing starts inch upwards, uncertainty in markets exists. Grep Ip of the Wall Street Journal noted a reduced commitment to open or free markets in the U.S. and elsewhere and, “in response, investors are rearranging portfolios, businesses are rethinking investments and policy makers are struggling to respond—all of which are pushing the global economy closer to recession.”

Trade and Legislation: Three years ago, we noted how political and legislative decisions had “the most direct potential impact on wood markets and timber prices…depending on trade policy with China and negotiations with Canada.” In our analysis of the forest industry, trade with China (via Canada or the U.S.) and Canada are critical, measurable sources of U.S. wood demand and softwood lumber production, and thus affect timber prices. As flows to China fall from North America, production in the United States follows suit along with timber price expectations.

In our models, stronger timber prices depend on growing demand, through increased housing starts and a growing population, and robust trade with a range of countries across a variety of forest products. Uncertainty reigns in my conversations with others, as investors and executives seek firm ground during a turbulent time.