The 2016 U.S. Presidential Election released the night owls in my iPhone. Once the election results were in, the emails started stacking up at 3 a.m. with questions that can be summarized as, “How will a Trump presidency affect timber prices and the U.S. forest products industry?” While the commentary in these messages covered the entire political spectrum and included some gnashing of teeth and rolling of eyes, the real world implications for our wooded slice of the economy and timberland investments depend on explicit, specific changes and decisions. Let’s review what we know and what we need to watch in the upcoming months and years.
Breaking Down the Issues
Forest supplies: trees grow, regardless of election outcomes. The physical facts on the ground affirm that, for North America, the United States, and the South in particular, continues to support a vibrant, sustainable wood basket…
Capital investment: the iron goes to the resource. Capital investment in wood using mills flow to healthy timber baskets, and timberland investors do likewise. Elections do not affect this equation in wood demand projections; rather, demand for housing and wood products matter more.
Economic growth and housing markets: this is the first place where worry lines form. However, we have a precedent with how commentators projected severe implications following the Brexit vote in Britain. Brexit concerns were overblown, as short-term market losses in the EU have largely recovered. Will the election or a Trump Administration somehow lead to uncertainty, slower economic growth, and fewer housing starts? Will we use less toilet paper and order fewer boxed packages from Amazon? For now, this is simply an unsubstantiated, speculative story.
Trade and legislation: this has the most direct potential impact on wood markets and timber prices in the near term, depending on trade policy with China and negotiations with Canada over the Softwood Lumber Agreement. China, an election-season whipping boy (along with the Trans-Pacific Partnership (TPP)), is the number one market for U.S. log exports and a top three market for softwood lumber exports. China is Canada’s number two softwood lumber export market, behind the United States. The context is this: trade with China (via Canada or the U.S.) and Canada are key, measurable levers to U.S. wood demand and softwood lumber production, and thus future timber prices. If flows to China fall from the U.S. or Canada, it leads to more supplies and less production in the United States, and the potential for lower timber prices.
Stronger timber prices in our research and models at Forisk depend on growing demand, through increased housing starts and a growing population, and robust trade with a range of countries across a variety of products, from logs to pellets to panels. To the extent that these variables align with US economic policy, we have no expectation for negative implications for U.S. timberland markets. So let the wild rumpus start.
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