There’s no way around it, 2020 was a tough year for the forestry sector. Landowners, logging companies and sawmills saw significant losses. A recent White House report on the economy estimated a $1.1 billion loss for the U.S. timber industry due to wildfires in the West, Hurricane Laura and, of course, disruption in markets caused by the COVID-19 pandemic.
For a look at how the forestry sector is faring closer to home, we caught up with Matthew Pelkki, Associate Director of the Arkansas Forest Resources Center with the University of Arkansas Division of Agriculture. Pelkki is also the George H. Clippert Endowed Chair of the College of Forestry, Agriculture and Natural Resources at the University of Arkansas at Monticello.
We asked Pelkki about the challenges of 2020 as well as opportunities for landowners in 2021, specifically related to carbon sequestration initiatives.
Delta Farm Press: We know the pandemic has greatly affected timber markets. How is it specifically affecting landowners in your state and across the Mid-South?
Pelkki: Softwood lumber and structural panel prices saw record-shattering price runs in 2020, but this did not translate into similar price increases for forest landowners. Low interest rates and pent-up housing demand created an unexpected housing market boom in the second half of 2020, but primary lumber and panel mills did not ramp up production out of concern that the demand surge would be temporary. Thus, lumber and panels were in very short supply and prices skyrocketed, but mills were not purchasing increased amounts of timber, keeping stumpage prices for landowners relatively flat.
Delta Farm Press: Besides market challenges, what are some other concerns facing forest landowners?
Pelkki: Arkansas, and the entire South has a huge surplus of timber. In Arkansas alone, net growth of pine timber exceeds harvests by more than 11 million tons each year. And with coronavirus limitations on the logging industry, family forest landowners have a difficult time getting access to loggers to harvest and move their timber. Larger corporate timber investment management organizations (TIMOs) and real estate investment trusts (REITs) are stable providers for the logging sector and at present, utilize the majority of the logging capacity in the South. So, for family forest landowners, it can be difficult to draw timber buyers and logging services to smaller sales and tracts of land. Over the last 40 years, Arkansas’s forests have seen timber growing stock increase from 660 million to 1.2 billion tons of trees. The increased density and age of Arkansas’s forests is increasing the potential for losses from fire, insects, diseases and invasive species.
The coronavirus has affected access to H2B workers for tree planting and other silvicultural operations in 2020, and due to the expected pandemic severity in the planting season of 2021, this will continue to be a concern. Fortunately, the most recent coronavirus relief package passed by the US Congress does not limit eligible H2B workers from coming into the United States, which should help some with spring planting.
Delta Farm Press: As many corporations try to move to net-zero carbon, how can landowners tap into these carbon markets?
Pelkki: First and foremost, landowners need to enroll in a forest certification system such as the American Tree Farm System. Hiring a consulting forester or having a state forester complete a management plan that can be certified will be vital to being able to tap into carbon markets. You can contact the American Forest Foundation with questions and enrollment information at https://www.forestfoundation.org/carbon
Delta Farm Press: How is demand for carbon currently measuring up with demand for timber or paper products?
Pelkki: Despite the pandemic, it appears that the demand for carbon offsets will meet or exceed slightly the 104 megatons of CO2 equivalents traded in 2019. Aviation and tourism sector carbon purchasing has declined, but broader corporate buy in of carbon credits will likely compensate for those losses. In 2020 we did see surprising increases in paper and solid wood products as well. In the spring and summer, residential lumber sales spiked as people were sequestering at home and had time to complete home remodeling projects. And in the summer and fall of 2020, there was an unexpected boom in the new housing and construction markets which further caused increases in wood demand. However, this demand increase resulted more in price increases than volume increases as the paper sector was unable to rapidly re-tool to increase production and the lumber industry was reluctant to increase capacity when facing future uncertainties in the market.
Delta Farm Press: What are some of the specific carbon initiatives?
Pelkki: The Family Forest Carbon Program (FFCP) is an initiative by the American Forest Foundation and The Nature Conservancy to bring the forest carbon credit market to landowners with 20 to 1,000 acres of timberland. Due to the complexity and rigor of monitoring and reporting additional carbon sequestration and the length of typical carbon contracts, most family forest landowners have not been able to successfully enter the carbon market. The Nature Conservancy is using a landscape-level approach to measure the benefits of any type of forest management and create carbon credits that meet the Verified Carbon Standard and will be reviewed by third party audits. This program started in April 2020 but was curtailed due to the pandemic. The FFCP is expected to roll out for widespread applications in 2021. Amazon, International Paper, and Domtar are all supporting the public roll-out of this program.
The Rural Forest Markets Act of 2020 creates incentives to assist landowners in marketing carbon credits and other environmental revenues from clean water and biodiversity production. It provides loan guarantees to non-profits and companies to help family forest landowners create and sell credits and reduce financial risk to investors in these small landowner credit programs.
Delta Farm Press: The top concerns for many of our readers are staying profitable and keeping land in the family for future generations. Can carbon sequestration initiatives help? What’s your advice for landowners on these issues?
Pelkki: The returns from forest carbon for landowners will be modest, on the order of $12-15 per acre per year. This amount typically should cover property taxes on forest ownership, which is very important to family forest landowners in assisting them with keeping land that does not typically have annual revenue streams. It also provides compensation to offset delayed timber harvests and incentivizes the growth of larger diameter and higher quality timber. It is likely that carbon markets will see strong growth in the next 5-10 years, and carbon credits are a source of income that all family forest landowners should investigate.