Oregon’s largest export is suffering. Lumber prices are at the lowest weekly level in almost five years. You can’t blame a recession in the economy this time though. Lumber prices have fallen dramatically from the beginning of this year and there are many different causes for it. The price of framing lumber has dropped from a high of $401 to $274 per thousand feet, since the beginning of this fiscal year. As a result of the plunging lumber prices, layoffs, reduced work shifts, and reduced operating hours will occur. This will affect our local economy drastically. The housing market has been flooded with homes since the beginning of this year and the homes aren’t selling. At the beginning of 2005, home developers and home buyers created a fast-moving marketplace because of the low-interest rates and low lumber prices, so homes were cheaper to buy and to build.
This created a high demand for homes and when the demand is high, the price of homes is even higher. The mass builders took advantage of this and created an excess of homes. Then suddenly the homes stopped selling because of the high prices in the market, higher interest rates, and high lumber prices. This has a direct correlation with the prices of Douglas fir 2-by-4s and the amount produced. When the demand for lumber was high, the supply of lumber was trying to keep up with the high-speed housing market and the prices were at their peak. With the summer coming to an end, the peak home construction will slow even further and lumber prices will continue to fall. November 14th, 2004: The issue of plummeting lumber prices arose like it would two years in advance from this date. This time when the lumber prices fell it was caused by foreign markets influencing our domestic market. January 2004, marked the tenth anniversary of NAFTA (North American Free Trade Agreement).
The introduction of NAFTA erased any tariffs that would be imposed on products entering American via the Canada-United States border or the Mexico-United States. This allowed the once high-taxed foreign products to enter America free of charge. The continually growing influence of NAFTA, dictated whoever in North America could produce the cheapest and highest quality product sold their product. This caused a once booming renewable resource industry in our local economy to fight with foreign companies that weren’t being charged a tariff at the border. Some economists predicted that “NAFTA would launch a race-to-the-bottom in wages, destroy hundreds of thousands of good U.S. jobs, undermine democratic control of domestic policy-making and threaten health, environmental and food safety standards”. (www.citizen.org/trade/nafta/).
The beneficial thoughts behind NAFTA were that “It would create hundreds of thousands of new high-wage U.S. Jobs, raise living standards in the U.S., Mexico, and Canada, improve environmental conditions and transform Mexico from a poor developing country into a booming new market for U.S. exports”. (www.citizen.org/trade/nafta/). NAFTA has hurt the U.S. economy more than it has helped it. We outsourced jobs to Mexico because of its cheap labor, which caused America to lose an insurmountable number of jobs and has caused our GDP (Gross Domestic Product) to drop astronomically. A poor GDP has an inverse effect on our economy. NAFTA has created a strain on our Agricultural and Timber industries because of Canada’s hefty supply of renewable resources and Mexico’s dirt cheap labor, which has left our economy flooded in all of the markets with cheaper products of the same quality. On a positive note: Since lumber prices have almost bottomed out, Canada’s lumber suppliers have been reluctant to ship their product due to the current market prices and the opportunity costs of exportable lumber to other nations outside of NAFTA are better than importing into the United States.
The future of our domestic Timber industry will hold an era of market explosions and a market that will dip from time to time. A rebound in the housing market will occur and prices of homes will drop due to the demand for homes being low and the supply being high. Therefore, lumber prices will rebound to their pinnacle once again. When the housing market does rebound, the domestic lumber producers will possess the current market, because of the low prices of lumber and Canada’s commitment to their exports of lumber to other countries. I predict a lot of peaks and not as any valleys for our domestic lumber producers in our local economy, but if lumber producers must rely so heavily on the housing market to obtain a bulk of their revenue, they must look into the past and they will see that the housing market goes into a recession about every two to three years. The housing market is a finical industry and our local lumber producers need to understand when demand is too high for the lumber that they produce and the price is also too high, they must prepare for a decline in sales.