F&W Forestry Report - Summer 2023

Are We At The Bottom?

By Marshall Thomas, President

Throughout the second quarter, most factors seemed to point towards continued declines in stumpage prices, quotas for loggers, and a depressed housing market. But late in the quarter, news came out that housing starts in May shot up to 1.6 million annualized units, the highest rate since April 2022. This was followed by a climb in lumber prices. And suddenly there was hope again! Hope that the downturn, which started hitting hard in the fourth quarter of 2022, might have bottomed out and we might have begun the recovery. It’ll take a few months of positive numbers to establish a trend, but I couldn’t ignore the positive signs that showed up at the end of this quarter.

Stumpage price trends through June are a mixed bag, with some products and regions continuing to decline, but perhaps more significant is that quite a few products and regions seem to show a bottoming out and, in some cases, are increasing. Examples of products that are increasing include small pine sawtimber in the Southeastern and

Central South regions, and hardwood pulpwood in the West Gulf and Central South regions. Pine sawtimber in the South didn’t increase, but declines seem to have stopped in the second quarter in the Southeast and West Gulf regions—which is significant after two years of steady decline. Red oak was flat-to-increasing in most of the Northeast, and black cherry increased at all of our Northeastern offices.

There is some positive news in those numbers, and I couldn’t ignore that either.

Random Length’s Southern Pine Lumber Index prices averaged $444/ MBF in the first two quarters of this year, down from an average of $704/ MBF last year. However, the last quarter of last year averaged $461/ MBF, so these numbers have been pretty steady for nine months. Sounds like just the right amount of time to be down to me. Time for a recovery.

In other news, the Supreme Court’s Sackett ruling on the definition of waters of the U.S. said, in brief, that the Clean Water Act only extends to wetlands with a continuous surface connection to a larger body of water. While this is clearer than the previous

“significant nexus” standard and provides relief and more certainty for landowners, it also causes concern from environmental groups. See page 2.

The Disaster Recovery Act (DRA) is back in play, with efforts under way to include it in the Farm Bill. The DRA would allow landowners to deduct the fair market value of their natural disaster timber losses, rather than cost basis. This would considerably reduce risk for landowners who desire to use longer rotations for pine, and would be a huge risk reduction for those growing natural hardwoods, which typically have no cost basis. See page 3.

Containerized seedlings are being used to extend the planting season, along with improving growth and survival. See page 4.

I am hopeful that we are at the bottom of the market, and that we will now begin a long, slow climb towards full recovery and perhaps a longer lasting boom period than the last pandemic-enhanced period. I feel like we are. Three months from now, when the next newsletter comes out, I’ll let you know if the latest results became a trend!

of F&W Forestry Services, Inc.

Supreme Court Checks Federal Reach Over Wetlands

In May, the Supreme Court released its highly anticipated ruling on Sackett v. EPA, providing clarity on the waters that may be federally regulated under the jurisdiction of the Clean Water Act (CWA). Referred to as WOTUS (waters of the U.S.), the ruling narrowly limits EPA’s authority over waters and wetlands moving forward.

The case began in 2007 when EPA intervened to shut down construction of the Sacketts’ home in Idaho, claiming they were filling in a protected wetland and violating the CWA. The Sacketts filed suit, eventually getting to the Ninth Circuit, which held that the CWA covers adjacent wetlands with a “significant nexus” to traditional navigable waters and that the Sacketts’ lot met this standard.

THE DEMISE OF “SIGNIFICANT NEXUS”

All nine Supreme Court justices sided with the Sacketts by rejecting the Ninth Circuit’s judgment and the

Forestry Report

For further information on material in this report or to discuss your forestry needs, contact the nearest F&W office or the Albany headquarters at: PO Box 3610, Albany, GA 31706-3610 229.883.0505 / fax 229.883.0515 www.fwforestry.com

Marshall Thomas, President

Jeff Jordan, Chief Operating Officer

Jody Strickland, Chief Business Officer

Sonya Farmer, Chief Financial Officer

Stephen Logan, Chief Information Officer

Brent Williamson, Forest Operations

The F&W Forestry Report is produced by: Bates Associates 770.451.0370 batespr@bellsouth.net

“significant nexus” test, but not all saw eye-to-eye on how narrow the scope of the CWA should be. In the 5-4 majority opinion regarding the broader issue of wetlands, the Court held that the CWA only extends to wetlands with a “continuous surface connection” to a larger body of water that makes “it difficult to determine where the ‘water’ ends and the ‘wetland’ begins.”

Many organizations and groups found the “significant nexus” test vague and confusing, creating regulatory uncertainty and making it hard to run their businesses.

“The significant nexus test has been completely unworkable for landowners and this ruling acknowledges the need for clear guidelines,” said Scott Jones, chief executive officer of the Forest Landowners Association. “We hope to see further clarification on the relative permanence test in the future to add more clarity for private forest landowners.”

CAUSE FOR CONCERN

Other groups say the ruling is cause for concern. “The Sackett decision undoes a half-century of progress generated by the Clean Water Act. More than 118 million acres of formerly protected wetlands now face an existential threat from polluters and developers,” said Sam Sankar, senior VP of programs at Earthjustice, a nonprofit public interest environmental law organization, in a statement from the group.

Conservative Justice Brett Kavanaugh agreed that federal regulators went too far in the case, but he issued an opinion disagreeing with the Court’s new “continuous surface connection” test, saying it “departs from the statutory text, from 45 years of consistent agency practice, and from this Court’s precedents.” He was joined by the Court’s three liberal justices.

“By narrowing the Act’s coverage of wetlands to only adjoining wetlands, the Court’s new test will leave some long-regulated adjacent wetlands no longer covered by the Clean Water Act, with significant repercussions for water quality and flood control throughout the United States,” Kavanaugh wrote.

IN THE WEEDS

The 1972 CWA prohibited the discharge of pollutants into navigable waters, which it defines as “waters of the United States, including the territorial seas.” Since then, the uncertain meaning of WOTUS has been an ongoing problem, with the George W. Bush administration first issuing guidance to limit the CWA’s reach in 2003. The rule has been rewritten with each subsequent administration.

The Biden iteration, which took effect on March 20, used standards from the 2006 Supreme Court case Rapanos v. U.S., in which a majority conclusion was not reached. By using both “significant nexus” and “relatively permanent” standards from that decision, the Biden rule broadened the definition of WOTUS, causing several coalitions of states and various industries to sue EPA. By the time the Sackett decision came down, the rule was enjoined in more than half the states.

A statement released by EPA following the decision said: “The Biden-Harris Administration has worked to establish a durable definition of ‘waters of the United States’ that safeguards our nation’s waters, strengthens economic opportunity, and protects people’s health while providing the clarity and certainty that farmers, ranchers, and landowners deserve. These goals will continue to guide the agency forward as we carefully review the Supreme Court decision and consider next steps.”

Disaster Relief Protections Sought In New Farm Bill

With a September deadline looming, both the House and Senate agriculture committees are busy working on draft bills that reauthorize a new Farm Bill. In addition to the continuation of a range of agriculture, conservation, forestry, and energy programs, an effort is under way to have the bipartisan Disaster Reforestation Act (DRA) (H.R. 655/S. 217) included in the measure.

Farm Bill conservation programs are the largest single source of federal funding available to private forest landowners. These voluntary programs provide cost-share and technical assistance for a wide range of forestry and conservation practices such as tree planting, forest stand improvement, hazardous fuel reduction, and fire breaks.

The Forest Landowners Association (FLA) is working with lawmakers to include the DRA in the Farm Bill to aid forest landowners in recovering from the loss of timber destroyed by natural disasters. With the rise in natural disasters, including hurricanes,

tornados, wildfires, and invasive species, FLA said this issue has become more critical than ever for forest landowners.

Under current law, forest landowners are only allowed to deduct the lesser of the fair market value (FMV) or the cost basis, which is often $0 or a fraction of the fair market value. Under the DRA, forest owners would be able to deduct the fair market value of the timber destroyed.

The inclusion of a tax-related policy in the Farm Bill is not new. Previous Farm Bills have included a cellulosic ethanol tax break and a temporary cut in the capital gains taxes on timber.

While forestry is often considered a part of the agricultural sector, it does not enjoy the same safety net protections as traditional agricultural products, such as price supports, crop insurance, or tax code benefits. The DRA provisions would correct this oversight by fixing the tax code to provide forest landowners with economic certainty and the ability to

replant trees quickly and maintain their forests for generations to come.

The devastation caused by Hurricane Michael in 2018 is a prime example of why the DRA is urgently needed. The storm damaged more than five million acres of forestland in Florida and Georgia with an estimated value of $2 billion. Most of the forest landowners impacted by the storm received little or no compensation for their trees. Allowing a fair market value deduction reduces risk for timberland owners and makes it easier to justify capital investments and holding timber on the stump.

Forest owners are encouraged to contact their representatives in Congress to voice their support for including the DRA in the Farm Bill.

FOR MORE INFORMATION ON THE ISSUE AND FOR CONTACTING YOUR REPRESENTATIVES: https://bit.ly/3J7vvVf

Canadian Nursery Grows Footprint In The Southern U.S.

One of the South’s leading producers of high quality, genetically-advanced pine tree seedlings for reforestation has been acquired by a Canadian firm.

British Columbia-based PRT Growing Services Ltd., the largest producer of container-grown seedlings in Canada, acquired International Forest Company (IFCO). At the time of acquisition, the Moultrie, Ga.-based IFCO owned five bareroot and six container nurseries strategically located across six states and maintained seed orchards in seven states. The company produces 290 million bareroot and container forest seedlings annually.

PRT said the acquisition accelerates the company’s growth and establishes it as North America’s leading supplier of container and bareroot seedlings. According to company information, it operates 21 facilities, mostly in Canada, and produces more than 300 million tree seedlings annually. Prior to the acquisition, the company’s only Southern facility was in Atmore, Ala., on the site of the former E.A. Hauss nursery, which it operates through a long-term lease with the Alabama Forestry Commission.

“This transformative acquisition brings together two great companies to establish the only pan-North American

forest seedling supplier,” said Randy Fournier, PRT’s chief executive officer.

As a combined entity, PRT will operate 28 seedling nurseries and 14 seed orchards, producing 630 million forest seedlings annually in the U.S. and Canada.

PRT was founded in 1988 in response to a privatization initiative by the Canadian government. The company, then known as Pacific Regeneration Technologies Inc., was created by a group of employees who purchased six forest seedling nurseries from the province. PRT was acquired by private equity firm Instar in 2021.

“Hot” Planting Can Result In Cost Savings, Early Growth And Better Survival

F&W foresters are continually seeking new and innovative approaches to assist clients in getting the most from their forests. In the latest In the Woods feature article, we take an in-depth look at “hot” planting, when land is reforested in the fall rather than the traditional winter planting season.

While tree planting traditionally occurs in January through March, several F&W managers are finding success with planting in the fall months, before the cold and rainy weather that typically begins towards the end of the year. We talked with three managers in different geographical regions about their experiences with “hot” planting.

WHY PLANT WHEN IT’S HOT?

Bryan Croft, manager in north Florida, said he became interested in hot planting because the shortage of mechanical tree planters in his market is an issue. The sandy soils in his area don’t allow for good compaction of bareroot seedlings planted by hand. For hot planting, he recommends hand planting containerized seedlings.

“Bareroot can work also in a good situation,” Croft said. “I have seen bareroot planted in September with good results; however, this is not the norm.”

With hot planting, he sees early growth and better survival because rainfall is expected in December, there are more available contractors, and planting crews do not have to fight the mud and water like they do later in the season.

Glen Worrell, the manager based in Virginia, says he also plants containerized seedlings in the fall, and the only viable option is to hand plant, due to the lack of available machine planting crews. He notes, “If planted in the fall, bareroot seedlings

will not have time to acclimate to the site and begin growing roots to withstand the winter conditions.”

Worrell said he went from planting 100 percent bareroot seedlings in 2020 to 85 percent containerized this year, with the primary reasons to extend the planting season and work around the shortage of planting labor. His typical planting season begins in mid-January and runs through midto late March, although that can be interrupted with severe winter weather in February. Fall planting also allows him to reduce costs on mechanical site prep (bedding). “We felt we could potentially forgo the need to bed if we were able to plant in drier months, and October is typically drier than

February or March.” He cautions that planting in the fall does not eliminate the need to bed on all sites.

Eric Sumner, whose region includes Arkansas, Louisiana, and northeast Texas, also notes that planting in the fall can save clients money on mechanical site prep, particularly when using tractors to plant container seedlings on marginal ground. He only uses containerized seedlings and plants exclusively using machines. After noticing that growth in the first year seemed better than planting during traditional months, he has moved to machine planting everything he possibly can earlier in the season.

“Survival is good enough that you can plant fewer trees per acre. Also, the seedlings are planted in the growing season and are putting on root growth before going dormant and when they come out of dormancy, they put on a lot of new growth above the ground.”

TIMING AND LABOR

Sumner’s early planting season starts in October and runs through November. He has planted into December but the weather is typically getting wet which makes planting marginal ground more difficult with machines. He said labor can be a challenge and with more companies planting early, he expects it will become more of a problem in the future.

Croft tries to plant between September and November, although he said some landowners prefer to plant containerized longleaf in August. His goal is to complete all planting by Thanksgiving and at least by Christmas. This helps keep him out of sync with other planting crews, although labor is still an issue for early planting, with H-2B visas

(continued on page 5)

Loblolly seedlings planted in October 2021 on a site that typically would need to be bedded due to poor drainage. Photo taken in late 2022 as wet weather began again. The seedlings thrived during first full growing season, including a hard drought, and survival looked really good.

turning over in mid-October.

Worrell says his typical window for hot planting is mid-October through mid- to late November, and in Virginia, he must be cognizant of the frost heave, so seedlings need time to grow before the temperature drops and the trees shut down. While they now consider hot planting for all properties, the harsh winters require more selectivity. He is more cautious the closer he gets to the Blue Ridge Mountains and further north. Labor is not as much of an issue in the fall as in the spring.

GREAT RESULTS

Croft in Florida says he sees the survival rates across the two seasons as the same but the major difference is that seedlings planted hot perform better with an average tree height between three and six feet at the end of the first growing season. “In some ideal circumstances, we see 7-foot-tall seedlings; however, those are rare.” He added that on one tract, they have seedlings planted in November across the road from others planted in March and the seedlings planted earlier look a year older. He notes they plant the same trees per acre (TPA) as normal timing, generally around 550 TPA unless cost-share programs require otherwise.

Sumner says that he has seen good survival rates on some very wet sites that would not have had the same results if they were not bedded first when planted in the traditional season. “On good, adequately drained ground, we are looking into planting fewer seedlings per acre since the survival is so good.” He sees better growth rates with planting early—since the trees are planted in the tail end of a growing season, they put on root growth before going dormant—even if they look rough until the next growing season. He typically

plants 518 TPA and is experimenting with fewer trees by using more advanced genetics on some good sites this year.

In Virginia, Worrell says he sees better growth with hot planting. “We used to be happy if the seedlings just survived the first year after planting. With planting containerized seedlings in the fall, we now see seedlings between two and three feet tall after the first season and six feet tall after the second growing season.” He says their typical bareroot spacing was 622 TPA but dropped to 545 with containerized seedlings.

PLAN AHEAD

For hot planting, managers stressed the importance of notifying the nurseries well in advance to make sure they have the necessary seedlings and seasonal labor to pull and deliver them. Worrell suggests working with the nursery when the seeds are sown (February or March) to ensure the nursery is aware of the number of seedlings needed for fall and to alter its management regime (watering, fertilization, etc.) so that seedlings have 6-millimeter root collar diameter by mid-October. He adds the nurseries need to plan ahead to coordinate their labor crews to lift some seedlings early.

Croft notes that when pulling hot from the nursery, seedlings can go through a heat cycle. In the fall, when pulling quickly, it is harder for the nursery to remove the “field heat” before loading them into a refrigerated van. Adequate notice to the nursery can help minimize the heat cycle, which can be extreme depending upon the situation.

“Speed is a must! Planting fast is critical. This can, without good supervision in the field, create situations where planters miss areas or don’t do good work. We try to plant 50,000 to 60,000 container seedlings

per day so we empty a refrigerated van every two to four days. Our foresters are with the planters every

day, all day, while planting,” Croft said. Labor can also be an issue. Worrell said that planting crews in Virginia are not typically geared up for planting in October, so they need to be coordinated in advance. Croft says in his area, tree planters are often not ready until mid-October when the H-2B visas turn over. And Sumner added that October can be very dry in his area, so they run the risk of not having sufficient ground moisture at the time of planting, causing a delay until November or December, which then creates a problem with labor.

Another critical consideration is coordinating the timing of chemical site prep, which must be completed at least three months before planting,

(continued on page 7)

“Hot” Planting (continued from page 4)

Florida manager Bryan Croft stands in a loblolly pine stand that was planted “hot” 18 months earlier.

SOUTHERN TIMBER PRICES

SOUTHERN TIMBER PRICES (continued)

SOUTHEAST CENTRAL REGION WEST GULF MID ATLANTIC LAFAYETTE, AL

ORANGE PARK, FL

MARIANNA, FL

ALBANY, GA

MACON, GA

STATESBORO, GA

FOUNTAIN INN, SC

CLINTON, TN

PARIS, TN

EL

CORINTH, MS

AR

’s sales and other data are used to compile price range. Price ranges are due to proximity to mills, timber quality, logging conditions, type of harvest, and other local market conditions (i.e. weather, mill downtime, fuel cost, etc.).

“Hot” Planting

(continued from page 5)

meaning sites must be sprayed during the summer. “Residual chemicals in the soil from site prep spray could hurt the root growth on newly planted seedlings if tracts are sprayed too late,” Sumner said.

A GROWING TREND?

While Sumner and Worrell are seeing an uptick in fall planting in their areas, Croft says that he hasn’t noticed an increase yet, as it does

cost more to plant containerized over bareroot, and “cost vs. quality is a barrier for some landowners.”

Sumner suggested early planting to landowners because pine pulpwood markets in his area are declining and the huge establishment costs with bedding did not make financial sense. His clients were open to trying this approach to save money.

As Worrell sums it up, “Every acre

that is planted in the fall is one less than we have to plant in the winter. We see good root development, good survival, and growth from seedlings planted in the fall season vs. the winter season and it is significant.”

Bryan Croft is the regional manager based in Orange Park, Fla.; Eric Sumner is the regional manager based in El Dorado, Ark.; and Glen Worrell is the regional manager based in Charlottesville, Va.

All prices based on sales handled by or reported to F&W offices. If no sales occurred, prior quarter

NORTHERN TIMBER PRICES

NORTHERN TIMBER PRICES (continued)

RUMFORD, ME MONTPELIER, VT GLENS FALLS, NY HERKIMER, NY TUPPER LAKE, NY

ME MONTPELIER, VT GLENS FALLS, NY

NY

NY CLARION, PA

All prices based on sales handled by or reported to F&W offices. If no sales occurred, prior quarter ’s sales and other data are used to compile price range. Price ranges are due to proximity to mills, timber quality, logging conditions, type of harvest, and other local market conditions (i.e. weather, mill downtime, fuel cost, etc.).

F&W’S LUMBER-USE ADJUSTED HOUSING STARTS

1.5

1.25

2019 2020 2021 2022 2023 Q2 1.0

IN MILLIONS OF UNITS (2023 AVERAGE THROUGH MAY)

Source: US Department of Commerce

1.5 1.2 1.09 1.05 1.15 1.32 1.22 1.43 1.55 1.60 1.44 1.39 1.47

IN BILLIONS OF DOLLARS (2023 AVERAGE THROUGH MAY)

0.9

2.0 1.75 2019 2020 2021 2022 2023 Q2 0.3

849

0.6

IN MILLIONS OF UNITS; TOTAL HOUSING STARTS WITH MULTIFAMILY STARTS REDUCED TO 40 PERCENT TO BETTER REFLECT LUMBER USAGE (2023 AVERAGE THROUGH MAY)

Source: US Census and F&W Forestry Services

$446

SOUTHERN PINE–$/MBF

Source: Random Lengths Southern Pine Composite Index

HOUSING 121 3.94% 3.11% 2.96%

1.74 1.67 1.29 1.38 6.51% 120

5.34%

US DOLLAR VALUE AGAINST 26 MAJOR TRADING PARTNERS

Source: Federal Reserve