The Crash!

Ron Wenrich woodtick at lebmofo.com
Tue Oct 28 17:52:42 EST 1997



Joseph Zorzin <redoak at forestmeister.com> wrote in article
<345654E8.7951 at forestmeister.com>...
> So, what's going to be the effect of the current stock market dive on
> the timber markets?
> 
> There, that's a good solid forestry thread title. <G>
> -- 
> http://forestmeister.com
> "The ONLY forester's web page in the otherwise sophisticated state of
> Massachusetts".
> 
Stock markets are supposed to be precursors of the economy some 6 months
ahead.  That should indicate that both Asian and European economies will
slack off.  Asia is not as important for exports of NE hardwoods as is
Europe.  If Europe does go into recession, there goes the oak market. 
Germany has recently raised interest rates, which should have an effect on
housing.  Germany is the large importer of oak.  Prices for veneer may not
drop, but you might not be able to sell veneer logs.  I've seen veneer
markets dry up by December.  

As for US markets, I imagine that small investors will not rush into the
market as fast as before, therefore, depressing prices, which will keep
more smalls to the side.  I think the bear market started back in August. 
Bear markets are lower highs, and lower lows; something that is occuring
now.  The crash can dry up investment capital, which lowers the amount of
new business construction.  Some companies and individuals have used stocks
as collateral for loans.  This now being lower in value may mean that some
loans are overextended which means that banks will have some bad loans on
ledger.  This will make bankers very cautious, and although interest rates
are steady or dropping, no loans are being given out.  This reflects onto
housing markets which means a drop in demand for pine.  Hardwoods lag about
6 months after pine markets.  Hardwoods used in trim, flooring, and
furniture.  Put on top of that, huge production capacity at the hardwood
mills, large log inventories, and high priced stumpage.  A drop in the
lumber market will cause a flood of lumber onto the market as mills try to
reduce inventories, which will cause it to drop even more.

Individual consumers will probably stop buying as much on credit.  This
will result in less purchasing which means less demand for goods.  Of
course, there will be more money available for savings, which would keep
interest in check.  With lower demand, a deflationary cycle could kick in. 
But, with less demand, demand for lumber would also go down.  

If there is a wide recession, red oak may be hard to make it back into the
market, due to price expectation.  Maple and birch would take over the
void, along with tulip poplar.  I remember when poplar was in more demand
than oak.  Couldn't even sell FAS for $200/Mbf.  We had a recession in 1978
and oak replaced poplar.

Of course, I could be wrong.

RDW



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