Issue link: http://palletcentral.uberflip.com/i/990149
palletcentral.com PalletCentral • May-June 2018 25 billion board feet, the operating rate is about 88%. Historically, it takes operating rates well above 90% to sustain the kind of high prices currently being experienced. This leaves industry analysts groping for some good explanations as to why prices have moved this high. Several factors appear to have created this severe shortage and are also making it difficult to correct the problem. First, not only did the forest fires hurt production in 2017, but because of the severity of the fires and large areas involved, it has been difficult rebuilding log inventories. Second, the industry is struggling with labor shortages. In line with other small businesses, the industry is having a tough time finding loggers and mill workers at the current wage levels. Thus, logging and mill output has not been able to ramp up despite high profit margins. Third, the inventory in the distribution channel has been depleted and is extremely low relative to sales. Finally, there have been transportation disruptions (particularly getting train cars) that have made it difficult to restock those inventories. These high prices are not sustainable, however. The prices will lead to higher production eventually. Given the high profit margins, producers are scrambling to find ways to increase output. Several major plant expansions have been announced in the U.S. South as well. Prices should fall back to levels consistent with the overall operating rate and production costs later this year or by early 2019. Lumber prices should move lower into next year. Demand growth for pallets should be positive as well. However the cost of labor and loans will move higher through 2019.