When I lived in the Mississippi Delta, you could feel the whole community’s mood shift with the prices of corn, soybeans and cotton. With agriculture as the economic backbone of that region, when commodity prices were up it was good for everyone from the farmer down to the merchant selling clothes.
In South Mississippi the connection to commodity prices is not quite as strong, which is a good thing because the economy is more diversified here, but there remains a significant tie to the health of the economy and the price of oil, an industry in which so many Marion County residents work, and of timber, because so many landowners have pine plantations on their property.
So I try to keep my finger on the pulse of what’s happening in those areas so that I can share with readers in a way that’s hopefully easy to understand.
First, oil’s story in 2020 has been well documented: Demand faced a drop unlike anything seen before; you might compare it to the sudden fall at Disney World’s “Tower of Terror” ride. Everything was going fine and then the freefall began when the coronavirus shutdown orders stopped people from driving and businesses from building. At the same time Saudi Arabia and Russia flooded the market with oil as a result of a spat.
So oil future prices briefly fell in April into negative territory — meaning you’d pay someone else to take oil off your hands — but have now recovered somewhat to the $40-per-barrel range.
However, the reason in part why prices have recovered is both because the economy has reawakened some but also because so many drillers have shut down their wells. That’s not good for employees who work in the oil fields.
Second, on the forestry side the initial price drops were similar to oil. Marc Measells, a forestry expert with the Mississippi State Extension Service, told me in a phone interview this week that many mills in Mississippi and throughout the U.S. shut down. In some states (not here) they were not classified as “essential” plus they faced uncertainty about how much wood would be needed.
Measells said timber prices generally follow housing starts and that housing starts had been at their strongest levels in a long time in January and February before completely crashing during the pandemic. Housing starts, as well as job reports, started to pick up in June, but there remains uncertainty about if another round of shutdowns could again destroy the economy.
Another factor keeping timber prices down is an oversupply of about seven to eight years’ worth, Measells said, which dates back to timber owners holding off on cutting when prices crashed when the Great Recession hit in 2008.
“We’re out of balance, so to speak, between supply and demand,” he said.
So no matter how much wood is bought, it’s going to take time to use up that extra supply. That means low prices for timber — bad news for landowners in Marion County and elsewhere. The average price for pine sawtimber in Southwest Mississippi, which includes Marion County, was $22.78 per ton from April to June, which was down 7% from the same time period last year, according to the Mississippi Timber Price Report.
This is a problem not just for people with family land in pines but major institutional investors like public pension funds that invested in trees when times were good. What can be done?
New markets could be developed, although former Gov. Haley Barbour tried that with “green energy” projects throughout the state, most all of which failed spectacularly. But a new one with great potential is wood pellets, which are burned to generate power in countries that have soured on fossil fuels.
The other is that people have to get the confidence to build new homes again, something that has been lacking since 2008. That requires a broad change in attitudes about the long-term health of the economy: a difficult proposition during a worldwide pandemic.
Charlie Smith is editor and publisher of The C-P. Reach him at (601) 736-2611 or via email at csmith@columbianprogress.com.
