Lumber, housing, and the high-flying loonie

Even with the considerate help of the industrious mountain pine beetle, it's a rough time to run a saw mill in Canada

By Andrew Leonard
Published September 18, 2007 7:32PM (UTC)
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Home builders are in disarray across the United States. For some optimists, that means there's never been a better time... to build!

From the in California's Western Nevada county, by way of TheHousingBubbleBlog.

On the bright side, now is a great time to build because lumber is at a 20-year low and property owners have a pool of quality contractors with time to devote to their clients, said Jeff Pardini, owner of Hills Flat Lumber. "You're crazy not to do something right now," Pardini said.

Lumber is at 20-year low! That's the kind of statistic that jumps out at you, so I went looking for back up.


In the U.S., the collapse in home construction appears to have sent lumber prices down by 20 to 25 percent over the last 18 months, and lumber futures are trading at a four year low on the Chicago Mercantile Exchange. But in Canada -- the source of 50 percent of the lumber consumed by the U.S. -- the Canadian dollar has risen to a 30-year-high against the U.S. dollar. The currency appreciation, combined with the sharp drop in demand from the U.S., has depressed the "currency-adjusted amount Canadian exporters are paid for their lumber to a level not seen since 1992." Further adjusted for inflation, "current lumber prices have 'been bouncing around 25-year lows for the past six months,' said analyst Craig Campbell of PricewaterhouseCoopers."

(Since the 1987 introduction of a new Canadian dollar coin featuring the image of a loon on one side, the Canadian dollar has been slangily referred to as the loonie. In the wake of the upward surge in the Canadian dollar, Canadian business journalists have consequently been unable (and who can blame them) to resist littering their stories with references to "the high-flying loonie." For those of us who were unaware of this fact before this morning, there was a bit of head-scratching while parsing the Northern poetry of such sentences as "the loonie's determination to flirt with par against the U.S. greenback.")

New homes are the primary consumer of sawn lumber. So when housing starts fall, lumber prices drop, saw mills go out of business, and lumberjacks start looking for new work.


Unless there are other reasons to cut trees.

Enter the pine beetle.

A decade of unseasonably warm winters in Canada has allowed the voracious mountain pine beetle to thrive in Canada's lodge pole pine forests as never before. The devastation wrought is almost unthinkable -- entire forests are turning deadly red in British Columbia, where one estimate says that 80 percent of the "merchantable pine" could be destroyed by 2013.


As a stop-gap measure, trees already infested by the beetle are being harvested to salvage their lumber before rot and decay set in. So at the same time that the collapse of the U.S. housing market has sent lumber demand submarining, supply is booming.

A Fed funds rate cut, widely expected on Tuesday, is likely to further depress the value of the U.S. dollar on international currency exchanges, as it would be considered proof of the weakness of the U.S. economy. At last check, the Canadian dollar was worth $a little over 97 U.S. cents. Are Canadians and Americans prepared for the psychic earthquake of a world in which the loonie is stronger than the greenback? I don't think so.


Climate change-accelerated infect infestations, a weak U.S. dollar, the implosion of the North American saw mill industry; the outlook could be perceived as grim. But really, there's never been a better time to build a new deck in your back yard.

Can you hear the loons cackling?

UPDATE: A reader who knows a great deal about U.S. lumber consumption offers some "clarifications."

Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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