Forest and Timber Impacts of Recent Hurricanes

The need for landowners and policy makers to plan for effects of increased hurricane activity is discussed in this section, and comparative information about damage levels of recent vs. older hurricanes is provided. Recent hurricanes, including Ivan and Frances in 2004, and Katrina and Rita in 2005, provide evidence of the timber market impacts of these events, including their impacts on landowners. These can also be compared with the impacts of older hurricanes, such as Hugo in 1989 and Camille in 1969, to help us understand how changes in timber prices as well as volumes affected may be leading to rising economic impacts. This section focuses on the kinds of losses experienced by owners of timber in terms of hardwood and softwood, pulpwood, and sawtimber-product categories.

The 2005 hurricane season was the worst, in terms of timber damages, in a generation—much bigger than the largest in the last 2 decades, Hurricane Hugo (Table: Timber damage volume) (USDA Forest Service, Forest Inventory and Analysis 2005a, 2005b). Hurricane Katrina damaged 1.74 billion cubic feet of timber, and about 41 percent of the volume was hardwood. Other estimates, not reported here, put long-term damages much higher than this. Hurricane Rita added to those damages, so when combined, these two storms damaged at least 2.0 times as much timber in the affected States of Alabama, Louisiana, Mississippi, and Texas as was damaged by Hugo in South Carolina in 1989 (although those South Carolina damages exclude damages in North Carolina, another affected State).

The market value of these timber inventory losses for Katrina and Rita was quantified in a special report provided to the Forest Service, and expressed in terms of 2005 dollars to account for inflation. For this review, the same values were also quantified for Hurricanes Frances, (which affected Florida), and Hurricane Ivan, (which affected both Florida and Alabama), in 2004. These economic effects are reported at the bottom of Table: Timber damage volume, principally in market-value terms. Table: Timber damage volume includes the economic effects of two other large Hurricanes, Camille (1969) and Hugo (1989). At the bottom of Table: Timber damage volume, information is included for Hurricane Hugo, addressing both market value and economic surplus, as calculated by Prestemon and Holmes (2004). Market values can be termed timber value losses, whereas economic surpluses can be termed economic losses. Note that the welfare impacts for softwood calculated by Prestemon and Holmes (2004) depend on assumptions regarding market supply and demand parameters and timber regrowth rates, and they depend on the validity of the price paths identified by Prestemon and Holmes (2000). Prestemon and Holmes (2004) conducted Monte Carlo and sensitivity analyses on these damages, which report ranges of possible impacts. The welfare amounts shown in Table: Timber damage volume for Hugo are average estimates.

Hurricane Frances is the smallest hurricane impact shown in the table, with 145 million cubic feet of damage. Camille damaged twice as much timber as Frances, but it still is small compared to the rest of the hurricanes shown in the table. For example, Hurricane Ivan created timber damages that are comparable to those measured for Hugo. Rita created damages that totaled a billion cubic feet, about 75 percent the size of Hugo. The amount of softwood lost in these storms varied, mainly according to the amount of pre-existing softwood in the timber inventory. In the South, the amount generally exceeds 50 percent.

The values of timber damaged or killed in the storm are variable, as documented in Table: Timber damage volume. One surprising finding from this comparison is that Ivan’s timber damages exceed the value of those found for Katrina. This is explained by the substantially higher timber prices in effect in Florida and Alabama, prior to the hurricane, in comparison with the timber mainly damaged in Mississippi and Louisiana. It is also partially explained by the former hurricane’s higher proportion of damage to softwood and sawtimber-sized trees. Still, when Rita’s damages, which totaled over $536 million, are added to those of Katrina, those two storms damaged volumes that are more than twice those of Hugo or Ivan.

Hugo’s timber value lost in the southern pine market, measured as price times quantity, was $630 million. The analysis by Prestemon and Holmes (2004) showed, however, that the market impacts in welfare terms were 2.4 times larger. This magnitude of difference between market value and welfare impact should be viewed with caution when attempting to translate between market-value losses to welfare losses for other storms or catastrophic events. Even for Hugo, this translation depended on many assumptions, especially regarding: (1) timber salvage rates, market supply and demand sensitivities; (2) rates of timber inventory regrowth; (3) the reality of a long-term inventory induced price enhancement; and (4) the scale of timber market demand and supply. Nonetheless, a rough calculation could be attempted that would suggest the economic surplus impacts of those other storms are much larger—maybe 2 to 3 times larger—than the timber value impacts shown. In short, recent hurricanes have created market losses totaling into the many billions of dollars. As Prestemon and Holmes (2004) and Holmes (1991) point out, these losses represent a net redistribution of wealth in the market, in favor of undamaged producers and to the detriment of consumers and damaged producers.

There are obviously other potential outcomes of hurricanes on the broader economy as they relate to the timber market. Structure (e.g., housing) losses are quite high when large events such as Hurricane Katrina sweep through heavily populated areas. The National Oceanic and Atmospheric Administration (2006) indicates that hurricanes Katrina, Rita, and Wilma in 2005 combined to create nearly 2.8 million insurance claims, totaling $40 billion in insured losses. Data provided by the American Red Cross, as cited by the National Association of Home Builders (2005), compiled preliminary estimates indicating that Hurricane Katrina damaged 275,000 homes in the Gulf States of Louisiana, Mississippi, and Alabama, 10 times the second-largest loss in homes, which was caused by Andrew in 1992 in south Florida. The National Association of Home Builders (2005) report stated that Katrina, coupled with that for Rita and Wilma (in Florida), would drive up prices for southern pine framing lumber, plywood, and other sheathing products. This price effect on forest products should filter back to the timberland, helping to support prices in the Southern U.S. during the reconstruction phase. The implication here is that landowners whose timber was unaffected by the storms should enjoy some price support, increasing the chances for a post-hurricane price enhancement, even if that enhancement does not emanate directly from lost timber inventory in the region.