© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning. My name is May and I will be your conference operator today. At this time, I would like to welcome everyone to the PotlatchDeltic Second Quarter 2021 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. Thank you.
I would now like to turn the call over to Mr. Jerry Richards, Vice President and Chief Financial Officer for opening remarks. Sir, you may proceed.
All right. Thank you, May, and good morning and welcome to PotlatchDeltic's second quarter 2021 earnings conference call. Joining me on the call is Eric Cremers, PotlatchDeltic's President and Chief Executive Officer.
This call will contain forward-looking statements. Please review the warning statements in our press release, on the presentation slides, and in our filings with the SEC concerning the risks associated with these forward-looking statements. Also, please note that a reconciliation of non-GAAP measures can be found on our website at www.potlatchdeltic.com.
I'll now turn the call over to Eric for some comments, and then, I will cover our second quarter results and our outlook.
Thank you, Jerry.
Lumber prices continued their historic run in the second quarter, driving another quarter of record financial performance for the company. Our consolidated EBITDA was $275 million in Q2, which is our fourth consecutive quarter record financial performance.
Our Wood Products segment generated $205 million of EBITDA in the second quarter. To provide context, this amount exceeded Wood Products EBITDA for full-year 2020, which was an annual record itself.
As previously announced, we had a fire at our Ola, Arkansas sawmill on June 13th. Fortunately, nobody was injured and the damage was limited to just the large log primary breakdown machine center. Insurance will cover the cost of restoring operations at the mill, along with lost profits above a $2 million deductible. Our team is actively working on demolition and equipment replacement options. Although, we have not yet finalized our plans, we are working on restarting the large log line as soon as possible, potentially in late Q1 of next year. It is premature to commit to that schedule as we have not yet finalized the purchase of a replacement line. As a reminder, Ola had an annual capacity of 150 million board feet prior to the fire.
Our plywood business continues to perform exceptionally well, and we expect record profitability from this business this year. As we have discussed on prior calls, our industrial grade plywood is used in big ticket boats, RVs, truck trailers, and furniture. Demand for these items remains very strong.
Our Timberland segment earned record EBITDA of $77 million in the second quarter, despite Idaho harvest volumes being at their seasonal low point due to spring breakup. Our average sawlog price of $245 per ton in Idaho highlights the value being created by our indexed sawlog sales contracts, which are unique in the industry. Our Idaho team did a great job exceeding the harvest plan in the first half of the year, realizing attractive sawlog prices, and reducing the risk of not meeting our annual harvest plan because of high fire danger.
Our Southern team did a good job managing through extraordinarily wet weather during the second quarter, after dealing with extreme winter weather in the first quarter. We expect that our Southern harvest will be approximately 200,000 tons below our annual harvest plan, primarily due to the Ola sawmill fire.
Our Real Estate segments EBITDA declined in the second quarter, as expected as homebuilders digested over 120 Chenal Valley lots purchased in the prior two quarters. Demand in Chenal remains strong as evidenced by lot draws thus far in the third quarter and we continue to see good interest in commercial and rural acreage.
Turning to lumber prices. We believe that the steep decline in lumber prices that occurred over the last nine weeks has reached the bottom. Psychology most certainly has played a role over the past couple months and it is not uncommon for lumber prices to overshoot on the upside as well as the downside. Peak Western SPF price of $1,630 per 1,000 board feet reported by Random Lengths for two and better two-by-fours in May was not sustainable. For performance lower home center, lumber demand appears to be a key factor that triggered the price decline. Lumber futures led cash prices down and the July contract settled at $650 per 1,000 board feet. While the market tone shifted last week, Random Lengths reported that the price of two and better two-by-fours increased $55 per 1,000 board feet in the second half of the week, which is the first increase in nearly nine weeks. Random Lengths also reported that downward pressure in other Western species of lumber and Southern Yellow Pine eased late last week.
Nobody wanted to catch a falling knife during the lumber price correction. We believe that reports of sawmill curtailments provided comfort to lumber buyers that their downside risk was limited at current lumber price levels. As a result, lumber futures moved up sharply at the end of last week. The various contracts are in the $600 per 1,000 board foot range, which suggests that lumber prices could bounce nicely as liquidity returns to the market and lumber buyers replenish lean inventories.
Housing-related fundamentals that drive our business remain robust and FEA stated that new residential construction is on the cusp of a multi-year boom in a recent set of slides, frankly, we agree.
On the demand side, new residential construction remains strong with June starts of 1.64 million units on a seasonally adjusted basis; permits of 1.6 million units are 23% higher than the prior year, as well as the 50-year average of 1.5 million units. We expect new residential construction will remain very strong due to massive underbuilding since the great financial crisis, record low inventories of home-for-sale, historically low mortgage rates, and millennials entering their prime home buying years.
On that first point, Freddie Mac estimates that the shortage of U.S. single-family homes has 3.8 million units. And the National Association of Realtors estimates that the U.S. is underbuilt by 5 million to 6 million units. D.R. Horton stated on their earnings call last week that demand remains "extremely robust", unlike anything we've ever seen.
Lumber demand in the repair and remodel market declined after Memorial Day, as people reacted to hide lumber prices that had turned into front page news. Return to work and discretionary spending, shifting to leisure activities likely also played a role.
Long-term fundamentals in this segment remain positive, including the age of U.S. Housing Stock, which is now 42 years on average, high-levels of home equity and the fact that remote work continues to be a common practice. Industry economists expect lumber demand in the repair and remodel model segment to continue to grow and demand has likely just been deferred, not destroyed.
On the supply side, higher costs, the tight labor market, and equipment supplier bottlenecks govern the pace of new lumber capacity. Wildfires across the west and a shortage of truck drivers may also create constraints in the near-term. Overall, the fundamentals that drive our business remained favorable and we continue to expect that lumber prices will settle at relatively attractive levels. Our leverage to lumber strategy is perfectly situated to continue to drive strong financial performance for the remainder of 2021 and beyond.
Turning to capital allocation. Returning cash to shareholders remained a top priority. We continue to expect that we will pay a meaningful special dividend in the fourth quarter. In addition, our Board typically evaluates our regular annual dividend, which is currently a $1.64 per share in December.
Our strong balance sheet and $891 million of liquidity provide a solid platform, as we consider additional investments in our existing mills or accretive acquisitions. We're interested in acquiring Timberlands mills or a combination of the two near our current operating areas.
We published our second Environmental Social and Governance Report in May and the report is available on our website. Highlights include disclosures of Scope2 greenhouse gases, expanded information about our carbon sequestration, and storage and climate related analysis. PotlatchDeltic is a leader in sustainable forest management, and we are committed to environmental and social responsibility and responsible governance.
To wrap up my comments, PotlatchDeltic is very well-positioned to take advantage of favorable industry fundamentals and our strong liquidity and prudent capital allocation strategy positions us to continue increasing shareholder value.
I will now turn it over to Jerry to discuss second quarter results and our outlook.
Thank you, Eric.
Starting with Page 4 of the slides, our adjusted EBITDA increased from $195 million in the first quarter to $275 million in the second quarter. This is our fourth quarterly EBITDA record in a row and we have generated $769 million of EBITDA over the last 12 months. The effect of higher lumber prices more than offset seasonally lower harvest volumes in the second quarter.
Information for our Timberland segment is displayed on Slides 5 through 7. The segment's adjusted EBITDA increased from $68 million in the first quarter to $77 million in the second quarter. Our team leveraged good logging conditions and strong markets to harvest 354,000 tons of sawlogs in the north in the second quarter. This volume is seasonally lower than the 427,000 tons that we harvested in the first quarter due to typical Spring breakup. Northern sawlog prices increased from $178 per ton in the first quarter to a record $245 per ton in the second quarter or 38%.
Lumber indexed and Cedar sawlogs have both experienced healthy price increases.
In the South, we harvested 876,000 tons in the second quarter compared to 893,000 tons in the first quarter. Logging activity was constrained by wet weather. Our Southern sawlog prices were flat sequentially.
Turning to Wood Products on Slides 8 and 9, adjusted EBITDA increased from $126 million in the first quarter to $205 million in the second quarter. This is another quarterly EBITDA record for the segment. Our average lumber price realizations increased 33% from $890 per 1,000 board feet in the first quarter to $1,185 per 1,000 board feet in the second quarter.
To provide context, it's helpful to look at our lumber prices by month. Our average lumber price realizations per 1,000 board feet increased from $1,045 in April to $1,218 in May, and finally to $1,280 in June. We shipped 216 million board feet of lumber in the second quarter. While this was approximately 7% below our expectations, our team did a good job managing a drop in home center demand after Memorial Day and truck and rail transportation challenges to limit the shortfall.
Also, as Eric discussed earlier, our Ola Arkansas sawmill has not been operating since the fire occurred on June 13th, reducing our production.
Moving to Real Estate on Slides 10 and 11, the segments adjusted EBITDA was $12 million in the second quarter, compared to $17 million in the first quarter. The sequential decline reflects a $3 million commercial real estate sale completed in the first quarter and fewer Chenal Valley lot sales in the second quarter. But the latter was expected as builders were digesting robust lot purchases that were completed in the prior two quarters.
Shifting to financial items, which are summarized on Slide 12. Our total liquidity increased to $891 million. This amount includes $512 million of cash, as well as availability in our undrawn revolver. We did not repurchase any shares during the second quarter. As a reminder, we have a 10b5-1 plan in place, which reflects our ability and commitment to repurchase our shares at attractive prices.
Capital expenditures were $14 million in the second quarter. Note that the amount I just mentioned includes real estate development expenditures, which are included in cash from operations in our cash flow statement and it excludes Timberland acquisitions. We expect that our total capital expenditures will be approximately $60 million in 2021, excluding acquisitions. Planned 2021 capital expenditures will also exclude costs to replace equipment damage in the Ola sawmill fire that we expect will largely be covered by insurance.
I'll now provide some high-level outlook comments. The details are presented on Slide 13. We expect to harvest 1.5 million to 1.7 million tons in our Timberland segments in the third quarter and approximately 5.7 million tons for the full-year. As Eric mentioned, our Southern harvest will be lower than planned this year, because it is uneconomic to redirect logs that would have been consumed by our Ola, Arkansas sawmill.
Harvest volumes in the North are planned to be seasonally higher in the third quarter. Fire danger is very high in Idaho, which may constrain logging in the quarter. We expect Northern sawlog prices to be lower in the third quarter and that they will approximate first quarter of 2021 sawlog prices. Harvest volumes in sawlog prices in the South are expected to be seasonally higher in third quarter.
Our lumber order file is currently prompt to two weeks depending on the mill. Our average lumber price thus far in the third quarter, including orders booked, but not yet shipped, is approximately 50% lower than our average second quarter lumber price.
As a reminder, at $10 per 1,000 board foot change in lumber price equals approximately $12 million of consulted EBITDA for us on an annual basis. We plan to ship 260 million to 270 million board feet of lumber in the third quarter.
We will treat the insurance proceeds associated with the Ola, Arkansas sawmill as a special item and we will exclude the amounts from consolidated and segment adjusted EBITDA.
Shifting to Real Estate, we expect to sell approximately 2,400 acres of rural land and approximately 15 Chenal Valley lots in the third quarter. Lot demand remains strong and we expect to sell approximately 150 lots for the year. Additional real estate details are provided on the slide.
We expect our consolidated tax rate will be approximately 15% in the third quarter and 20% for the full-year. Overall, we anticipate total adjusted EBITDA will decline sequentially in the third quarter, as the effect of lower lumber prices will exceed seasonally higher harvest lines. We're very bullish on industry fundamentals and we expect lumber prices to remain above long-term averages. We're well-positioned with our integrated operating model to continue growing shareholder value over the long-term.
That concludes our prepared remarks. May, I would now like to open up the call to Q&A.
[Operator Instructions].
Your first question comes from the line of Ketan Mamtora with BMO Capital Markets. Your line is open.
Thank you. And congrats on a very strong second quarter, Eric and Jerry. First question on capital allocation, maybe to start with and I recognizing that you don't want to jump in front of the board on special dividends. Can you give us some sense of what is the right way to think about the framework around sort of the level of special dividends? Do you think about it in terms of cash flow for the year? Should we be thinking about it in terms of leverage? Any color there will be helpful.
Yes. That's probably a really good place to start. Ketan, this is Jerry. I'm sure that's topical for a lot of folks, including a lot of shareholders. First off, we have a site class problem where our leverage to lumber prices has really generated a lot of value this year. And fortunately, a lot of that value is going to be shared with shareholders in the form of a special dividend. And we do expect that the amount that will be paid out will be significant and we've also have described it in presentations this last quarter as multiples of the regular dividend, which is currently a $1.64 a share.
And to set the stage what really drives again, it goes back to the value we're creating through the indexed log arrangement in Idaho, as well as the strong lumber prices that are coming through our lumber business. And as a REIT, we can only retain so much cash. I mean, we have the benefit usually to retain a fair amount, but the earnings have been so high this year that we have to distribute that to maintain our REIT status, which we will never jeopardize that and certainly our destinies within our control here. So nobody should be worried that we're in danger of breaching those requirements.
In terms of the amount, there's a lot of moving parts. With key one being what is -- what are the lumber prices for the rest of the year? And there’s a lot of complexities given that's REIT requirement driven. There’s a lot of complexities, a lot of variables, we are in the process of looking through and discussing with our Board. So unfortunately at this point, I can't give much more guidance or color or sideboards other than it will be significant. It will be in the fourth quarter.
And Ketan, I'll just add one comment to what Jerry just said. There's a lot of volatility right now in our earnings stream, particularly in Wood Products, as you might imagine, given the change in lumber prices. And just a month or two ago, we had a Wood Products forecast for the year earnings that was roughly $200 million for the year higher than where we think we're going to end up now. So think about that $200 million spread across 70 million shares more or less, the amount of volatility in that earnings stream and therefore that dividend is enormous. So we're going to wait until we get to the end of the year to decide what the appropriate special dividend is.
No, that's absolutely fair and I appreciate the color and the context there. Now, switching to the other side of capital allocation around M&A, can you talk about sort of what is your pipeline looking like and where do you see the most opportunities at the moment. I know it's -- if you look at sort of both on the Timberland side both Timberland and sawmills, I'm just curious kind of how the pipeline looks right now?
Yes. There is a number of deals that we're currently looking at and we're currently working on. I don't like to get down into the specifics of these deals for competitive reasons. But what I would tell you and what I do think is interesting is that we -- we've been competing for these deals and on three recent ones; we were actually the high bid. And yet the seller changed their minds and decided to not transact, even though we were the high bid, in one case, we hit the number that they were looking for. And they just changed their minds and walked away from the deal.
So I think Timberland M&A is picking up. It's getting interesting. People are seeing timber mark South data. They're seeing $1,500, $1,600 lumber, and they're getting excited. And so the bid ask spread may still be wide between buyers and sellers. But we continue to kick the tires on deals. And in fact, we did won a Mississippi this last quarter was 1,100 acres. It was an 11% IRR. So it created a lot of shareholder value for us. But we're not going to chase deals and overpay. We're only going to do deals that create shareholder value, just like that one that we closed in Q2.
Got it. That's really helpful. I'll turn it over and jump back in the queue. Good luck in the back half of the year.
Thanks.
Your next question comes from the line of John Babcock of Bank of America. Your line is open.
Hey and thank you for taking my questions. I guess just starting out, can you talk about, I know you mentioned, a little bit about what you're seeing in the market right now, in terms of lumber. Just want to get a sense for how demand is right now, relative to last, say probably just a two weeks ago, particularly at home centers, it sounds like that was where some of the weakness in demand that has been just kind of curious that's picked up. And then also what you're broadly seen from builders, if there's been any change in the trend there, any kind of data you can provide around that or at least commentary would be useful?
Yes. So on the home center demand question, yes, when prices got up to $1,600 bucks or so, a month or two ago, essentially there was a buyer strike. It looks like to us DIY demand just dried up. And probably some of that might've just been due to people spending time on leisure activities in the summertime. It could have been that COVID was now in the rear view mirror. People would go out and travel and go to movies and restaurants and whatnot. But there was a real buyer strike that happened a month or two ago, and so demand just ground to a halt, virtually no takeaway. And we have started to see demand pickup from the home centers. It's not where it was a year ago. But it is increasing.
So our view is that nobody wanted to get caught with a lot of $1,600 lumber on the balance sheet. And so they stopped buying. They let prices have now drifted lower. And now we're seeing demand come back because of the risk is off for the home centers. So we feel like demand is coming back. And now that we're getting into the fall, we're going to start to see R&R activity pick up again, as you know, as people return from summer vacation and whatnot.
What I tell you on the housing start side is, I don't know that I've ever been this optimistic regarding the outlook for housing. It is just incredible. If you look at what the homebuilders, the public company homebuilders have been saying with recent earnings releases, whether D.R. Horton, Lennar, Pulte this morning, I could just go on and on about the very favorable things they're talking about in terms of exceptional demand out there. Now they're struggling to produce those housing units, because of shortages and supply chain issues. But there is just an unbelievable amount of demand.
And if you look at what a lot of the pundits are saying, like FEA, for example, thinks that we're going to new housing starts, they're going to keep marching higher up to 1.8 million units per year over the next four or five years. So just really favorable demand outlook on the housing start side.
Okay. And then just following up on that, particularly as it pertains to the home centers, I mean, it sounds like they were essentially trying to work through some of the higher priced inventory. Can you talk about to some actually extent that you have any color on this really how much might be left for them to virtual on that front. Also how should we think about when prices might come lower on that side at the home centers? I know that you're not directly in that business. And so it might be difficult to predict, but just trying to get a sense for that because that that ultimately may come into play in terms of overall no longer demand.
Yes, it's really hard for us to know exactly where home center inventory and demand is, but what I'd tell you is that because they went on buyer's strike and there still is takeaway at the home centers. Their inventories have got to be really lean right now. And like I said, with these prices coming down to $600 bucks or so they're starting to step back into the market and replenish inventories. So I don't know, that's -- we don't have --we don't have direct insight into what the home centers doing just kind of anecdotal.
Yes, that's fair. And then just last question, before I turn it over, I just want to get a quick sense on lumber and sawlog pricing and how we should think about how that rolls through results over the next quarter or two particularly just given the volatility in lumber pricing. So if you could just talk about the lag and kind of some of the color also you provided in the past that would be useful.
Yes. I'll take that one, John. This is Jerry. So in terms of the lag is a reminder for the group, it's about a four-week lag in terms of lumber price resets. So when I talked in the script about lumber prices for us were down 50% so far in the third quarter compared to the second quarter average. You do have to lag that when you think about indexed sawlog pricing, again that's about a four-week lag.
The other thing that's in the mix is Cedar, which typically sells four three and sometimes 4 times the value of mix sawlog. So we certainly have Cedar continue to be relatively strong and certainly not going to come off at the same level.
And then the last thing I'll give you is actually in the prepared comments, Hey, I had kind of guided that we think third quarter Northern sawlog pricing is probably approximately the same as Q1 of 2021. So that that really should help you all dial-in at least what were our expectations are.
Your next question comes from the line of Paul Quinn of RBC Capital. Your line is open.
Maybe I'll start with the fire at Ola. Just, I know you got the $2 million deductible, how bad was the fire like, is that a -- is that a $20 million insurance claim. Maybe you could give us some context for it?
Yes. So as we said in our opening remarks, I mean the fire, thankfully nobody was hurt. Thankfully the whole mill didn't burn to the ground. It was really just one machine center that got damaged. Now, unfortunately it is a very important machine center. The primary large log breakdown line that's an integral component to running your sawmill. And obviously those -- those machine centers are in very high demand right now from the equipment vendors. So we're trying to find a new line. We've identified a really good used one. And we've been in discussions with all the vendors about buying a new one.
We'll see how the discussions play out, but I'm optimistic that we will wind up getting the -- the used one, which is it's been gently used so to speak. And we will wind up paying a premium. It’s probably; if I had to guess it's in the $15 million kind of range now insurance is going to cover that purchase. And there will be demolition and install costs, which again will be covered by insurance. It's hard to know what the full extent of our claim is going to be because from a business interruption standpoint, it's really dependent upon what happens to lumber prices.
But we will be protected. Our P&L will be protected as if that Ola sawmill was up and running from a business interruption standpoint. So right now, I'd say it’s $15 million for that machinery. It's probably another $5 million to relocate it and install it and then it's plus a business interruption.
Okay. And then just some equipment providers themselves, yes, my understanding is that they've got long lead order files two-years-plus. And so I suspect that wasn’t a option. How are you able to source a used one? And is it a working -- is it working right now in the sawmill or is it idle?
Well, so two different things there. One is on the new equipment side, we can get one as early as middle of next year. So it's not two-year lead times for that that particular piece of equipment. So we could get a new one by the -- who knows late second or third quarter of next year. The used one, it's about eight to nine years old. It's at a idle sawmill today, so it’s not being run. It’s roughly been sitting idle for, I don't know, two to three years. It's very well maintained. That piece of machinery is still sold today by the vendor, which is a leading vendor in the industry. In fact, if we had to go out and buy a new one today, that's the exact piece of equipment we would buy. Now there've been modifications to that thing since it was originally sold software and whatnot, but we will make all those changes prior to implementing and installing that that piece of equipment. So from our view, it's as good as new.
Okay. So I'm still -- like it doesn't sound like there’s a huge difference between you bring it up this used one and maybe the end of Q1 2022 and a new one in probably Q3 of 2022. So and insurance is covering the issue. Why would you go used versus new?
Well, because we think that the used is basically as good as a new. We're going to do diligence on that piece of equipment. We're going to have the original vendor go in and inspect it. And we've been assured by them that this is as good as new. So in our mind there really is no difference. And we would just soon get that mill back up and running as soon as we can.
When you have a mill down, your people tend to scatter. And we've talked about this on prior calls how challenging it is for the industry right now to get skilled labor. We don't want our people to scatter. We want them to stay at that mill. We want them to work. The longer we delayed that startup, the harder it's going to be for us to retain those people.
Okay. That's a very good point. Okay. So maybe just turning to lumber, just on, I'd like the monthly breakdown in pricing, what is your July average price to-date?
July average forecast is $720 bucks.
Okay.
Now remember order file -- so if I'll remember order files, we're always selling stuff out into the future. So some of that $720 captures those high prices that were -- we were still seeing back in June.
Yes. I understand the lag. Okay. And then just you highlighted how strong the plywood market is that a meaningful pickup? Is that like a 5% annual run rate this year? Or is it more meaningful than that?
I would -- I would say, we don't like for competitive reasons. We don't like to breakout the results of our plywood business. But just like with lumber, the earnings in that business, it's multiples of what it would be in a normal year.
Okay. That's helpful. Thanks very much, guys. Best of luck.
Thanks, Paul.
Your next question comes from the line of Kurt Yinger of D.A. Davidson. Your line is open.
Hey, just starting off on the harvest outlook, I guess first, what should we be expecting in terms of normalized Idaho harvest levels going forward? And secondly, as we think about 2022 weather and demand permitting, is that roughly six million ton harvest level that originally outlined for this year a reasonable starting point?
Yes, so Kurt I'll take that and this is Jerry. In terms of -- I'll start with the back part of your question, because I think it tees up the answer well, which is six million still is our normal runway, when you think about our Idaho and our Southern harvest, six million tons give or take is about the sustainable level, we were harvesting roughly the same amount that's growing each year. There's some moving parts this year in the harvest. Unfortunately, first half, Eric had touched on in his comments that our Ola, Timberlands district, our Ola sawmill, was a key outlet for the purchaser of a lot of the sawlogs that are produced in that region. So, we think part of the reason why the harvest guidance for the year has come down from the six million tons is we think we're going to be 200,000 tons short in that district for -- because of the Ola fire this year. So that harvest volume would be deferred, continue to grow fortunately, and it'll be delivered in future years.
The other thing that's happening here, is in Idaho, certainly we have prioritized delivering sawlogs. So when we have logging contractor availability, we're going to push it to the sawlogs just to make sure that we can deliver into the strong markets. And pulpwood becomes less of a priority. So when you look at kind of the volumes so far this year, pretty anemic on the pulpwood side in Idaho, but as you recall, that's pretty low margin business to start with. And like I said, we've really shifted the logging capacity.
So, the other explanation as to why we're short, 5.7 million tons versus a 6 million is there's probably 100,000 tons on the pulpwood in Idaho, at the end of the day, it's just a little margin stuff to at being there so.
Well, especially when you think about all the sawmill residuals that are being produced or have been produced here over the last few quarters, it's really put downward pressure on pulpwood prices to where's like Jerry said, there's low or no margin in producing that stuff.
Got it, okay. That makes a lot of sense. And I guess just sticking on the log side; it looked like that was a modest headwind versus last quarter. But could you remind us how to think about the lag of those fiber costs in Idaho? Is that something you'd expect to get more pressure from in Q3 as you absorb Q2 pricing?
Yes, just to clarify your question, are you thinking in terms of wood products purchase of logs, Kurt?
Correct.
Okay. So that lag that I talked about earlier, it's about a four week lag in terms of a price reset. So, again, we saw or expect Northern sawlog pricing to come down, call it 25%, if you just take the marker, which is Q3 probably looks very similar to Q1 in terms of realization. I will tell you get some price relief, going forward in the St. Mary's Mill complex in terms of the indexed sawlogs, but probably not as fast as you're seeing the repairs -- as you're seeing the lumber price realizations come down.
Okay, got it. All right. So it's the same, I guess the pricing is going through the Timberland [ph] segment. That makes sense. Okay, and then I'm just curious if you could talk about with all this volatility, whether you're seeing any change in the approach to inventory or buying from your distributor customers and ultimately how you think that may impact the market going forward. You spoke to the psychology impact there. Is that something that you think will just be another factor kind of lending itself to more big swings going forward?
Yes, there is a huge psychology impact from lumber purchasers. When prices get to really high levels, people start to get really nervous. They don't want to get stuck with a lot of inventory as you can imagine on their balance sheet. And so they'll stop buying but they want to meet end customer demand. So they tend to buy lumber, ship directly from mills via truck and not like rail where it takes a month or something. So the psychology is huge. We got to those high prices, buyers want really lean inventories and then prices collapsed especially as DIY wasn't showing up at the home centers to buy inventory. So now the situation is prices have really come down and the home centers have got really lean inventories.
We think as we get into the fall, and people return from vacations and whatnot, we do think there's going to be a pickup in the DIY and the R&R segments. And demand is going to come back and the home centers are going to have to replenish inventories, and we think that's going to provide, some support for pricing here in the third and fourth quarters. So psychology is a large part of what happens here.
Right, great. Okay, great. Well, appreciate all the color and good luck here in the back half guys.
Thanks Kurt.
Your next question comes from the line of Mark Weintraub of Seaport Research Partners. Your line is open.
Thank you. So it's kind of interesting, as you were referencing the fact that your pulpwood prices and profitability is very low for the reasons you noted themselves. And then at the same time, we've been reading about how there's been some increase in pulpwood costs, because of weather, et cetera. I guess it sort of really brings to the forefront that maybe there are regional differences that go on in the South certainly from time-to-time. So trying to get a sense, I know that you sell a lot of logs, and you also buy a lot of logs in the South as a starting point. Are you basically selling and buying in the same wood baskets? Or do you have exposures in some wood baskets, where you're selling more, and you're buying more in others within the South?
I guess to start with Mark, the reference -- my reference to weaker pulpwood prices was Idaho specific big picture. We're seeing pretty stable sawlog prices and pulpwood prices in our Southern wood baskets, kind of flies in the face of Timber-Mart South Report that came out recently, which on a simple average basis indicate that sawlog pricing at 13%. And like some people got excited that maybe the sawlog price recovery is here. Our view is it's not.
A couple of things that I will share is one we think that Timber-Mart South data well it's good to have it out there, it's probably based on a thin set of transactions. For example, we don't submit information that's included in that database. And we are second largest Timberland owner in the state of Arkansas. So there's a big part of the data that's not in there. And like I said, we see typically a little bit of lift from time-to-time, as there's a new large, a mill is either brought up in the Greenfield fashion or there's an expansion, we see what weather premiums, usually it might be a $0.01 or $0.02, and then it seems like every time up to this point, it's going to settle back down into this long-term norm, which for us is probably around this $44, $45 per ton on a delivered basis sawlog. So I think, our view is, one got to be cautious with the data. We have a lot of data that we look at in our wood baskets, and it's been pretty stable to this point in any, like I said, premium has been short-lived, and things have kind of settled into the long-term average norm.
Okay, that's helpful. And so just to clarify, and so you think that would sort of not putting on the spot show feel in the different regions, but would those -- that comments be really specific to just where you have a presence? Or do you think that's a fair description for the U.S. South overall?
Yes, I can only speak to our wood baskets, Mark. I mean, that's where we have fairly deep data. And we just, we don't have direct exposure to the other Southern wood basket. So my comments are PotlatchDeltic experience specific.
Okay. And shifting gears just back to the capital allocation and thanks for the color on the special being multiples for the regular dividend that's helpful in sort of framing. You also -- I think Eric also mentioned, or maybe if you Jerry, that you'll also be relooking at the kind of the regular dividend as well. Last year you had for the first time in quite a while, given a relatively small bump what would sort of be the -- what would be sort of the determinants the drivers that would lead you to your conclusions on what's appropriate now? I mean, it seems like you'll have maybe a bit more cash on the balance sheet, but a bunch of it's going to be paid out in the special. So what was sort of the thought process that would make it -- make sense for the pushing that up this year, or is it sort of just more of this like inflationary type of small increases that one should expect from time to time?
Yes. So Mark, our dividend, we -- any changes we make to it, any increases that we make, we need to be convinced. We need to have conviction. That is -- it is sustainable first and foremost. I think as you know, our Idaho indexed sawlog contracts are unique in the industry and they are trading at tremendous amount of cash at these current sawlog prices, even though they come down or they're coming down, still creating an enormous amount of cash for us. Given that our view is that lumber prices are going to remain relatively high over the next several years, especially given this backdrop that BC needs roughly $600 lumber to get to break-even. Our sense is that cash flows are going to remain relatively strong in our Timberland business, especially as it relates to Idaho. So I would just say that we're well-positioned for our Board to consider increasing that base dividend beyond our current $1.64 per share. But that's decided in December of each year.
Okay. That makes a lot of sense. The -- I guess on that point on the cash cost in BC being so high -- have -- you mentioned also that there were some curtailment like I think Canfor is that -- what I mean -- are we seeing anything in BC or anywhere else related to the -- this higher cash costs that sort of reinforce that conviction that those higher wood cost there are going to help create a floor or is that still kind of a yet to be seen?
Well, Canfor is the only one that come out and publicly state that they're curtailing. But we are hearing lots of rumors. And we have customers that we know are curtailing and cutting back hours. They may not be making a public announcement about it, but it's happening behind the scenes.
As it relates to BC, what I would say is that those log decks that those mills have right now are from logs that have been purchased in the prior quarter too. So there's still relatively low cost logs. But they're facing real headwinds as we get into Q3 and Q4 when those log prices reset. So the -- I think the clock is ticking is kind of how I would word it.
At this time, I'm showing there are no more questions. I'll turn the back -- call back over to Jerry Richards.
All right. Thank you, May, and certainly appreciate everybody's interest in PotlatchDeltic. I am available for the follow-up detailed modeling questions the rest of the day and we'll talk to you next quarter if not sooner.
Thank you.
This concludes today's conference call. Thank you for participating. You may now disconnect.