Good day, and thank you for standing by. Welcome to the Acadian Timber Corp. Q3 2021 conference call and webcast. At this time, all participants are in listen-only mode. After the speaker's presentation, there'll be a question-and-answer session. To ask a question during this session, you'll need to press star one on your telephone. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Susan Wood, Chief Financial Officer. Please go ahead.
Thank you, operator. Good afternoon, everyone, and welcome to Acadian Timber's third quarter conference call. With me on the call today is Adam Sheparski, Acadian's President and Chief Executive Officer. Before discussing Acadian's results, I will first remind everyone that in discussing our third quarter financial and operating performance, the outlook for the remainder of 2021, and responding to your questions, we may make forward-looking statements. These statements are subject to known and unknown risks, and future results may differ materially. For further information on our known risk factors, I encourage you to review our news release and MD&A, which are available on SEDAR and on our website at acadiantimber.com. I'll begin by outlining our financial highlights for our third quarter ended September 25, 2021. Then Adam will comment on our operations, market conditions, and outlook for the remainder of the year.
Sales for the third quarter were CAD 22.7 million compared to CAD 23.2 million in the prior year period. Weighted average selling price, excluding biomass, increased by 8% year-over-year, benefiting from increased sawlog pricing driven by favorable market dynamics. Demand remained strong for our sawlog, while demand for our softwood pulpwood remained challenged due to the regional availability of sawmill residuals, resulting in a 9% decrease in sales volume, excluding biomass. Operating costs of CAD 17.9 million in the quarter were CAD 0.9 million lower than the CAD 18.8 million in the prior year period, mainly due to lower harvesting and timber services activity. Variable costs per cubic meter increased 1% due to higher fuel costs, partially offset by a stronger Canadian dollar.
Adjusted EBITDA totaled CAD 5.1 million during the quarter, up from CAD 4.5 million in the prior year period. Adjusted EBITDA margin for the quarter was 23% compared to the prior year period of 19%. Our net income for the third quarter was CAD 0.1 million compared to CAD 5.2 million in the prior year period. The negative variance is primarily due to a non-cash unrealized foreign exchange loss on long-term debt of CAD 3.1 million compared to a gain of CAD 2.2 million in the prior year period. Acadian generated CAD 3.6 million of free cash flow and declared dividends of CAD 4.8 million to our shareholders during the third quarter, or CAD 0.29 per share. I'll now move to the third quarter results for our New Brunswick operations.
Sales for New Brunswick were CAD 17.5 million compared to CAD 18 million in the same period of 2020. The weighted average selling price, excluding biomass, increased 9% from the prior period quarter, reflecting strong sawlog prices and a lower proportion of softwood pulpwood in the mix. Sales volume excluding biomass decreased by 10%, which was mainly driven by the decrease in softwood pulpwood. Operating costs in the third quarter totaled CAD 13.4 million compared to CAD 13.8 million in the prior year period. The decrease in operating costs is a result of lower harvesting and timber services activity combined with lower land management costs. Weighted average variable costs per cubic meter excluding biomass increased by 8%, reflecting higher fuel costs compared to the prior year period.
New Brunswick's adjusted EBITDA in the quarter was CAD 4.2 million, consistent with the prior year period, and adjusted EBITDA margin was flat year-over-year at 24%. I'll now switch over to Maine. Sales during the third quarter totaled CAD 5.2 million, flat with the prior year period. Sales volume excluding biomass decreased 6% year-over-year as a result of lower hardwood pulpwood deliveries, partially offset by stronger softwood sawlog sales. The weighted average selling price, excluding biomass in U.S. dollar terms, increased 11% compared to the prior year with higher sawlog prices benefiting from favorable market dynamics. In Canadian dollar terms, prices increased 5% year-over-year.
Operating costs totaled CAD 4.2 million in the quarter compared to CAD 4.4 million during the same period last year as a result of lower harvest activity and a lower cost product mix. Variable costs excluding biomass were 11% lower per cubic meter due to a higher proportion of softwood with lower average costing compared to hardwood, combined with a stronger Canadian dollar. Adjusted EBITDA for the quarter was CAD 1.3 million compared to CAD 0.8 million during the same period last year. Adjusted EBITDA margin was 26% compared to 15% in the prior year period.
The third quarter results include CAD 0.3 million of gains recorded on timberland sales compared to no timberland sales during the same quarter in 2020. With respect to Acadian's financial position, it remains strong, ending the third quarter with a net liquidity position of CAD 23 million, including a cash balance of CAD 10.5 million and our revolving credit facilities, which remain undrawn. With that, I'll now turn the call over to Adam.
Thank you, Susan. Health and safety remain a key focus of our business, and as such, we are proud to report that through continued attention and hard work of our employees and contractors, Acadian experienced no safety incidents again this quarter. That makes it three straight quarters since we had an incident, a true sign that safety is our top priority. Regarding COVID, we continue to monitor developments in the regions in which we operate, and our teams remain diligent in following health orders and best practices. Although the fourth wave has come to our region, to this point, it has not had a significant impact on Acadian's operations or the operations of our customers. Switching over to our results. As Susan mentioned, during the third quarter, Acadian benefited from strong pricing and demand.
Regional softwood lumber producers ran steady through the quarter, resulting in solid demand for our softwood sawlogs. Our softwood sawlog prices increased 2% in New Brunswick and 18% in Maine in U.S. dollar terms. As expected, demand for Acadian softwood pulpwood would remain challenged due to the regional availability of sawmill residuals, which has had an impact on our overall volumes. Demand for our hardwood sawlogs was steady as end-use markets for this product remained strong. The weighted average hardwood sawlog price increased 12% in New Brunswick and 25% in Maine in U.S. dollar terms compared to the prior year period, reflecting both price increases and a higher quality product mix.
Hardwood pulpwood volume decreased during the quarter, and prices declined 5% compared to the prior year period due to elevated roundwood inventories in the region, a change in the harvesting mix towards softwood during the quarter, and a stronger Canadian dollar. Biomass volumes decreased year-over-year, and although we experienced increased pricing, higher average hauling distances and fuel costs compared to the prior year period impacted biomass margins during the quarter. Turning to our market outlook. Acadian expects North American softwood lumber demand to remain steady as we progress through the remainder of 2021 and into 2022, supported by the sustained positive outlooks for U.S. home construction and improvement. Housing fundamentals continue to be supported by lower interest rates, income and job growth, aging and under-built housing stock, and favorable home buyer demographics.
Consensus forecast for U.S. housing starts is 1.57 million for 2021, an increase of 14% from 2020. The dynamics of the softwood lumber market are expected to support steady demand for our softwood sawlogs as our sawmill customers continue to invest in their facilities and operate at steady levels. However, the strong regional production of lumber will continue to challenge the softwood pulpwood market as sawmill residuals are abundant in the region. Demand for hardwood sawlogs is strong as both appearance grade and industrial-grade lumber is in high demand and round wood inventories at hardwood sawmills are low. We expect strong demand and pricing for this product for the remainder of this year and into 2022. Hardwood pulpwood demand is expected to remain steady as the economy improves.
Demand for biomass from Acadian's New Brunswick operation is expected to remain stable through the remainder of the year and into 2022, with steady demand throughout the region, supplemented by the return of export markets. Finally, as we disclosed last quarter, Acadian executed its first carbon development and marketing agreement to develop carbon credits on the portion of our Maine timberlands that is subject to a working forest conservation easement. As we previously discussed, while the project is relatively small and expected to contribute modestly to cash flow and have little impact on operations, it forms a foundation for further carbon credit development. The project remains on track as we enter the inventory phase, and we expect to begin receiving proceeds from sales in mid- to late 2022.
In closing, we believe that Acadian's strong balance sheet, sustainably managed resource, access to diverse and growing customer base, and highly capable team position it well for future growth and success. With that, we are now available to take your questions. Operator?
Thank you. As a reminder, to ask a question, you need to press star one on the telephone. To withdraw your question, press the pound key. Our first question comes from Roshni Luthra from CIBC Capital Markets. Your line is open.
Thanks. Hi, good morning.
Morning.
Adam, can you tell us about your expectations on harvest levels for 2022?
For harvest levels, obviously, we disclosed our allowable cuts in our information form. I think that would be a good spot for you to start, Roshni. I would say over the last year when we issued our new AAC, we did see an increase in allowable cut for our softwood saw timber. Not all of that has been, I would say, sold at this point in time, but I think the information form in our AAC is a good place to start for volumes.
Okay. I think you were just mentioning at the end that your project for carbon credits remains on track. Just wanted to confirm, did you say we would see further updates in like mid-2022, or I wasn't sure if I heard that right.
Yeah. The project is on track. We're in the inventory phase at this point. Mid-2022 to late 2022 is when we are actually expecting to receive proceeds from sales of carbon credits. It will continue through the process over the next six to nine months, and then hopefully start seeing proceeds after that.
Okay, thanks. That's all I had. Good luck for the next quarter. Thank you.
Great. Thanks, Roshni.
Thank you. Our next question comes from Paul Quinn with RBC Capital Markets. Your line is open.
Yeah, thanks very much. Morning or afternoon, guys. Just maybe start with New Brunswick. You know, I just keep reading. I'm on the West Coast, and I keep reading these articles on New Brunswick stumpage and why it's held low and the effect. Just, you know, despite, you know, obviously in 2020 and 2021, lumber prices, you know, doubled and tripled, but New Brunswick stumpage was held in check. Does that affect the price that you're able to get for your softwood sawlogs in New Brunswick as well as affects market in Maine?
Hi, Paul. Yeah, the FMV rate here, stumpage rate here in New Brunswick, has gotten a lot of press over the last year or two. I think suffice it to say, it does have an impact on the market, on the marketplace, absolutely. A lot of volume comes off of Crown and our customers are buying Crown lumber or Crown timber just as they're buying from us. There is an impact in the region. Not so much on Maine. There is a difference between the two regions, obviously.
How do you go about changing that system so there it's a little bit market, more market responsive or what are, you know, some of the things that people are saying out there to make it more fair?
Yeah. I mean, I think that's a question for the New Brunswick government. You know, we are focused on our customers and selling our product. You know, it's like I say, it's in the news regularly. I'm sure it'll be in the news again tomorrow. Yeah, it's a, you know, like I say, we're focused on our customers and our products.
It's not something that you're actively trying to change?
No.
Okay. Just on that carbon agreement, what's the price that you're getting for the carbon? I suspect it's a deferral mechanism or methodology or.
We haven't disclosed any of the pricing mechanisms. In general, in the voluntary market, we'll receive, you know, call it market rates when we sell those credits in the future.
Just 'cause I'm not so familiar with the voluntary market, what's a typical span right now or of those rates, just as an idea?
To be honest with you, Paul, there's all kinds of numbers floating out there. I think the last numbers we heard, and again, it's day to day, but you know, CAD 10-CAD 15 is what we heard the current pricing at.
Great. Thanks very much. That's all I had. Best of luck.
Great. Thanks, Paul.
Thank you. Again, if you would like to ask a question, press the star then the one key on your touch tone telephone. Our next question comes from Andrew Kuske with Credit Suisse. Your line is open.
Thanks. Good afternoon. A few questions. If we look at your sales profile and just the harvest that you had in the quarter, and obviously there's always quarterly variability, but are you facing any kind of constraints? It seems like overall, you know, a few things we can put aside, but overall, pretty robust demand. Are you seeing any kind of constraints to supply that demand that we see in the marketplace?
No, not at this point in time. You know, I think, you know, I would separate softwood and hardwood. No constraints on the hardwood side. I would say we're focusing on, you know, trying to ensure that we continue the good work that the guys have done and ensuring that we deliver on our expectations and our AAC on the hardwood side. On the softwood side, as I mentioned earlier, you know, our AAC did come up this year, and we're still in the process of selling all of that product, Andrew. No constraints as far as producing it.
Okay. Are you seeing any signs of inflationary pressures at all? I mean, I know fuel costs were mentioned, but beyond that, is there anything else that's happening on an inflationary side?
No, not significant inflation in the region. Fuel, like we mentioned, it is definitely having an impact on us and the team is working hard to start to try and move those costs into the customers. But that's really the only thing that we're feeling at this point in time in the region.
Okay. Just maybe one final one. You know, how do you think about the outlook for, you know, wood products demand? You know, should Northern Pulp mill come back up and running, how do you sort of just think about the regional dynamics?
That's a good question. I mean, they're a distance away from a lot of our holdings, but you know, I think we didn't feel a lot of change when it went down. I think some of the residuals started to migrate north. I would say a little bit. That may change if Northern Pulp comes back on. But like I said, I don't think it's a huge change from our perspective.
Okay. Thank you. That's very helpful.
Great. Thanks, Andrew.
Thank you. I'm showing no further questions in the queue. I'd like to turn the call back over to Adam Sheparski for any closing remarks.
Thank you. On behalf of the board and management of Acadian, I would like to thank all our shareholders for their ongoing support. Thank you. Stay safe, and we look forward to our fourth quarter conference call on February tenth. Goodbye.
This concludes today's conference call. Thank you for participating. You may now disconnect.