My laymen's guess is it's a caterpillar nest, which doesn't look like that, but humid evenings and morning dew tend to compact the layers they built and make it more sheath like. I would remove it with gloves and spray the tree with an insecticide and anti-fungal treatment.
I have to totally disagree with the suggestion of spraying anything.
With so much talk of saving pollinators and reducing pesticide use these days, we need to think different about how we relate to insects and pesticide use. First off, we don't even know what this is. Is it a butterfly? I can tell you for sure this is not a fungus, so using a fungicide is wasteful. Is it even a risk to the tree? If it is harmful, how do we select the best insecticide if we still don't know what it is? Finally, if you are dead set on destroying it, why not do it in the simplest way possible - scrape it off in a bucket of soapy water! There's no need to pull out the "big guns" for this.
There are studies that have shown that homeowners use 2-3 times more pesticides per acre than farmers do. Homeowners often want to "take action" rather than learn about and understand their surroundings. Very often the correct approach to an insect issue is "do nothing". Even when action needs to be taken, often pests can be more permanently and effectively handled by cultural controls than with repeated applications of chemicals. But in every case, the first step is to understand the problem, which no one wants to take the time to do.
I'm sorry if I sound like I'm going overboard and especially apologize if I sound like I'm attacking you,
Zenithal. But I really feel there's a teachable moment here. [/soapbox]
My credentials: A BS and MS in Horticulture Science, 6 years as a County Ag Extension Educator, 14 years as a Regulatory Entomologist, Field Inspector, and Invasive Species Technician, and 20+ years as a licensed Private and Commercial Pesticide Applicator.
