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Timber Supplies: Mountain Pine Beetle Update and Timberland Investment Implications

The Mountain Pine Beetle (MPB) – like a ravenous, insatiable house guest – continues to feast on pine forests, primarily in British Columbia.  Fortunately, according to the most recent update from researcher Adrian Walton of the BC Forest Service (May 11, 2010), the worst of the attack has passed, MPB attacks have declined annually since 2005, and initial projections overstated the likely, total pine killed through 2020.  The updated projections reinforce the view we’ve shared for the past two years that the preliminary estimates likely overstated the long-term implications – good and bad – for stumpage forecasts and timberland investments.  Why?  Here are key points:

  • Devastating:  the update projects 65% of the pine volume in the study region will be killed by 2016.  This is down from previous estimates of 80%.  From any perspective, these are astounding and catastrophic assessments.  However, they do not account for…..
  • Mitigating factors:  the projections do not account for mitigating factors associated with forest management decisions, adjustments to harvest schedules, salvage operations, and an improved understanding of how long dead timber can be left standing and salvaged later.  This, in turn, emphasizes the importance of distinguishing between….
  • Local and national markets:  the MPB infestation most directly generates questions from timberland investors and lumber manufacturers.  Timber is a regional (local) business; lumber is a national one.  While reduced lumber imports from Canada can lift manufacturers nationwide in the US, additional benefits accrue to regional timberland owners in the Pacific Northwest as the ratio of buyers to available stumpage shifts in their favor.  Yet, these changes are further mitigated by…..
  • Housing market realities:  as of January 2010, US government forecasts assumed housing starts for 2010 of 982,000.  Revised estimates approach 600,000.  In addition, average home sizes – and thus the volume of lumber required per home – are falling.  This further smooths potential price spikes from MPB-related timber shortages.  In short, current lumber market conditions alleviate longer-term economic implications.

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