This is the fifth in a series related to the analysis of timber markets and wood baskets.
Tip O’Neill, the former US Speaker of the House of Representatives known for a productive working relationship with his political “adversary” President Ronald Reagan, is closely associated with the phrase “all politics is local.” In the 1930s while a senior at Boston College, he ran for a seat on the Cambridge City Council. And he lost. According to his New York Times obituary:
The race taught him a lifelong lesson. He had not campaigned in his own neighborhood, which he had taken for granted and where he made a poor showing. In a post-mortem on the campaign, Mr. O’Neill’s father told him what he had learned in a lifetime of politics: “All politics is local.”
The same, from our experience, applies to understanding success and failure for wood-using mills and timber-selling landowners. Regardless the broader trends in the economy, housing and regulation, profitable asset management depends on rigorous understanding of local wood markets.
Consider the latest data associated with US housing starts from the US Department of Commerce. Nationally, housing starts fell 9.3% in June. Regionally, every part of the US showed increasing housing starts except the US South, which fell 29.6% (ouch). From a trend standpoint, year-to-date figures put the US on pace to hit 958,000 housing starts in 2014 (versus the 904,000 pace at this time last year). From an analytic standpoint, the numbers have no implication on the fundamental, longer-term values of wood-using facilities or timberland investments. The monthly data simply slides the industry’s “guesstimate” of when markets will strengthen down the timeline, not if they will strengthen.
When comparing markets or wood baskets, the key remains estimating how local timber prices could change over time relative to every other timber market in the United States regardless of macroeconomic conditions. The analysis associated with this work, and the preparations of capitalized mills and strategic timberland acquisitions and divestitures over the past five years, remind us that: “all timber is local.”
Forisk will address forest industry trends during “Timber Market Analysis” on August 11th in Atlanta, a one-day course for anyone who wants a step-by-step process to understand, track, and analyze the price, demand, supply, and competitive dynamics of timber markets and wood baskets.