This is the sixth in a series related to the analysis of timber markets and wood baskets.
Forest supplies, wood demand and timber prices cycle. However, these three rarely “get the memo” and synchronize in a timely, convenient fashion. (The real world and active markets can be so inconvenient.) And yet, prices and demand and, ultimately, supplies of trees do adjust and respond to each other over time. How they adjust varies by region and market and the local application of forest technology.
Total forest inventories and growth in the U.S. has been increasing for decades. Recent concerns about an “oversupply” of softwood grade in the U.S. South, for example, is not a new story. In Georgia, forest inventories have increased 30% over the past thirty years. This reminds us that we have added volume for reasons other than the reduced harvesting associated with an economic recession and gutted housing demand. Rather, forest technology plays a key role in dictating price-to-demand relationships and raw material specifications in the forest products industry.
How has forest technology altered the landscape in local markets?
- Forest productivity continues to increase. Commonly applied, intensive forest management practices have more than doubled growth and yield rates in pine forests over the past four decades.
- Forest rotations continue to shorten. While this relates to productivity, it also speaks to the faster “cycling” of forests, increasing the opportunities for either land use changes or applying new technology on subsequent rotations. And this trend varies significantly across landowners and markets. For example, while smaller private landowners average 30-year rotations or more for pine in the South, Rayonier averages 25 years or less.
- Sawmill yields continue to improve. Over the past three decades, yields at industrial softwood sawmills – those producing 100+ million board feet per year – have improved nearly 20%. What required 5.3+ tons per MBF in the 1980s now requires 4.3 tons or less.
From a timberland investment perspective, these trends are noteworthy given the fact that larger average log size is associated with improved yields, but the average size of harvested trees has been declining. In short, technology has more than compensated for reduced log sizes.
When evaluating timber markets and wood baskets, we find variance in applied forest technology does correspond to differences in landowner characteristics – as measured in corporate versus individual ownerships – and mill profiles – as measured in the number, size and type of local mills.
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.