This is the first in a series related to the analysis of timber markets and wood baskets.
Forisk studies the impact of local supply “events”, such as natural disasters, and trends, such as changing growth rates or plantation acreages, on timber markets. Regionally for the South, analysis of U.S. Forest Service data indicates at least 3.3 billion tons of standing pine inventory on private, “operable” timberlands. However, this says little about local timber supplies. For example, previous Forisk analysis shows how “baseline” supply levels for pine grade and pulpwood vary by market, and how excess or surplus volumes effectively “dampen” or “accelerate” pine stumpage prices.
When assessing local timber markets, the “growth-to-drain” (GTD) ratio provides a snapshot of sustainability. A preliminary supply analysis requires three pieces of information specific to the wood basket or timber market of interest.
- Inventory: what is the volume of standing trees in the market?
- Growth: what is the annual, average growth of the forest (net of mortality)?
- Removals: how much volume is harvested and removed from the forest each year?
Dividing growth by removals provides an estimate of the GTD ratio. A ratio above one indicates the local market grows more wood in a year than is harvested; a ratio below one says the local market harvests more wood in a year than it grows. However, by itself, the GTD ratio provides little insight regarding the ability to support new wood-using facilities over time. In addition, as a ratio, the metric sends an incomplete message.
Calculating net growth, by subtracting removals from growth, provides an estimate of the “surplus” volume accumulating in the market each year. In the end, net growth, evaluated over time, can trump the GTD ratio for ranking timber markets and wood baskets. Wood-using mills and timber-selling landowners don’t subsist on a diet of ratios; they survive on steady flows of logs and cash.
The sustainable long-term management of private forestlands balances the growth and harvesting of timber. The GTD ratio simplifies the feasibility analysis of local timber markets to a single number. However, it communicates an incomplete story. A thorough supply analysis accounts for how metrics such as GTD and net growth change over time by specie, product and forest owner type.
Forisk will detail supply assessment issues during “Timber Market Analysis” on August 4th 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.
In addition, Forisk will teach “Investing in Timberland and Timber REITs” in Atlanta on October 8h.