This is the sixth in a series related to the analysis of timber markets and wood baskets.
When evaluating wood or timber markets for investment purposes, “supply” refers to the volume of available, accessible and sustainable sources of raw material for wood-using mills. These “big three” considerations distinguish “operationally productive” forests from those set aside in areas such as parks, easements, streamside management zones and reserves. While the U.S. has over 700 million acres of forests, less than 1/3 of these acres might be considered actively managed for timber sales. And the extent to which this reflects a given basin varies significantly by region and local timber market.
Let’s take a closer look at the “big three” for analyzing timber markets:
- Availability: specifically, are the forest owners selling their timber regularly and actively “in the market”? For starters, this takes into account National Parks and other areas managed explicitly with objectives other than timber production in mind. We can then whittle down the resource actually available for forest supplies.
- Accessibility: in practical terms, can foresters and loggers operate on enough of the forestlands in this area? Can we access these forests with trucks?
- Sustainability: does and will the growth of wood raw materials exceed removals over the long-term? Since forest supplies, wood demand and timber prices cycle, we want to provide proper context and time frames for the analysis.
For assessing local forest supplies, these three considerations provide a minimum starting point for thinking through basic analytic and forecasting issues. Since prices and demand and, ultimately, supplies of trees do adjust and respond to each other over time, efforts to model local supplies will also take into account specific tree species, forest product specifications and technology.
Forest technology plays a key role in estimating price-to-demand relationships, raw material costs and timberland returns. For example, we find variance in applied forest technology corresponds 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 teach “Timber Market Analysis” on August 4th in Atlanta.