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Forisk Forecast, Part III: Forest Supplies and Market-Specific Stumpage Prices

This is the third in a three-part series related to Forisk’s modeling of future softwood stumpage prices in the US South and Pacific Northwest.  Part I focused on housing (Studying US Housing Starts) and Part II addressed wood demand (Sawmill Capacity and Utilization).

In the movie “The Lord of the Rings: The Two Towers”, the great tree-like Ent named Treebeard talks of a great conflict and says, “We must weather such things as we have always done.” To his harried Hobbit friends, the perspective is insufficient, but it does capture an essential truth of taking a long view when making decisions during turbulent times.  When housing slumped in the United States, forest owners and timberland investors took the long view and deferred harvesting sawtimber, the logs needed to produce lumber. Now, as markets improve, we wonder at the new supply and demand equilibrium.  In particular, have forest supplies changed in ways that will affect stumpage price recoveries at the local market level in the near-term?

Forisk analysis of timber markets across the South over time indicates that excess sawtimber volumes could dampen or delay the “strengthening” of pine sawtimber and chip-n-saw prices in the U.S. South.  Specifically, the effect slows pine grade price growth by ~30% per year on average and reduces Base Case pine grade prices by ~$1 per ton over the next two years.  This effect varies by state and local market.

Forisk uses the “removal year” metric – accessible inventory divided by removals – to identify local markets with potential supply imbalances.   This approach builds on research and common measures used for other depleting natural resources.  The removal year estimates how many years it would take to deplete standing inventories, given a set level of removals per year. We compare the current removal years to a benchmark comprised of the average removal years specific to the local market or state over the previous 10 years.  In doing this, we estimate inventory levels that account for pine grade specifications, timberland ownership and forest accessibility associated with steep slopes and hydric sites.

For nine of the eleven states studied in the U.S. South, average removal years range from 14 to 24.  In other words, at the state level, a typical state with a robust forest industry has 14 to 24 years of standing pine grade inventories during normal times.  However, today, all of these states have at least five years more of inventory relative to historic averages.  In forecasting wood demand through 2022, Forisk estimates the excess continues to 2013 for all states except Texas.

To learn more about Forisk’s market-specific stumpage forecasts tailored to individual wood-using facilities or timberland ownerships, contact Brooks Mendell at bmendell@forisk.com, 770.725.8447.

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