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Unique Issues Affecting the Analysis of Hardwood Log Markets

This is the second in a series related to the analysis of timber markets and wood baskets.

For baseball card collectors, quality trumps volume. The analysis of hardwood markets reveals a similar reality: simply owning lots of trees differs markedly from investing in high quality and valuable species. Our team has been developing hardwood market frameworks and log forecasts for the U.S. Lake States and the Northeast for five species: Black Cherry; Hard Maple; Soft Maple; Red Oak; and White Ash. This research highlights issues unique to evaluating hardwood log markets relative to softwood markets in the South and Pacific Northwest. Price behavior offers a prime example.

Price Data and Considerations

Consider current and historical hardwood log prices in the U.S. Northeast. For this analysis, we developed price series based on data from three sources: Penn State’s Timber Market Report, New York State Department of Environmental Conservation Stumpage Price Reports and the Sawlog Bulletin. Penn State and the New York State Department of Environmental Conservation publish publicly available prices quarterly and biannually respectively. The Sawlog Bulletin price reporting service has relationships with log buyers and mills in several states across the Northeast – such as Maine, New Hampshire, Vermont and others – and reports prices for each facility in their publication. The table below includes an average of the resulting price series.

Figure. Starting (Last 4Q) and Historic Prices, Northeast, $/MBF

20140622 Hardwood

One issue is the fact that Soft Maple, White Ash and Red Oak in the Northeast markets are at or near their 10-year highs. For this reason, the Forisk Forecast includes a “Low” scenario that uses a base price that is one standard deviation lower than the current average. In hardwood markets, we recognize that specie substitution (i.e. switching between Soft and Hard Maple) plays a unique role relative to softwood markets.

The hardwood lumber market is bifurcated, with the more standardized rail and pallet markets dominating from a volume standpoint and grade lumber affecting realization and profits. According to data from the Hardwood Market Report, pallets and railway ties comprise approximately 55% of the U.S. hardwood market. When local markets are short log grade logs, the manufacturers of pallets, rail ties and mats must buy higher grade logs or lumber, or switch species.

As part of our ongoing analysis of local timber markets in North America, we continue to evaluate data sources, geographic markets, and the roles of “supplies” and substitution on hardwood log prices.

Forisk will address forecasting and price data issues 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.

On July 14th, Forisk will teach “Applied Forest Finance” in Portland, Oregon. The class covers the financial analysis of timberland and other forestry-related investments. 

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