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

Forward-looking assessments of pine and hardwood prices in local markets can include forecasts of hauling, logging and third-party forestry administration costs that account for forecasted changes in diesel prices and inflation, as well as chipping costs. Stumpage, cut-n-haul, and administration cost forecasts can be summed to estimate, in nominal terms, the total delivered costs for annual procurement budgeting or pro-forma financials for wood bioenergy or forest industry capital investments.

When applying research to specific wood basins, localized forecasts of delivered prices requires an understanding of (1) current, baseline stumpage and logging costs by specie and product in a given market; (2) the links between changes in diesel prices and the associated impacts on logging (harvesting) and hauling (transportation) costs; and (3) how minimum and average hauling distances can vary for specific markets and geographic conditions.

Research in the May 2014 issue of the Journal of Forestry documents how logging costs can vary over time and across markets. Shawn Baker and colleagues from the University of Georgia published a method for tracking logging cost changes over time and across regions (“An Index for Logging Cost Changes across the US South” by Shawn Baker, Bin Mei, Tom Harris and Dale Greene, J. For. 112(3): 296-301). Their research found, for example, that key drivers affecting logging cost changes include labor (32.8%), fuel (22.8%) and depreciation (19.3%), followed by repair and maintenance. The findings related to how logging costs vary over time are consistent with quarterly changes in logging rates tracked and reported by Timber Mart-South.

In addition, Forisk research with regional loggers and truckers in the South, for example, indicate that each $1 change in per gallon diesel prices represent approximately a $0.90 change in per ton hauling costs assuming an average 50 mile hauling distance. Localizing total delivered costs for pulp, OSB and bioenergy plants can also require similar estimates for in-woods versus on-site chipping, which can differ significantly within and across markets and US regions. In addition, previous Forisk studies confirm how assumed hauling distances for pro-formas or annual budgets can miss when local procurement zones prove to be directionally skewed or oddly shaped due to knowable, logistic factors.

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