This is the third in a series related to Forisk’s Q3 2015 forest industry analysis and timber price forecasts for the United States and Canada.

Recently, The Christian Science Monitor published an article summarizing analysis by Israeli military chiefs regarding threats to Israel’s security (“Is Iran Deal a Threat to Israel?” by Joshua Mitnick, 8/17/15). The article centers on how the military’s analysis of the Iran nuclear deal appears to differ from that of Prime Minister Netanyahu, who opposes the deal. In assessing how and why this might be, political scientist and military expert Ehud Eiran says:

“The military is an organization that looks at things as is…Militaries are concerned with immediate threats, and politicians interpret reality drawing on a broader [set] of facts, values and stories; they have a wider set of calculations….”

So. This quote resonates for me as an analyst. We have the facts on the ground, as understood by the “foot soldiers,” and we have a context through which we might interpret them, as employed by an executive. This situation exists whether dealing with military strategy, policymaking or capital investment decisions.

Pure analysis should assess and quantify the facts in order to detail the playing field. This helps decision-makers avoid decisions, investments and projections untethered from what is physically possible on the ground. In the forest products industry, this means clarifying and confirming the physical, spatial realities of forests, mill capacities and market locations, and the logistics linking them together.

For the North American forest products industry, a critical source of analysis focuses on Canada’s softwood lumber industry. The heart of this issue relates to Canada’s ability to manufacture and export softwood lumber to the United States. We addressed one aspect of this issue last quarter as it related to the U.S./Canada Softwood Lumber Agreement (SLA). In theory, more Canadian production can lead to less production and lower prices for U.S. sawmillers and lower softwood log prices for U.S. forest owners and timberland investors. In practice, the physical facts and operational capabilities of Canada’s softwood sawmill industry have changed.

Forisk’s research into North America’s wood-using capacity includes mill-by-mill confirmation and analysis. As of August 5, 2015, this included detailed confirmation of 69% of Canada’s open sawmill capacity and 91% of Canada’s idled and closed softwood sawmill capacity. While this research remains ongoing, the results indicate that Canada’s maximum softwood lumber production, assuming all open and idled mills operate at 100%, is 30.5 billion board feet, or nearly 20% less than ten years ago. And in the softwood sawmill business, no one operates at 100% for extended timeframes, so this analysis provides a starting point from which to define the true playing field and operational realities of the sector when making future investment decisions and defining forecast scenarios.

 

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