A successful timber market analysis answers two questions. One, what are the “facts on the ground” for this market or wood basket? This helps profile the market with respect to forest supplies and wood demand. The timber suppliers and wood-using mills are both there and open for business, or they are not, so let’s figure this out. Two, what “matters”, and what does not, in this timber market or wood basket? We answer the first question, about the physical profile related to forest supplies and wood demand, in order to address the second related to timber prices, business strategy and forecasts.

Through answering these two questions in a systematic and repeatable way, we can identify the key variables across markets that let us:

• Understand historic relationships between prices and flows;
• Assess future impacts as changes occur in policies, supplies or mill investments; and
• Make timberland and mill investment decisions based on relationships as we interpret them.

This approach builds on three fundamentals.

First, understand the local wood market. Timber markets and wood baskets are uniquely local. The same tree in two different markets will have two different values. Understanding the local basket extends beyond mapping all of the mills that might buy your trees. It includes understanding the logistics and limitations of how buyers and sellers access these markets, and how this affects prices and costs.

Second, question your forest industry data. In forestry, everything is a sample, and analysis makes interpretations or builds forecasts based on these samples. Ask questions about the data and how it was used in the analysis.

Third, know what’s knowable with respect to this market and these assets (but avoid “boiling the ocean”). Be specific about the property taxes for this property and the annual management costs for that property. Confirm whether or not that bridge over there can support these log trucks needed to deliver your logs.

Analyzing timber markets, while straightforward, requires discipline. Become familiar with local markets and patiently seek and evaluate investment opportunities. This leads to building solid models with tested assumptions for buying properties or selecting wood baskets for mill expansions. Then, when the numbers look good, move fast.

For investors, analysts and wood procurement professionals evaluating wood and timber markets, Forisk offers “Timber Market Analysis” on July 13^h in Atlanta, a one-day course that details how to understand, track, and analyze the price, demand, supply, and competitive dynamics of timber markets and wood baskets. For more information and to register, click here.