This post includes notes on from an upcoming Forisk presentation “US Forest Industry Investment” at the virtual “American Forestry Conference” on July 29^th at 10 am. In addition, Dr. Shawn Baker will present “Analysis of Logging in Troubled Economic Times” at 2:00 pm EDT.

In the forest products industry, whether investing in forests or in wood-using mills, success largely depends on having a good asset in a good market managed by a good team. While two-out-of-three might keep food on the table, having all three in place reduces sleepless nights and positions the firm and owners to outperform competitors during good markets or troubled times.

Of course, separating good markets and assets from better or worse relies on an understanding of the physical facts on the ground.

• What is the situation with forest health, access and supplies?
• What are the composition and health of the wood-using mills in the market?
• What is the state of technology and infrastructure connecting those supplies to the mills?

These physical facts define our constraints and determine what’s possible for each wood basket and timber market by time period moving forward.

In this game, each wood market becomes a chess piece on a board that continuously changes shape. In our world, projections of “aggregate demand” define that playing space, as they account for all of the wood products we expect people to need, buy and use to build homes, send packages and… sanitize. The only certainty associated with projecting this demand and housing starts is that the estimates will miss the mark. So, the physical facts serve us by narrowing our analysis and reducing variance in projections.

In forestry, this parallels the difference between projecting forest growth and projecting timber prices. As an industry, we are quite proficient at estimating the growth and yield of a biologic system. We understand how trees grow. Economic variables, on the other hand, such as prices and costs and interest rates, seem to follow their own muses. We do the best we can by applying the constraints of physical systems and economic viability to build scenarios and forecasts.

In the end, we want timber market analyses and wood basket feasibility assessments to stand on their specific physical facts. From there, we can compare the relative attractiveness of timber markets and start making decisions.