Data Sources for Analyzing Timber Markets in the U.S.

22 05 2013

If a tree falls in the woods, will someone buy it?  Who?  What will they use it for?  How much will they pay for it?  How many other trees will they need this year?  Next year?  A rigorous timber market analysis (TMA) process helps prioritize questions, aggregate data, conduct analysis and communicate results and recommendations.  Much of the data required for TMA in the United States is readily available.  The following list includes a sample of free and fee-based data sources for supply, demand and price data:

Forest Inventory and Analysis (FIA) data from the U.S. Forest Service.  The FIA Program includes a “continuous forest census” to help project how U.S. forests are likely to change over the next 10 to 50 years. Specific data from the FIA Program includes, for example, inventory, growth and removal data for hardwood and pine. The USDA Forest Service manages the FIA Program in cooperation with state and private forestry organizations. The McSweeney-McNary Forest Research Act of 1928 created the FIA Program, which initiated the first forest inventories in 1930.

Timber Product Output (TPO) data from the U.S. Forest Service. The TPO Database includes a standard set of consistently coded data variables for each U.S. state and county related to forest harvesting and tree removals.  Specific data includes, for example, the volume of roundwood products harvested, logging residues left behind, and the wood and bark residues generated by primary wood-using mills. The latest data available from the TPO Database is dated 2009. When using TPO data, Forisk often projects the base numbers to the current year by applying annual changes in wood demand.

Wood Demand data from the Center for Forest Business at the University of Georgia.  The Wood Demand Research Program collects wood use data from participating mills on a quarterly basis. In addition, the Program publishes Forest Industry Shapefiles that track all forest industry facilities.  These shapefiles are updated two times per year and can be used with GIS/map-making software.

Timberland owner data from Forisk Consulting. Forisk tracks hundreds of the largest private timberland owners and managers in the United States that own 10,000 acres or more. This is part of Forisk’s ongoing research program of timberland investment vehicles and is updated annually.

Wood bioenergy project data from Wood Bioenergy US. Forisk analyzes the U.S. wood bioenergy sector through tracking and screening all announced and operating wood-using bioenergy projects in the United States. In addition, WBUS tracks and analyzes project development over time. This is part of Forisk’s ongoing wood bioenergy research program and the WBUS database is updated every two months.  The project lists provide a means for evaluating the relevance and implications for wood bioenergy to specific timber and wood markets.

Several organizations provide regional and local stumpage and delivered price information.  State forestry and natural resource departments sometimes track sales from public and/or private lands.  A good example is the Oregon Department of Forestry.  One source specific to the U.S. South is Timber Mart-South.  Managed by the independent, non-profit Frank W. Norris Foundation located at the Warnell School of Forest Resources at the University of Georgia, Timber Mart-South publishes quarterly and annual reports of stumpage and delivered prices in the US South. Timber Mart-South has surveyed and reported timber prices since 1976.

Timber markets are uniquely local.  Decision-supporting analysis of timber markets depends on a process of systematically evaluating and tracking local wood raw material markets for investing in and managing timberlands and wood-using facilities.

Forisk will cover these and other data sources during “Timber Market Analysis” on August 12th 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. For more information, click here





2013 Forisk Timber Price Forecast: Assessing Forest Supplies and Price Elasticities

9 04 2013

This is the sixth in a series related to Forisk’s 2013 forecast of softwood stumpage prices in the United States.

When housing crashed in the United States, forest owners and timberland investors deferred harvesting sawtimber, the logs needed to manufacture lumber.  In 2012, Forisk added a “forest supply module” to its forecasting of pine stumpage prices to estimate potential supply effects on timber prices.  Today, the theory that pine grade accumulated, possibly to excess, on the stump in the U.S. South is holding water. Historical research and quantitative relationships reinforced the notion that (1) stumpage prices would lag increased demand and pricing for softwood lumber and (2) excess forest inventories could further dampen pine sawtimber price recovery.

Quantitative evidence confirms that pine grade stumpage prices lagged increases in softwood lumber prices.  And the slow recovery of pine grade prices in 2012 showed greater dampening than estimated by the Forisk Forecast. South-wide, actual 2012 pine sawtimber prices in the South were 1.6% lower than Forisk’s estimate.  At the state level, pine sawtimber prices were, on average, $0.21 per ton lower than forecasted by Forisk.  While we cannot claim or confirm causality – we cannot prove that oversupplies produced slower growth in pine grade prices –we can establish the relative consistency in the story of demand-versus-supply across states.

States with the most severe pine grade “oversupplies” showed material decreases in their price-to-demand relationships over the past five years.  In other words, stumpage prices became less sensitive to increases in demand in those states for which a quantitative basis exists for significant excess inventories.  This includes states, for example, such as Georgia and Mississippi.  While these estimates do not specify the situation in any given wood basket or for any given timberland property, they do support the evidence that supplies have affected stumpage markets selectively.

In 2013, our research into the effects of forest supplies on stumpage prices focus on distinguishing “supply effects” from “demand effects.”  Why?  The key is to avoid double-counting the impact of excess supplies.  If prices temporarily become less responsive to demand in a given state or market, we can “plausibly” attribute this, in part, to the supply situation.

To learn more about the 2013 Forisk Forecast or Forisk’s market-specific stumpage forecasts tailored to individual wood-using facilities or timberland ownerships, contact Brooks Mendell at bmendell@forisk.com, 770.725.8447. 





Forest Certification Conundrum

8 06 2012

From the desk of Amanda Lang, who attended and spoke at the Forest Landowner’s Association National Conference last week in Ponte Vedra Beach, Florida.

“Forest certification” generated lots of questions from those attending the 2012 Forest Landowner’s Association national meeting. Who is certified? Which program do they use? Why? Does it make sense for forest landowners to participate in these programs?  What do they accomplish when research indicates state-based forest management programs achieve similar improvements in forest and water quality?

First, let’s define our terms. Forest certification includes third-party programs that guarantee sustainable forest management based on a standard set of criteria. An established forest certification program in North America is the Sustainable Forestry Initiative (SFI).  In 2005, the Programme for the Endorsement of Forest Certification endorsed SFI, giving it international recognition. The Forest Stewardship Council (FSC), based in Oaxaca, Mexico, is a major international certifier. The American Tree Farm System (ATFS) supports a program for nonindustrial family forest owners in the United States.

In November 2011, the Southern Group of State Foresters published a report about the status of forest certification in the U.S. (available here).  By region, the Northeast has the highest percentage of forestland enrolled in certification programs, followed by the South (Table 1). Most acres enrolled in FSC certification are located in the Northeast while the South favors SFI and ATFS programs.

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Currently, most wood buyers do not pay premiums for certified wood. The profile of landowners enrolled in SFI or FSC programs are industrial owners that participate in certification as an industry standard and to satisfy investor requirements for sustainable management and public relations.  Typically, small or nonindustrial private landowners either participate in ATFS or not at all.

If markets develop for certified wood and buyers offer premiums for certified wood, then landowner participation in these programs will increase.  Currently, few incentives exist for the nonindustrial private landowner to certify.  In fact, private landowners remain skeptical of incurring extra costs for programs that seem to mirror their existing sustainably-oriented forest management plans. This feeling has been reinforced by research that shows state-mandated management practice guidelines provide effective means to protect water quality*. For example, when best management practices are followed, water quality on stands in the South recovers in 2-5 years following a timber harvest. Research in the Pacific Northwest also confirms that buffer zones along stream banks allow water systems to recover following timber harvest.

*Lang, A.H. and B.C. Mendell. 2012. Sustainable wood procurement: What the literature tells us. Journal of Forestry. 110(3): 157-163.





Which Forest Industry Firms Use the Most Wood in the United States?

2 12 2011

The “80/20 rule” – also called the “Pareto principle” for Italian economist Vilfredo Pareto – posits that approximately 80% of your results or effects derive from 20% of the causes.   Look around and examples materialize.  80% of your revenue comes from 20% of your clients.  20% of your job will take up 80% of your time.  80% of the time your newborn cries at night occurs due to 20% of the potential reasons.  Pareto made the original observation in 1906 when he noticed that 20% of Italy’s population owned 80% of the land.

This management rule of thumb provides a means for quickly assessing profitability, risk, control and capacity in a business or an industry (which helps prioritize work). In the forest products and timber industries, we see examples of this rule in our research associated with timberland ownership, end product market share, and factors driving prices, especially at the local level.  However, nationally, industries may reflect more or less concentration.  Let’s consider the use of wood in the United States.

In 2005, Forisk Consulting began collecting mill-specific wood demand and capacity data in the United States.  Today, our team manages an ongoing research program that collects and confirms data on 3,196 announced and operating wood-using forest industry and wood bioenergy mills throughout the US. [One product that we provide to clients from this research is a mill database that supports shapefiles for analyzing wood baskets and timberland investments, and making maps for spatial analysis.]

In a given year in the US, approximately 2,300 forest industry firms consume ~500 million green tons of wood.  Which firms use the most?   The accompanying table includes the top 10 US companies based on potential wood use.  The list includes wood use at full capacity for mills labeled as open in our database as of July 2011.  Full capacity for the industry currently sits just short of 600 million green tons.

The top 10 comprise ~241 million tons per year of capacity (actual wood use represents 70-90% of this, depending on products produced and time period).  The top 10, which represent less than 1% of the firms, account for ~40% of the wood using capacity.   The top 10% of the firms (~230 firms), account for ~85% of the wood using capacity in the US forest products industry.





What Can Marching Bands Teach Us About Tracking Wood Demand and Timber Markets?

8 11 2011

When tracking wood demand and timber markets, we look not only to the past and to the future for guidance, but also to the side – peripherally – to gauge performance across markets and sectors.  Heather Clark, our Customer Relations specialist and a former member of the UGA Red Coats Marching band, shared a useful analogy.  In a marching band, peripheral awareness is called “dressing the line,” and it serves to maintain formation and, ultimately, performance.  What can we learn from looking through the corners of our eyes at trends across wood markets over the past few months?

Wood Demand: Pine sawtimber demand declined ~1% across the South, primarily driven by curtailments at plywood mills. While demand declined less than expected, pine sawtimber prices, according to Timber Mart-South, declined 5.1%, more than expected. Dry weather and selling by timberland owners eager for cash flows may have pushed prices to new lows. Pine pulpwood demand increased 1.7% in the South and demand for hardwood pulpwood held steady in Q3 2011; stumpage prices for both products declined.  We continue to monitor softwood lumber and pulp prices, and the proposed lower design values for SYP lumber.

Wood Bioenergy Markets:  Industrial pellets for export to European utilities lead all bioenergy activities. For example, F.E. Wood & Sons plans to build a 300,000 ton/year pellet plant in West Baldwin, ME. German Pellets plans to build a 500,000 metric ton/year pellet plant in Woodville, TX. Westervelt Renewable Energy held a groundbreaking ceremony at its 250,000 metric ton pellet plant site in Aliceville, AL in October.

Forest Finance:  As demand for pulpwood increases in select local markets, forestland owners have called to ask “when should I clearcut for pulpwood versus manage for sawtimber?”  We published research commissioned by NAFO that addresses this issue at a regional level (click here).  In February, I will detail the step-by-step financial analysis required to answer this question for specific timberland ownerships and markets as part of our Applied Forest Finance course on February 9, 2012 in Atlanta.  For more information, click here.