MARKETS MATTER MARSHALL THOMAS F&W FORESTRY SERVICES 6/27/2018
TOPICS Quick review of where we are Long term timber prices (deflated) Demand forecasts Supply - Age class distributions FIA data on wood source (planted vs. natural) Some interesting trends New mills Chinese exports, Canadian imports Lumber/stumpage price ratios # of loggers, sawmills, pulpmills Moving towards Oligopsony?
FREE MARKET (WIKIPEDIA) In economics, a free market is an idealized system in which the prices for goods and services are determined by the open market and consumers, in which the laws and forces of supply and demand are free from any intervention by a government, price-setting monopoly, or other authority. Proponents of the concept of free market contrast it with a regulated market, in which a government intervenes in supply and demand through various methods such as tariffs used to restrict trade and protect the economy. In an idealized free market economy, prices for goods and services are set freely by the forces of supply and demand and are allowed to reach their point of equilibrium without intervention by government policy .
REAL STUMPAGE PRICES HOW ARE WE MAKING IT WITH THESE PRICES? Southern Pine Stumpage Prices Pulpwood Small Sawtimber Large Sawtimber 2017 Dollars (1952-2017) $60 $50 $40 $ PER TON $30 $20 $10 $0 1952 1956 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 YEAR Source: 1952-1975 prices reported by GFCs timber sale records; 1976-2017 prices reported by Timber Mart -South across the southern states (AL, AR, FL, GA, LA, MS, NC, SC, TN, TX, & VA)
SOUTH-WIDE SOFTWOOD DEMAND BY PRODUCT Source: RISI 15-Year Timber Forecast
SOUTH-WIDE HARDWOOD DEMAND BY PRODUCT
PINE PULPWOOD PRICE AND 15-YEAR-OLD PLANTATION ACRES – 2017 DOLLARS CAN WE FILL DEMAND WITH FEWER YOUNG STANDS?
PINE SAWTIMBER PRICE AND 28-YEAR-OLD PLANTATION ACRES – 2017 DOLLARS HOW LONG UNTIL THE OVERSUPPLY IS GONE?
DOES FIA DATA REFLECT WHERE WOOD REALLY COMES FROM? HOW MANY ARE ABOVE THIS? HOW MANY BELOW? Softwood Removals in Cubic Feet on Private Timberland Southwide Natural Stands 2,055,494,720 37.5% Clear evidence of artificial regeneration 3,431,968,114 62.5% Total 5,487,462,834 100.0%
NEW MILLS WILL THIS NEW CAPACITY MAKE A DIFFERENCE? During the first quarter of 2018, four announcements were made of plans to build greenfield sawmills in the U.S. South. Increases capacity by more than one billion board feet of lumber In 2017, the U.S. South produced 18.2 BBF of lumber, according to Lumber Track , a publication of the Western Wood Products Association. These announcements come on top of other capital investments lumber companies are making in their existing facilities to bump up production capacity. Two manufacturers of cross-laminated timber (CLT) announced plans to locate facilities in Maine, facilities that will initially produce more than 10 million board feet of CLT annually. North Carolina-based LignaTerra Global, LLC, plans to build its CLT production plant in Millinocket. Montana-based SmartLam, LLC, the nation’s first manufacturer of CLT, said it will announce the location of its new facility in the next two months. These follow other capital improvements announcements over the last several years.
CHINESE EXPORTS, CANADIAN IMPORTS We are back about where we started on the tariffs with Canada – so is this a constant? “Following additional difficulties including seepage from the new locks, the expansion was opened on 26 June 2016. The expansion doubled the Canal's capacity. On March 2nd 2018, the Panama Canal Authority announced that 3,000 New Panamax ships had crossed the canal expansion during its first 20 months of operation.” https://en.wikipedia.org/wiki/Panama_Canal_expansion_project
SOUTHERN LOG EXPORTS TO CHINA (US $) IS THIS PART OF THE “CURE”? China Log Exports from Southern Ports Charleston Mobile Norfolk Savannah Wilmington $400,000,000 $350,000,000 $300,000,000 Total Export Value (US $) $250,000,000 $200,000,000 $150,000,000 $100,000,000 $50,000,000 $0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
RANDOM LENGTHS COMPOSITE PRICE/LARGE SAWTIMBER STUMPAGE WHAT’S DRIVING THE INCREASING RATIO? RL Southern Pine Lumber Composite Price/TMS Southern Pine Large Sawtimber Stumpage Price (Nominal Yearly Average) Lumber/Sawtimber Ratio 20.0 18.0 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 *Stumpage prices reported by Timber Mart-South across the southern states. YEAR
SOUTHWIDE LOGGING BUSINESS DEMOGRAPHICS ARE WE HAVING TROUBLE FINDING LOGGERS? Number of Employees Number of Firms Employees per Firm 40,000 8 35,000 7 Number of Employees per Firm Number of Employees/Firms 30,000 6 25,000 5 20,000 4 15,000 3 10,000 2 5,000 1 0 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Year Source: Bureau of Labor Statistics
NUMBER OF FLORIDA WOOD-USING MILLS OVER TIME
Few One Sellers Monopoly Oligopoly Buyers Oligopsony Monopsony
OLIGOPSONY (FROM WIKIPEDIA) An oligopsony (from Ancient Greek ὀλίγοι (oligoi) "few" + ὀψωνία (opsōnia) "purchase") is a market form in which the number of buyers is small while the number of sellers in theory could be large . This typically happens in a market for inputs where numerous suppliers are competing to sell their product to a small number of (often large and powerful) buyers . An oligopsony is a form of imperfect competition.
FURTHER DEFINITION (WIKIPEDIA) …the buyers have a major advantage over the sellers. They can play off one supplier against another, thus lowering their costs. They can also dictate exact specifications to suppliers, for delivery schedules, quality, and (in the case of agricultural products) crop varieties. They also pass off much of the risks of overproduction, natural losses, and variations in cyclical demand to the suppliers. [ citation needed ]
OLIGOPSONY CONTINUED Question: Are we moving from a relatively free market to an oligopsony? What does that mean for us?
SUMMARY OF QUESTIONS How are we making it with these low prices? Can we fill pulpwood demand with fewer young stands? How long until the sawtimber oversupply is gone? What does it mean if FIA harvest estimate from plantations is wrong? Will new capacity make a difference? When? Are we having trouble finding loggers? Are Chinese exports part of the “cure”? Is the Canadian issue now a constant? Should we support CRP? Are we going to become an oligopsony?
Recommend
More recommend
