lJ.S. Timber Supplies

(Continued from page 30) es to changes in market prices.

Log exports are important to forecasting models for the Pacific Northwest because exports, while volatile and inconsistent, influence domestic sawlog prices. Export pricing ripples inward from the Coast to the Eastern Washington and Inland markets. In addition, log exports are subject to substitution across products, species and size classes. This is especially critical in Washington, where the ratio of domestic-to-export demand is 5:1. For Coastal Oregon, this ratio is closer to 50:1.

On the other hand, analysis of timber markets across the South indicates that. in the short term. excess sawtimber volumes can delay the strengthening of pine grade prices. For the U.S. South, not including outliers associated with lower-volume Tennessee and Virginia, states historically average l8 years of pine grade removals on the stump on private lands. Recent data indicates inventories for these same states approaching 31 years of pine grade removals on the stump. The largest gains have occurred in Georgia, Mississippi and Arkansas.

While the Northwest benefits from log exports, forecasts for the South enjoy an increasing share of U.S. softwood lumber production. Current and forward-looking views on U.S. lumber production by region must account for two shifts. One is the increased U.S. market share of domestic lumber at the expense of

Canadian imports. The U.S. share has risen from 6l%o in 2004 to'727o for 2013 based on year-to-date WWPA data.

Two is the U.S. South's increased market share of domestic softwood lumber production relative to the Pacific Northwest. The South grew its share of domestic production from 34Vo in 1983 through 1993 to 467o in 1993 through 2003. The 2008 to 2Ol2 five-year average was 507o.

Long term, we assume that the South will grow its share of U.S. lumber production as the demand for housing returns to trend. This assumption is supported by the location of capital investments made and announced by forest industry firms in the United States.

Forward-looking projections highlight differing potential impacts of the recent economic recession on future forest supplies in the South and Pacific Northwest. Reduced harvesting activities over the past five years resulted in fewer acres of replanted trees.

For the near-term, states with the most severe pine grade oversupplies continue to show 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, Mississippi and Arkansas. Alternately, coastal Oregon and Washington have less evidence of supply-driven price effects.

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.

- Brooks Mendell, Ph.D., is president and v.p.-research of Forisk Consulting, Athens, Ga., providing research and educational services to executives and anaIysts making decisions related to timber REITs, timberlands, and wood-using energy and manufacturing facilities. He can be reached at (770) 725-8447 or bmendell@forisk.com.