Plonning in Plan-Disrupting Tinres

(ContinuedfromPage 8) oil prices increase production costs and decrease consumer confidence. This in turn leads to a drop in demand for wood products and, therefore, lower sawtimber Prices.

Instead, this forecast-disrupting event caused us to broaden our consideration of oil demand to include rapidly developing, non-OECD countries. Because our forecast model is adaptive, we run it two to four times per year and are able to assess whether historical relationships are still valid and, if not, what new variables need to be incorporated in order to restore the model's accuracy.

Mill strategic Plans and budgets are built on forecasts. This is the main reason they need to be adaptive, too. To support those making longer term strategic and budgeting decisions in this new environment, Forest2Market produces a series of five-year quarterby-quarter forecasts for stumpage prices in the South. We have used a second forecast model to create the delivered price forecast

Figure 3 summarizes the Yearover-year percentage change in delivered timber prices in the South. Please note that all annual price changes are an average of the four quarterly forecast numbers available in our fiveyear forecasts.

For pine sawtimber and chiP-nsaw, the major variables driving price changes in the 2013-2018 Period include:

Housing starts and industrial production of wood products are indicators of demand and have a moderate positive impact on sawtimber prices. We expect housing starts will climb above the 1 million mark bY 2015. Each additional housing start increases sawtimber consumption by 60 tons.

Between 2013 and 2015, price increases for sawtimber will be modest as a result of the expanded supply that accumulated during the housing market downturn. The availability of reasonably priced sawtimber will push chip-n-saw Prices lower' In the last part of the forecast' other impacts of the recession will push prices higher. Because low levels of lumber production reduced the supply of sawmill and plywood residual chips, the increased demand for longwood left less pine pulpwood to grow into chip-n-saw and sawtimber. This will begin affecting pine chip-nsaw prices in 2015 and Pine sawtimberprices in2016.

We expect prices to remain below their historic averages for the balance of the forecast Period.

In general, what our forecast shows is that lower harvest activity during the housing downturn has led to an oversupply of sawtimber. Now that new residential construction is solidly in recovery mode, it will take two or three years for that dynamic to change and for sawtimber Prices to start moving higher again.

The drop in housing starts was clearly a plan-disrupting event that was devastating for the industry. In 2009, the housing start number for the year was 554,000 units, the lowest number since 1959, when the Census Bureau began tracking them; 20082012 are the only years on record in which starts fell below the I million mark. Because the 2009 bottom was so deep, no one is quite sure how the rest of the recoverY will unfold. Because sawtimber prices are likely to remain below the historical average for the time being, however, mills are now in the position to recover recession era losses, invest in much-needed kiln capacity, and build cash reserves. Ultimately, we are luckY to operate in a market that serves one of the most basic of human needs: housing. As population grows, not onlY will our forest resources be in higher demand, so too will the inputs (capital, labor and energy) that are used to manufacture building products. In an increasingly global economy, predicting the future becomes more imPortant-even if it is more difficult. Just because everything changes, doesn't mean planning is obsolete. It just means that the tools and processes we use to develoP strategic Plans and budgets need to adaPt as well.

- Daniel Stuber is v.p. of operations at Forest2Market. He oversees data collection, quality and reporting, as well as the devclopment. design and operations o.f anal,vtics and forest metrics. Contact Stuber at (980) 233-4020 or at daniel.stuber@ fore st2market.c om.