Economic Outlook
The Federal Reserve, prompted by concerns that the substantial 4Q2007 deceleration of the US economy could deepen and extend into 2008, cut the interest rate twice for a total of 1.25 percent in January. Activity in the housing market dampened further in December; home sales appear likely to continue retreating as potential buyers wait for lower prices and mortgage rates. Expectations of falling demand in developed countries stemming from a global economic slowdown are tempering crude oil prices, but analysts think a temporary price spike is possible again this spring when refineries switch from winter to summer blends.

Forest2Market� economists highlight three aspects related to the falling housing market that the Fed believes could pose challenges to the economy, including a drop in consumer spending; continuing disarray in the financial services industry; rising instability in other sectors of the financial services industry in the US and abroad.

The above is an excerpt from the February issue of the Forest2Market� Economic Outlook. To learn more about the F2M� Economic Outlook or to subscribe, click here.

The Economics of Forest Biomass in the US South: A forward-looking analysis
Forest2Market�, Inc. will conduct a comprehensive analysis of the emerging biomass industry and where it is headed within the next fifteen years. The study, led by forest economist Peter Barynin, will examine the future of wood fiber markets in the US South and the potential challenge to traditional markets posed by the emerging biomass investments. It will detail current forest biomass supply and price trends in specific regions of the US South, as well as existing collection and transportation systems. The study will also assess how emerging demand may affect biomass supply and prices, as well as the potential risks ahead for the new industry.

Look for the completed study in Summer 2008.

North American Newsprint: Prices up despite drop in consumption
General wisdom says that when demand drops, prices follow—not so for newsprint. Despite a year-over-year decline of 10.5 percent in US newsprint consumption in 2007, FOEX Indexes Ltd. reported a price increase of $2.36 per ton and $2.55 per ton respectively for 30 lb and 27.7 lb newsprint at the end of January. In this case, general wisdom has been ousted by the reality of a complex global marketplace. The falling dollar has encouraged US producers to inch prices closer to European prices, which in November 2007 overshadowed US prices by approximately US$200. Newsprint exports increased by 7.3 percent in all of 2007 compared to 2006. Most significant to the price increase, however, is reduced production. According to the Paper and Pulp Producers Council, North American newsprint production declined 12.6 percent in 2007. Simply stated, when demand went down, so did supply. Analysts forecast price hikes throughout 2008, as production capacity here and in Europe continue to decline.

SFI certified lands & chain of custody increase
The Sustainable Forestry Initiative� (SFI) program announced in January a 750 percent increase in the total number of chain-of-custody certified locations since the organization became fully independent at the beginning of January 2007. The SFI program certifies forests that use sustainable management practices and provides chain-of-custody certification to forest products companies able to demonstrate that timber used in their products originates from sustainably managed forests. In the past year, SFI chain of custody certifications have increased from 21 certificates at 48 locations to 102 certifications at 408 locations. According to SFI president and CEO Kathy Abusow, “[I]t appears the momentum will continue in 2008.” SFI certified lands increased in the same time period from 135 million acres to 143.7 million acres world wide.

Cellulosic Ethanol: Quietly gaining ground
The US DOE announced in January awards to four small-scale biorefinery projects with grants totaling up to $114 million. The projects will test various feedstocks, including woody biomass and agricultural residues, as well as conversion technologies necessary for commercial production of biofuel, including cellulosic ethanol and biodiesel, and bio-based chemicals and products used in industrial applications. DOE grant recipients include:

� ICM Incorporated in St. Joseph, Missouri
� Stora Enso, North America in Wisconsin Rapids, Wisconsin
� Pacific Ethanol Inc. in Boardman, Oregon
� Lignol Innovations Inc in Commerce City, Colorado

The four small-scale facilities are expected to use 70 tons of biomass feedstock per day and bring approximately $330 million in investment dollars. The grants, part of the $1 billion pledged by the DOE, are intended to promote advanced biofuel research and development. The DOE said they expect to award additional small-scale projects this spring, bringing the total DOE investment to $200 million.

SLMA Joins Lawmakers in Fight Against Federal Biomass Restrictions
SLMA vice president Debbi Brady recently urged Alabama Rep. Robert Aderholt (R-AL) to join a growing bipartisan group of supporters who have co-sponsored the Renewable Biofuels Facilitation Act, introduced by Rep. Herseth Sandlin (D-SD) and Rep. Greg Walden (R-OR) earlier this month. The bill would amend a provision in the Energy Independence and Security Act (EISA) of 2007 that prohibits the use of wood waste, typically burned or left on forest floors, from federal lands to produce cellulosic ethanol. According to proponents of the Sandlin-Walden bill, the RFS unnecessarily restricts growth and development of cellulosic ethanol from wood biomass. The new bill would broaden the definition of renewable biomass to include forest waste from federal lands. It is co-sponsored by a bipartisan group of nine Representatives from timber producing regions across the US South, the Midwest and the Pacific Northwest.

The Line Between Corn and Cellulose
The corn ethanol debate has largely overshadowed the quiet growth of both private and government investment in cellulosic ethanol in news media. Cellulosic ethanol has an impressive ability to reduce greenhouse gas emissions at the end-user level. It emits a whopping 85 percent less greenhouse gases than traditional fossil fuels. Biomass and energy crops suitable for cellulosic ethanol production include switch grass, poplar trees, wood chips and other cellulose-based waste materials. These materials do not pose the same food vs. fuel challenges posed by corn ethanol. Additionally, cellulosic ethanol production does not present the same land use complications attributed to corn ethanol by a recent study published in Science magazine. In fairness to corn ethanol, it is important to note that the study has since been disputed by a paper released by Argonne National Labs showing that recent ethanol production increases have not affected the amount of corn exported from the US.

With the recent fervor surrounding corn ethanol, the story of cellulosic ethanol has been shoved to the bottom few inches of most articles and relegated to a brief hiccup in other news media. The immediate future of both is tied together, despite profound differences in both production and environmental impact, largely because they share the same market challenges, such as developing delivery infrastructure and expanding the consumer base for biofuel cars.

SLMA 2008 Spring Meeting
Forest2Market� will attend the annual Southeastern Lumber Manufacturers Association (SLMA) 2008 Spring Meeting in Atlanta, Ga. this week on Feb. 26 and Feb. 27. Speakers will discuss a variety of topics including the 2008 Election, large lumber retailers and new equipment installations. Kathy Abusow, president and CEO of the Sustainable Forestry Initiative (SFI), is slated to speak as well. The SLMA represents the interests of independent lumber manufacturers in 17 states across the southeast.

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