Economic Outlook
The prospects for growth in the US economy remain weak due to widening troubles in the housing markets, global food shortages, elevated energy prices, and low consumer confidence levels. In addition, the financial sector continues to degrade due to the potential failure of Fannie Mae and Freddie Mac and the recent announcement by Merrill Lynch that it will write down another $5.7 billion in bad loans in 3Q2008. Timber markets should be most concerned about two of these factors: housing and oil prices.

In the housing market builder confidence is low: new home construction remains at a standstill due to increasing foreclosures and decreasing sales and home prices. In the second half of 2008, home prices will continue to lose altitude—another 10–15 percent of perceived value—as a result of the ascending number of defaults, foreclosures, and auctions. This will inevitably lead to more buyers in the market for houses and legislation intended to prevent further foreclosures and provide incentives for home buyers. We anticipate home sales will find a bottom some time in 3Q2008, causing unsold inventories to begin to fall meaningfully in 4Q2008. Housing starts will finally bottom out in 1Q2009 and move gradually higher thereafter.

Historically, crude oil prices have marched in lockstep with diesel prices (with a .99 correlation). The price of oil spiked at over $147/barrel in June before settling into a $120-$140 range for most of July. The one positive sign in oil prices is a gradual decrease in demand due to consumer conservation. On July 29, the Transportation Department said American drivers traveled 9.6 billion fewer vehicle miles in May compared to the same period last year, which is a 3.7 percent drop—the biggest drop ever for the historically busy summer driving month. “We’re seeing both statistical and anecdotal evidence of very rapidly weakening demand picture,” said Jim Ritterbusch, president of energy consultancy Ritterbusch & Associates. The impact of moderating demand, both in the US and around the world, will lead to some relief in oil prices—and therefore diesel prices—by the end of 2008, though they will remain higher than historical norms.

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

Will the Housing Bill Help the US Economy?
The American Housing Rescue and Foreclosure Prevention Act of 2008, signed into law July 30 by President Bush, may provide relief for the US economy in two ways: by shoring up flailing credit markets and financial institutions and by providing options for those facing foreclosure and for first-time homebuyers.

Provisions intended to stabilize the credit markets include the Act’s most talked about provision, a potential bailout of Fannie Mae and Freddie Mac. The legislation gives the Treasury Department the power to extend an unspecified line of credit to the mortgage giants and to buy their stock, if necessary, to prevent them from failing through 2009; it also creates a regulating body for Freddie Mac and Fannie Mae by creating the Federal Housing Finance Agency (FHFA). Another potential positive is a provision that gives banks the option to take smaller losses on loans about to default and to therefore avoid the expense of foreclosing on properties. Together, these measures may help avert another seismic event in the financial markets.

Provisions that will help the slumping housing markets most directly include measures to:

  1. Allow roughly 400,000 qualified homeowners facing foreclosure to apply for lower fixed-rate, 30-year mortgages backed by loan guarantees from the Federal Housing Administration (FHA). The bill provides for $300 billion in guarantees.
  2. Give about $15 billion in housing tax breaks, including a credit of up to $7,500 for first-time homebuyers who buy homes before July 1, 2009. This provision is retroactive to April 9, 2008.
  3. Provide nearly $4 billion in grants to local communities to buy and rehabilitate foreclosed properties in order to stabilize prices in some of the harder hit neighborhoods.
By slowing the growth of foreclosure-related inventory and by encouraging new buyers, these provisions should eventually lead to some upward movement in housing starts.

All of this sounds good. But there are questions about the actual impact the Act will have on the economy. First, the Act’s refinancing measures will not go into effect until Oct. 1. While Barney Frank, chairman of the House Financial Services Committee called for a moratorium on foreclosures until then, no one knows how many banks will hold off on processing the foreclosures already on their desks. In addition, the program is strictly voluntary—banks have to agree to take the losses on the loans in order to avoid the costs of foreclosure; no one knows how many banks will participate. Finally, the FHA is well-known as an institution with very old computer systems; the time it could take to get the refinance program up and running could take even longer than Oct. 1. Finally, to pay for these measures and others, the Act increases the statutory limit on the national debt by $800 billion to $10.6 trillion. As a result, whatever short-term fix the American Housing Rescue and Foreclosure Prevention Act of 2008 has, the costs may not be worth it.

Ethanol: Corn or Cellulose?
As research dollars are pouring into the development of commercialized cellulosic ethanol, it seems an appropriate time to revisit the experience of agriculture with grain ethanols. Global grain-based ethanol production competes for land with and diverts resources away from food production. Over the last decade, growth in US grain ethanol production averaged 18 percent per year, from 6.5 billion gallons in 2007 to in excess of 8 billion gallons in 2008. Globally, grain used for ethanol has climbed from less than 1 percent of total grain production in 2000 to over 5 percent in 2007. An estimated 30 percent of the rise in international grain prices can be attributed to ethanol, as ethanol diverted resources from food production. In the US, biofuel production has contributed to a 4–14 percent increase in traditional crop prices.

As a result of the increase in feedstock price, producers of corn ethanol are beginning to scale back, shelving plans to open new facilities and closing or converting their facilities to cellulose feedstocks. One of the primary lessons to be learned from all of this is that as some researchers focus on efficient processes for converting biomass to ethanol, others need to focus on developing supply lines and delivery logistics for this purpose. The US Department of Energy has developed a multi-year program plan to make sure that this happens. The plan covers feedstock production and logistics, production and distribution, and promotion of cellulosic ethanol’s end use as a transportation fuel.

Good planning can lessen the effect of the increased competition for wood fiber between traditional and emerging markets; it won’t, however, make it go away. If the industry plans for the necessary wood fiber supply, as it appears it is beginning to, the benefits of producing ethanol from cellulose rather than grain include:

  • It does not compete with food production.
  • It has a less expensive feedstock, much of which is waste wood.
  • Once successfully commercialized, it should cost less than grain ethanol to produce.
  • By-products from the process can be used in CHP facilities to produce heat and electricity.
To learn more about emerging bioenergy markets for wood fiber and for a forecast of how supply, demand, and prices will be affected by these markets, click here.

The Loblolly Pine Genome Project
As the forest industry expands into new territory—the production of cellulosic ethanol—the science of the forest industry is getting an injection of intellectual and financial capital. The United States Department of Energy Joint Genome Institute (DOE JGI) recently announced that they will focus on the Loblolly Pine, the cornerstone of the US forest products industry, in an effort to optimize the feedstock and processes used in the production of cellulosic ethanol. While the search for transportation fuel alternatives may have precipitated this project, the benefits extend to the traditional forest products markets as well.

The Loblolly Pine has a genome several times larger than the human genome—over 21 billion bases. New sequencing strategies coming on line have made the mapping of this genome possible, however. Despite its intimidating size, the Loblolly was chosen because of its ability “to efficiently convert CO2 into biomass and its widespread use as a plantation tree [make the] Loblolly a cost-effective feedstock for cellulosic biofuel production and promising tool in efforts to curb greenhouse gas levels through carbon sequestration,” according to Eddy Rubin DOE JGI Director.

The project, led by Daniel Peterson of Mississippi State University, will begin with a focused effort to understand the structure of the genome and will then zero in on genes that can be used for molecular breeding programs to improve Loblolly as a biomass feedstock, carbon sequestration tool, and source of renewable, high-quality raw materials for lumber and pulp fiber.

The political movement behind the loblolly genome project may have been precipitated by a search for alternative fuels, but that doesn’t mean that the traditional forest products industries won’t benefit as well. The most commonly planted tree species in the US, accounting for 75 percent of all seedlings, the loblolly pine is the most economically important tree species in the US. And because it has the most advanced tree improvement program of any species in the world, knowledge of the Loblolly genome will lead to the same type of innovation in tree improvement that mapping the human genome project has had on medical breakthroughs.

Other projects underway at the DOE JGI this year include two that could lead to improvements in the process for making cellulosic ethanol. One of these is the sequencing of the giant Pacific shipworm genome. Shipworms, also known as “termites of the sea,” can feed solely on wood because they have a bacteria living inside of them that can accomplish the complete degradation of lignocellulose. A second project will sequence the genome of white rot fungi, which can depolymerize lignin in order to gain access to cell wall carbohydrates for carbon and energy sources. Both of these projects should provide insight into the commercialization of cellulosic ethanol, as breaking down the lignin is the most time-consuming and expensive part of the process.

Abundant Forests Alliance
The Abundant Forests Alliance (AFA) was formed by leaders in the wood and paper industry in 2006 to help educate consumers. According to the AFA website, the goal is to make sure consumers “understand how sustainable forestry practices, new technologies, increased recycling and other advances are making it possible for our nation to have both the wood and paper products it needs, as well as a healthy and thriving forest resource.”

AFA was founded after research found that nearly two-thirds of consumers and half of all business customers incorrectly believed that forests were shrinking. The organization works to get out the message that America's forests are increasing. The wood and paper products industry, for instance, is planting 1.7 million trees every day, an amount that exceeds the number of trees harvested each day.

“We want to be certain that consumers and our business customers are aware of the commitment of our industry and our forestry professionals to ensuring that our forests are healthy and growing for the futures of our children and grandchildren,” said Rob Amen, president of International Paper and chairman of the board of directors of the AFA. In addition to International Paper, founding members of the AFA include: Anthony Forest Products Company, Green Diamond Resource Company, MeadWestvaco, Monadnock Paper Mills, Plum Creek Timber Company, The Westervelt Company, and Weyerhaeuser.

Forest2Market�: Making It Easier to Buy or Sell Your Timber
Forest2Market’s primary mission is to provide you with a neutral source of information about the actual price of timber in your market, so that you can make the best deal possible when you are buying or selling timber. In addition to providing you with up-to-date pricing information, Forest2Market also offers an online marketplace where timber buyers and sellers can meet.
Buyers, click here to make it easy for timberland owners to find and contact you.
Sellers, click here to find buyers in your area.

If you do not want to receive our e-newsletter, you may remove your name and email address by clicking here.

Email Marketing by