Forest2Mill Newsletter

May 2011

In This Issue
Housing Update
Backlog of Housing Demand
Procurement Zone: Clarendon, SC
BCAP Update
New Features for PNW Benchmark
Economic Outlook Podcast
Quick Links

Top 3 Stories from the April Issue

There is no polite word to describe activity during the early part of the spring buying season except abysmal. Industry performance in February was one of the worst on record. Just as winter finally loosened its grip on much of the county, which spurred slightly better activity in March, a record number of tornadoes tore through the Midwest and South, causing slowdowns. Many industry experts are concerned. According to David Crowe, Chief Economist at the National Association of Home Builders (NAHB), "persistent concerns about home values as more foreclosures are hitting the market, increasing restrictive lending requirements for home buyers and builders, and the slow pace of economic recovery" indicate more bad news is on the horizon. Housing market performance was one of the drivers of a weak GDP report for the first quarter, which showed the US economy grew just 1.8 percent.


New and existing home sales and the pending home sales index all improved in March. New home sales gained 11.1 percent month over month (though they are still 21.9 percent below March 2010's level). Inventory stands at 7.3 months. Existing home sales improved by 3.7 percent (down 6.3 percent year over year). The National Association of Realtors (NAR) reported an increase of 5.1 percent in its Pending Home Sales Index.



House Sold 
During a recession, the natural and common reaction of many people is to consolidate households. Whether out of caution or necessity, people reduce their expenses by sharing the cost of living space. The trend toward consolidation in the most recent recession has yet to reverse itself. When it does, however, the overhang of housing inventory will quickly disappear, and we could very well be facing a housing shortage.


In "Pent-up Housing Demand: The Household Formations that Didn't Happen-Yet," the National Association of Home Builders (NAHB) argues that the supply and demand imbalance that currently exists in the housing market is not necessarily the result of overbuilding during the boom years. Instead, the report looks at the demand side of the equation, specifically at new household formation numbers, to determine exactly what shape the market would be in now if new household formation had continued the trend underway since 2000 of an average 1 percent growth per year. (The longer term trend is better. Since 1965, we've seen an average of 1.5 percent growth per year, approximately 1.3 million new homes.)



 Truck Hauling Timber


New facility announcements have become rare occurances since the recession began. It bears mentioning, therefore, that Georgia-Pacific has begun the final construction phase at its Clarendon facility. The plant, one of two OSB mills that Georgia-Pacific purchased from Grant Forest Products last year, is expected to have the same capacity as its Allendale facility: 850 MMsf/year, 3/8 basis. Construction of the plant is expected to take most of 2011, with operations expected to start in December. If the plant were to operate at capacity, which is unlikely until the housing market turns around, it will consume 1.7 million tons of pine pulpwood.


What will this additional demand mean for pine pulpwood supply and price in the 100-mile procurement zone around the Clarendon facility?


As part of the compromise budget agreement between Congress and the White House, the federal government has reduced funding for the Biomass Crop Assistance Program (BCAP). Funding for FY2011 has been set at $112 million.


According to the final rule governing the program, which was published in October of last year, the total cost of the program for FY2011 was expected to be $199 million. $132 million of that was scheduled to go into the matching payments program, $61 million was earmarked for the biomass crop establishment cost share program, and $4 million was set aside for annual payments. The remaining $3 million was slated for technical assistance. David Schaad, the USDA Farm Service Agency (FSA) Acting Executive Direct in California, said that both matching payments and annual payments would be affected by the reduction in program funding.




 New Features Improve Log Optimization 


Sawmill and plywood mill operators have invested in log optimization software programs to improve the recovery of lumber and plywood. In order to help our customers maximize their investments in this software, we have added new features to our Pacific Northwest Delivered Price Benchmark Service.


The new tool, Forest2Mill�, allows mills to input real market log prices into their log optimization programs.



Listen to Forest2Market's Economic Outlook podcast. Each month, join host Angelique Mitchell as she welcomes a guest to discuss the general economy indicators that affect performance in forest-related industries. This month, Angelique talks to Suzanne Hearn, Manager of Sales and Marketing. Among the topics discussed: oil prices, a growing demand for oil, bioenergy, and the deficit.

For a link to the Economic Outlook podcast...


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