Since 2006, when market prices for pine sawtimber started to soften, the amount of timber harvested has decreased. Timberland owners adjusted their harvest schedules longer rotations with more second thinning regimes. This change has led to an accumulation of sawtimber in forests in the US South, and this in turn has led to the number of acres being regenerated dropping precipitously. New data from the U.S. Forest Service's Forest Inventory and Analysis group confirms these timber supply and demand trends.
Mill2Market's weekly lumber price report now contains current and historical pricing for southern yellow pine kiln-dried timbers.
Prices for southern yellow pine kiln-dried timbers have remained relatively consistent year-over-year for the first half of both 2013 and 2014. Prices in both of these years have been significantly higher than they were in 2011 and 2012, however.
Forestry-related industry performance was mixed in September and October, with wood products falling or stagnant and paper products expanding slightly.
Industrial Production
Total industrial production (IP) got back on track, jumping 1.0% in September after stumbling (-0.2%) in August. Total output increased 3.2% for 3Q as a whole, about on par with the average quarterly increase since the end of 2010.
Prior to a timber harvest, timberland owners determine both whether timber is ready for harvest and how much of that timber is merchantable by conducting or hiring someone to conduct a timber inventory or "cruise."
Conducting an accurate timber inventory is key to getting maximum value from a timber sale. Because it requires specialized knowledge and equipment, most timberland owners hire a certified consulting forester to conduct the inventory.
Once a timber inventory has been completed and total volume by product has been determined, the value of the timber can then be estimated. This is an essential preparatory step prior to selling your timber as it helps ensure you will get market value for your timber.
During periods of even mild fluctuations in diesel prices, the cash flows of both buyers and sellers can be affected. Wood supply agreements that include adjustments for diesel can incorrectly reflect the delivered price for biomass feedstock.
From traditional timberland leases to agreements between private owners that are guided by a strict legal contract, the forest products industry has effectively used wood supply agreements for years. What is common and pertinent to the market today are supply agreements between large landowners - usually commercial tree growers - and a traditional pulp mill or sawmill or a new pellet facility.
Price risk is inherent in wood markets. Supply agreements spread that risk. In exchange for the volume guarantee a supply agreement provides, sellers maintain a steady income for a portion of their supply but forgo taking advantage of potential price spikes on the volume they agree to provide. Buyers receive a hedge against all material going to the spot market and the security of having a portion of their supply delivered to their facility.
Wood supply agreements are as unique as the buyers and suppliers that enter into them, yet each contract should include a credible index that buyers and sellers will use to pay and receive market price at the time of sale. An index can be as broad as the terms of the contract, however, accuracy is greatly improved when cost components are identified for specific supply sheds (as opposed to larger geographic regions).
