Forest Industry Outlook and Facts on the Ground. Brooks Mendell Amanda Lang Shawn Baker

Transcription

1 Forest Industry Outlook and Facts on the Ground Brooks Mendell Amanda Lang Shawn Baker

2 Brooks Mendell MACRO DRIVERS AND FOREST INDUSTRY CAPITAL INVESTMENTS

3 Timber market investments prioritize a set of landrelated criteria that depend on assumptions about the overall economy. Forest Resources Market Access Accessible Near rail or roads Available Near end markets Sustainable Near ports or hubs 3

4 Through Q2 2016, the U.S. economy generated 23 consecutive quarters of positive job growth and real economic growth for 26 of the past 28 quarters. Total Forisk Score for U.S. Economy Over Time* *Since Q3 2011, the Forisk Score has been above the no growth baseline of 2.0. Scoring the US Economy Growth & Production variables Real GDP growth Industrial production Housing starts Investment Performance benchmarks Corporate profits S&P 500 Prices & Unemployment variables CPI (inflation) Unemployment 10-year US Treasuries 4

5 As of Q3 2016, Forisk projects U.S. housing starts of 1.21 million for Q FRQ 5

6 U.S. homes continue to grow in size. 3,000 Average Square Feet of Completed New Single-Family Homes in the U.S. by Region 2,500 2,000 1,500 1, Northeast Midwest South West Historic 1950s black and white photo of unlandscaped tract housing under construction: architecture.about.com Production Home Community Under Construction: blog.lotnetwork.com

7 In the South, mills sit close to customers; the South accounts for 54% of U.S. housing starts. 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Data: US Census Figure/analysis: Forisk Research Quarterly Q South Northeast Midwest West

8 U.S. forest industry locates ~98% of its building products capacity in the South, PNW and North. Sources: Forisk Consulting; UGA Forest Industry Shapefiles 8

9 Lumber production, BBFT Physical facts dictate the reallocation of wood using capacity across North America. U.S. Lumber Production Forecast West Canada South Q FRQ West West Forecast South South Forecast North North Forecast Imports Net Exports Imports Net Exports Forecast Data sources: USDA (pre-2000); WWPA (2000+); SFPA (1915+); Forisk Consulting 9

10 Public investments in 2015 totaled $2.5 billion, a 157% increase since Known investments for 2016 total $1.5 billion; 77% are in the South. Capital Investments in Wood-Using Assets by Region by Start Date 3.0 Capital Investment (Billion $) North South West Note: investments in North include pulp/paper assets purchased for scrap Q FRQ 10

11 Amanda Lang U.S. AND GEORGIA WOOD DEMAND & TIMBER SUPPLIES

12 Utilization, % Sawmill capacity in the South reached 90% in 2015, the highest level since Softwood Sawmill Capacity and Utilization in the U.S. South, % 90% 80% 70% 60% 50% 40% 30% 20% Capacity, BBFT 10% 0% 0 Capacity Utilization Data: Forisk Consulting, U.S. Forest Service, UGA Forest Industry Shapefiles, WWPA Figure/analysis: Forisk Research Quarterly Q

13 Billion sf 3/8" Billion sf 3/8" OSB capacity continues to increase while plywood remains flat. Plywood Capacity and Production, OSB Capacity and Production, South North West Total Production South North West Total Production Data: Forisk Consulting, U.S. Forest Service, APA Figure/analysis: Forisk Research Quarterly Q

14 From 2012 through 2015, the pulp and paper sector invested nearly $1.0 billion to upgrade existing facilities. Capital Expenditure, Billion $ Capital investments at Existing Facilities in the Pulp/Paper Sector by Completion Date $1.4 $1.2 $1.0 $0.8 $0.6 $0.4 $0.2 $ and beyond Household/Sanitary* Packaging Printing/Writing Specialty *Includes an expansion that also will expand packaging capacity at one plant Note: Excludes investments in energy upgrades (i.e. boilers) and environmental systems. Excludes owner changes/mill purchases and greenfield facilities. Source: Forisk Research Quarterly Q

15 Announced pellet capacity in the U.S. is projected to reach 16.0 million short tons in five years; 67% is from export oriented projects. U.S. Pellet Production Capacity Projection Note: Projection only includes projects that pass viability screens. Data: Forisk Consulting Figure/analysis: Forisk Research Quarterly Q Preliminary 15

16 Georgia is Top Ranked in South for Softwood Demand Demand at Capacity (MM tons) Rank in South Mill Type Sawmills Plywood Mills OSB Pulp/Paper Log Exports Announced Bioenergy* *All feedstocks by year 2025 Source: Forisk Research Quarterly Q

17 Inventory, million tons Georgia has the largest pine sawtimber inventory in the South. Projected Pine Grade Inventories by State Data: SOFAC, Forisk Consulting Figure/analysis: Forisk Research Quarterly Q

18 What s Past is Prologue: our current forests echo past planting activities. Source: A Statistical History of Tree Planting in the South 1928 to 2012 by George Hernandez and Richard Harper USDA Forest Service; special thanks to Jeff Prestemon and George Hernandez for providing access to the data. 18

19 Thirty firms provided information for 58 operating units and 16.8 million acres for the third biennial survey of forest management practices conducted by Forisk. Map of Survey Regions Source: Q Forisk Research Quarterly 19

20 Most firms use second generation seedlings with a weighted average trees per acre (TPA) of 571 and an average 87.8% survival rate. Firms with larger ownerships plant fewer TPA than smaller ownerships. Current Regeneration and Survival Rates US South Gulf Southeast Atlantic Responses Planted TPA Harvested TPA TPA High-Low* Ave Survival Rate 87.8% 85.1% 90.1% 89.4% Survival High-Low 99-60% 60-96% 84-99% 72-97% Source: Q Forisk Research Quarterly 20

21 Of respondents, 83% conduct first thinnings and 71% conduct second thinnings. Thinning and Final Harvest Criteria and Practices US South Gulf Southeast Atlantic 1st Thinning Responses % of firms 82% 89% 82% Average Age Average Resid. BA Average Revenue $371 $340 $385 $415 2nd Thinning Responses % of firms 71% 79% 64% Average Age Average Resid. BA Average Revenue $401 $312 $472 $448 Final Harvest Responses % of firms 94% 96% 100% Average age Future CC age Average Revenue (1) $1,614 $1,515 $1,751 $1,583 (1) per acre Source: Q Forisk Research Quarterly 21

22 Shawn Baker Director of Forest Operations Research, Forisk Consulting GEORGIA S FOREST OPERATIONS CHALLENGES

23 Demands for Logging Capacity Increasing Aggregate production of forest products has been increasing post-recession Increased demand for delivered wood means increased demands on logging capacity Logging capacity must move in parallel with forest industry to maintain smooth function of the supply chain 23

24 Changes in Logging Employment, Continued slow decline after 2009 affected some areas more than others Source: 1Q 2016, Forisk Research Quarterly

25 What Drives Employment? Period Logging Employment Wood Demand Stumpage- Delivered Price Spread Consumer Price Index % 1.61% 3.76% 3.73% % -0.42% 1.58% 2.41% % -4.68% 2.31% 2.58% % 2.21% 2.90% 1.99% All values are annualized rates of change Sources: BLS, Timber Mart-South, U.S. Forest Service, Forisk

26 Tons per Man-hour Labor Productivity Has Increased Continued improvement in production per employee Source: UGA Georgia Logger Survey, 2012

27 Georgia Logging Employment Increasing Productivity has Offset Labor Declines Actual Employment Effective Employment 0 27

28 Re-allocation of Logging Employees Further Increases Productive Capacity Larger cuts in non-production employees Possible implications to business management Source: Bureau of Labor Statistics, 2016

29 Higher Productivity Strains Trucking Increasing labor productivity in the woods provides more production with the same number of people Gaining trucking productivity is more challenging. Truck gross weights are bounded legally. Higher woods productivity places greater pressure on trucking. 29

30 Turnaround Time (Minutes) Opportunities May Exist to Reduce Waiting Times At Mill In Woods Number of Loads Delivered per Day 30

31 Strong Competition for Truck Drivers Generally Record volumes of freight being moved by truck in 2016 Trucking firms offering competitive benefits packages and signing bonuses Still difficult for firms to attract sufficient drivers Over-the-road truck driver shortage Source: American Transportation Association 31

32 Salaries of Truck Drivers, U.S. South $50,000 $40,000 $30,000 $20,000 $10,000 $0 Animal Cement and Slaughtering and Concrete Product Processing Manufacturing Source: Bureau of Labor Statistics Logging Oil and Gas Extraction Support Activities for Crop Production

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34 Employee Benefits Comparison Logging industry lags trucking in access to benefits WSRI (Southern) ATA (Truckers Only) Retirement plan 26% 97% Health Insurance 42% 100% Paid Leave 72% 98% Incentive/Bonus Pay 60% 59% 3 Signing Bonus - 48% 1 Preliminary results of study conducted by Forisk 2 American Trucking Association 2014 Driver Compensation Study 3 Local tank truck drivers only 34

35 Salaries of Equipment Operators, U.S. South $50,000 $40,000 $30,000 $20,000 $10,000 $0 Logging Excavator Ag. Equipment Source: Bureau of Labor Statistics 35

36 Median Age Logger Age is Increasing Logging Force U.S. Labor Force Average age has increased faster than average U.S. worker Lost more young workers during recession Source: Bureau of Labor Statistics 36

37 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Georgia Non-Metropolitan Workforce Total Rural Workforce Declining 800, , , , , , , , ,000 Source: Bureau of Labor Statistics 37

38 National Logging Employees (%) New Pools of Labor Might Offer Growth African American Hispanic Source: Bureau of Labor Statistics 38

39 Summary Wood demand has been increasing at a faster pace than logging employment Loggers have shifted structure towards production jobs Availability of truck drivers is a significant short-term concern Population demographics may challenge employment growth 39

40 Thank you!