The Supply Side Pine Sawtimber Markets and the Future of the Southern Forest Resource Bob Abt bobabt@ncsu.edu Karen Abt (USFS), Christopher Galik (Duke) NCFA New Bern 1
My Research Focus Bio economic assessment at a spatial scale and in a time frame that is useful for strategic public and private decision making Focus on economic fundamentals applied to detailed forest resource projections Usually take current inventory, growth, and removals as a starting point to model supply over time Then look at the impact of various demand scenarios Energy demand scenarios and carbon consequences dominate current research NCFA New Bern 2
Southern Forest Resource Assessment Consortium http://www.cnr.ncsu.edu/sofac/ American Forest Management Georgia Pacific Plum Creek American Forest & Paper Hancock Timber Resource Group Rayonier Association Arborgen Huber Engineered Wood Products Regions Timberland Group International Paper Resolute Forest Products Electric Power Research Institute Kapstone Resource Management Service Environmental Defense Fund Larson & McGowin RockTenn Enviva Lupold Consulting Southern Company Forestland Group MeadWestVaco Timberland Investment Resources F2M National Council for Air and Stream Improvement Potlatch NCFA New Bern 3
OUTLINE Supply Situation Overview Plantation Trends Age class structure Projecting Impact Pellets, Residues, and Sawtimber Linkages Growth/Removals vs. Sustainability NCFA New Bern 4
FOREST LAND NCFA New Bern 5
90% Private NCFA New Bern 6
Plantation acres have leveled out in most states NCFA New Bern 7
In the South, rural land shifts between forest and agriculture >5% Ag to For >5% For to Ag NCFA New Bern 8
Forest rents are low Ag rents are high CORN SOYBEANS NCFA New Bern 9
Tree Planting in the South Southern Tree Planting, All States and Ownerships, 1945-2007 3,000,000 2,750,000 2,500,000 2,250,000 2,000,000 1,750,000 1,500,000 1,250,000 1,000,000 750,000 500,000 250,000 0 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 Acreage of Tree Planting Virginia Texas Tennessee South Carolina Oklahoma North Carolina Mississippi Louisiana Kentucky Georgia Florida Arkansas Alabama Source: USFS, GFC, TMS Fiscal Year NCFA New Bern 10
AGE CLASS STRUCTURE NCFA New Bern 11
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Current Plantation Age Class Structure State Totals Mask Big Local (Timbershed) Differences Growth/Removal Implications NCFA New Bern 13
Update to 1990 Areas where G/R < 1 in 1990 (21 survey units) Why Growth/Removals Ratio Is Not a Good Sustainability Measure In the long run harvest shifts to lower price regions (vice versa) so that growth drain moves through cycles. SRTS captures this effect since inventory decreases lead to higher prices and less harvest over time (vice versa). Ray Sheffield NCFA New Bern 14
PROJECTING AGE CLASS STRUCTURE NCFA New Bern 15
An Example: Timber Famine Meets Wall of Wood Bob Abt, Karen Abt, Ray Sheffield, and Mac Lupold. The Plot: First: plant a lot of trees, then stop planting trees. Next: have a big housing recession when all those trees we planted reach sawtimber size. Next: increase demand for pine pulpwood when the trees we didn t plant reach pulpwood size. NCFA New Bern 16
Current Plantation Age Class Structure NCFA New Bern 17 The Supply Side of Too Much or Too Little
Projecting Inventory by dbh class Take 2008 based FIA inventory and removals by dbh class and project it out. Age Class Distribution (in growth and out growth) dominates biological growth rates South Carolina (index 2008=100) Georgia (index 2008=100) Totals look fine Product equilibrium requires small roundwood to expand from 9 to 13 dbh NCFA New Bern 18
PST Wall of Wood Due to Planting Spike (AL, FL, GA) Wall of Wood due to planting surge AL FL GA PSW Inventory by Scenario Increase in PST inventory due to recession NCFA New Bern 19
Q: What s the inventory impact on PST price recovery? A: BIG ALFLGA w/inventory effect (WoW affects price and removals) ALFLGA no inventory effect (what if the WoW didn t affect price) PST prices slow rebound PST prices rebound NCFA New Bern 20
Q: What s the inventory impact on PST price recovery? A: Southwide Not as BIG, but real ALFLGA pine sawtimber Southwide pine sawtimber NCFA New Bern 21
What we can say about pine sawtimber? In many areas of the South growth exceeds removals because: 1990 s planting boom is now sawtimber Recession in housing means prices down 40%, production/harvest down 30% Pine sawtimber inventories are expanding quickly projected 20% higher southwide NCFA New Bern 22
What we can say about pine sawtimber? Why is this important: Landowners are postponing sawtimber harvest until prices recover Build up in inventories will dampen prices when demand recovers Low pine sawtimber prices are the best predictor of how forest and agriculture compete for land in the South. Low pine prices/high agriculture prices mean less timberland. Postponed harvest means drop off in planting will continue through recession NCFA New Bern 23
What we can say about Why is this important: pine pulpwood? Logging residue potential is overstated Biomass will compete for pulpwood Pulpwood supply is price inelastic (prices will react more than harvest) Even high pulpwood prices can t justify timberland ownership, especially with high ag rents. Key question is price sensitivity and feedstock flexibility of pulp, osb, and pellets NCFA New Bern 24
How can a strong housing recovery change things? SAWMILL RESIDUE/PELLET DEMAND INTERACTION AS HOUSING RECOVERS NCFA New Bern 25
Housing Starts and SYP Lumber data from F2M NCFA New Bern 26
Pellet Demand 19 mil grn tons Source: Forisk Consulting NCFA New Bern 27
Traditional Product Production Trends Southern Coastal States 24 milgrntons Announced Pellet Capacity = 20% of 2009 total pulpwood consumption in coastal states 72 milgrntons Source: USFS FIA TPO PPW prices and production up during recession NCFA New Bern 28
My Thoughts on Pellet Feedstock Demand Will it use mainly logging residues? Residue label can be self fulfilling Will it use surplus supply due to low recession demand? Surplus is in pine sawtimber not pine small roundwood (in the South) Could be true around closed hardwood pulp mills (Franklin Courtland) Not recession driven long term decline in writing/publishing papers Not true in pine pulpwood market Will use sawmill residue? Already fully utilized Will not compete with pulpmills or OSB plants? Varies by region, but usually they do compete In my view, pellets don t need to apologize for competing for roundwood. Provides income which keeps land in timber and encourages timber management/supply response NCFA New Bern 29
My Thoughts on Logging Residues Logging Residue advantages Clear and easy to understand carbon advantage Reduces competition with traditional industry Potential cost advantage Value added to harvesting operation Logging Residue disadvantages Concentrates demand (near high cost roundwood) Significantly expands procurement circle Supply Uncertainty (tail wagging the dog) Limits supply response (can t manage for residues) Apparently not feedstock of choice Limits renewable potential Subject to business cycle fluctuations NCFA New Bern 30
SE Atlantic Coastal Plain Linking PST production and PPW demand Pine roundwood pulpwood demand has increased through the recession Partly due to having to offset decreased sawmill residues with roundwood Increasing pellet demand is potentially adding demand and price pressure to small roundwood Housing recovery should alleviate some of this pressure How much difference does it make? NCFA New Bern 31
SE Atlantic Coastal Plain Focused on the 7 coastal plain survey units, where most pellet demand is located. NCFA New Bern 32
SE Atlantic Coastal Plain NCFA New Bern 33
Assumed Demand Trend Pine sawmill residue offset calculated as % of increase from starting point NCFA New Bern 34
PST/Pellet Feeback Scenarios Run baseline demands for region Add 8mil green tons of pellet demand Run 3 PST residue to PPW demand scenarios No feedback 30% 50% NCFA New Bern 35
Baseline Results No Demand Increase (mpconst.prj) Baseline Demand Increase NCFA New Bern 36
Biomass Results Baseline Biomass (70% pine) NCFA New Bern 37
Biomass Results NCFA New Bern 38
No Feedback 30% Feedback NCFA New Bern 39
No Feedback 50% Feedback NCFA New Bern 40
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Pellet Conclusions Southeast capacity significant and likely to rise, primarily due to EU. Adds demand for small roundwood. Until sawtimber recovers, and final harvest picks up, planting unlikely to recover. NCFA New Bern 42
Business Cycles vs. Longterm Trends Timing and scale of housing recovery will potentially drive the next 20 years of plantation supply. Could extend or shorten decreased planting due to delayed harvest Sawtimber prices best empirical predictor of replanting decision Robust recovery will immediately provide some relief from shortage of small pine roundwood due to sawmill residue feedback. NCFA New Bern 43
GROWTH VS REMOVALS AND SUSTAINABILITY NCFA New Bern 44
Growth/Removals vs. Sustainability Basically G/R as a measure of sustainability assumes that if you know the current slope of the inventory trend (going up vs going down), you know where you are going to end up (sustainable or un sustainable) Southern forestland and plantation area are price responsive (extensive margin) Plantation management intensity is price responsive (intensive margin) Current age class distribution is skewed (so current growth has little connection to future growth) Removals are dynamic spatially and over time (high harvest and declining inventory implies higher prices, which shifts procurement in the short run [SR] and influences capacity changes in the longrun [LR]) Product definitions are technology and price dependent (SR CNS is now being used to cover pulpwood constraints, LR e.g. OSB and curved sawing developed to utilize available resource) Southern G/R is dynamic and appears to go through 20 year cycles NCFA New Bern 45
In the beginning (of the plantation economy) Survey Units in Yellow had G/R < 1 Ray Sheffield NCFA New Bern 46
G/R cycles within 10 years average was above 1 Ray Sheffield NCFA New Bern 47
Management Intensity Inventory Increased Dramatically NCFA New Bern Ray Sheffield 48
Update to 1990 Areas where G/R < 1 in 1990 (21 survey units) In the long run harvest shifts to lower price regions (vice versa) so that growth drain moves through cycles. SRTS captures this effect since inventory decreases lead to higher prices and less harvest over time (vice versa). Ray Sheffield NCFA New Bern 49
Growth vs. Removals Today Means little in terms of long term sustainability. In an active market decreasing inventory means less supply which means higher prices. Higher prices means production moves elsewhere. Land management intensifies. Takes about 20 years. Natasha James NCFA New Bern 50