This post introduces research and topics that will be addressed in the Q2 2024 Forisk Research Quarterly (FRQ), which includes forest industry analysis and timber price forecasts for North America. Good questions clarify our context, risks, and options. Well-structured questions reveal new information and potential next steps. They help distinguish the important, relevant, and actionable from the unsubstantiated and uncontrollable. A quality question requires prioritizing issues and supports decision-making. Three Types of Finance Questions In forest finance, and in finance generally, three se ..read more

As part of our featured research in the Q1 2024 Forisk Research Quarterly, we investigated local variations in supply, demand, and timber prices. Our findings confirm standard economic assumptions regarding timber prices over time and across geographies. 1) Wood demand and stumpage (timber) prices tend to correlate positively. 2) Significant supply changes alter the demand-price relationship rather than dictate the direction of prices. 3) Abundant supply relative to demand inhibits prices. Timber markets remain uniquely local. Supply and demand can fluctuate across relatively small distances a ..read more

Mill news is mixed for the North American forest products industry as firms continue to complete mill investments and announce mill closings. In the first quarter of 2024, firms advanced sawmill expansions in the U.S. South while others closed sawmills in the U.S. West and North. Companies announced additional future sawmill closings in the U.S. West and U.S. North regions, but other firms announced investments in OSB and mass timber facilities in the Northern U.S. and Canada. Forisk tracks mill activity in the North American Forest Industry Capacity Database. U.S. South In the U.S. South, Wey ..read more

According to Forisk North America Mill Database, the North American domestic pellet market, which includes grilling and home heating pellets, is approximately 5.7 million tons in size. The U.S. North accounts for the majority of North America’s capacity at 44%, with the U.S. South at 25%, U.S. West at 22%, Canada East at 8% with Canada West containing just 1%. Figure 1. Current Domestic Pellet Production Capacity by Region From the standpoint of individual producers, the domestic pellet market is far more fragmented than the current export pellet market. The top four producers only capture 33 ..read more

This post includes themes and topics that will be addressed in the (virtual) Applied Forest Finance course on March 14th, 2024. In graduate school, I conducted research on managing risk in forestry, which included the use of financial contracts, operational hedges, and “options” for timberland investors and forest owners. Options? Yes, some view forest management as valuing and choosing between a series of real options. Research by leading forest investment professionals and economists Chris Zinkhan (1995), Andrew Plantinga (1998), and David Newman (2002) addressed versions of this theme, whic ..read more

This post includes themes and topics that will be addressed in the (virtual) Applied Forest Finance course on March 14th, 2024. Early registration ends February 29th! Timberland values, like those of commercial real estate and farmland, derive from their abilities to generate income. As a real asset capable of growing raw material for fuel and the manufacture of solid wood and paper products, timberland readily generates cash flows for its owners. As such, the composition of these timber revenues is of great importance and interest. As with marriage and timeshares, forestry investments require ..read more

After peaking the past three years, softwood lumber prices finally returned to break-even levels in 2023. Poorly positioned lumber producers closed, reducing North American lumber capacity by 2% after gains in 2022 and 2021. Closures included 9 sawmills with capacities over 100 MMBF. Forisk tracks over 2,200 forest industry mills, including planned capacity changes, to publish the North American Forest Industry Capacity Database and generate industry research and projections in the Forisk Research Quarterly. From the mill database, Forisk annually publishes a list of the top 10 softwood lumber ..read more

This post includes themes and topics that will be addressed in the (virtual) Applied Forest Finance course on March 14th, 2024. Early registration ends February 29th! The business of forestry does not operate in a vacuum. Investors compare timberlands to alternative finance products, funds, and strategies. Capital flows around the world searching for the best returns relative to the associated risk. For these investors, risk management does not exist for its own benefit, but rather supports their efforts to protect asset values and optimize returns. When investors acquire timberland assets, th ..read more

This post includes themes and topics related to timberland investment vehicles that will be addressed in the (virtual) Applied Forest Finance course on March 14th, 2024. For me and my family, I rely on investing approaches built on classic lessons and finance fundamentals. Start saving and investing early in your career to crank the flywheel of compounding interest. Minimize costs to keep more of what you earn. Diversify to mitigate risk. Other strategies help, too. For example, a commitment to regular and systematic investing, instead of trying to time the market, reduces emotion and anxiety ..read more

This post includes topics addressed in further detail, and with a forest industry case study and summary financials, in the (virtual) Applied Forest Finance course on March 14th, 2024. Investment capital is constrained and limited in most industries, especially in forest products. Successful, profitable firms can accumulate capital for reallocation into new ventures and projects. Unsuccessful firms have their assets liquidated for reallocation by others. Ouch. During these adventures, investors and executives monitor the economic performance of businesses with three reports: the income stateme ..read more