If we have learned one lesson during the COVID-19 health crisis, it’s that we’re all impacted personally by the ways the modern global economy functions. Massive societal shifts like the current crisis affect the global business community in countless ways as well.
Regardless of the nature of the business, running it successfully requires the ability to effectively plan for the future, which is why price forecasting is so important. Customized forecasts answer critical business questions:
- What will the cost of raw materials be in the near and long-terms?
- Will demand from other new or expanded facilities affect market price?
- What is the long-term outlook with regard to the sustainability of supply?
Forecasting prices with accuracy is both an art and a science. The art requires an economist to determine the likelihood certain events will occur over a forecast period, identifying both the direction and degree of those changes. From a scientific perspective, forecast models are based on a seemingly endless series of if/then and else statements (if X occurs, then Y will happen; if X does not occur, then Z will happen).
However, forecasting with a high degree of accuracy is a much more complex procedure involving a number of variables, some of them global and some of them local. A forecasting model must include both global and local data, account for local market nuances (ground conditions, resource competition, etc.), and the interplay between the data must be taken into consideration.
To build the most effective forecasting models, Forest2Market uncovers statistically significant correlations between the transaction-level historical timber price data that we have been collecting since 2000, the economic indicators that affect demand (GDP, housing starts, IP, etc.) and local events like rainfall and competition that affect supply. We then incorporate the future supply/demand scenarios and other applicable macroeconomic factors in order to develop the most likely outcome.
Building Better Forecasts
The quality of a forecast is highly dependent on the starting point. To produce an accurate forecast, the starting price should be based on the highest-quality transactional data in the forest products industry. By starting the process with a precise starting price based on the actual market, our forecasts deliver a greater level of accuracy that result in less variability over the forecast time period.
Applying the discipline of mathematical modeling to the rapidly-changing factors affecting prices is the only way to anticipate future timber prices. If you know with a high degree of confidence what you will pay for timber each month for the next 24 months, you can:
- Better optimize wood procurement systems – both volume and price
- Manage inventory (standing or yard) more effectively
- Align mill feedstock and output with raw material price trends
- Maintain margins during periods of uncertainty
A business forecast built on Forest2Market’s price-based datasets and business intelligence allows for greater accuracy because it is designed from a reliable, precise starting price. Forest2Market’s proprietary data allows for an unrivaled, comprehensive look at fiber and log markets, providing a precise starting point for a custom forecast.
Forecasts can be customized by a number of criteria, including:
- Time period
Forest2Market forecasts enable participants in the forest products supply chain to respond confidently to market changes while assuming a comfortable level of risk. Using a forecast model that can maximize return and minimize risk is simply smart business, especially in times of increased uncertainty.