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Improve Wood Procurement Strategy

September 25, 2014
Author: LeAndra Spicer

The southern United States is home to the world’s most productive forests, yet feedstock availability depends on a number of factors ranging from weather patterns and seasonality to the economic cycles of the forest and wood products industries. A successful wood procurement strategy that accounts for these dynamics requires knowledge of the factors specific to the supply shed in which a plant operates and a strategic plan that accommodates these realities. Accounting for current and future forest inventory and consumption as well as understanding how ownership profiles impact the supply chain will improve the chances of success.

Supply & Demand Factors

Commercially available timber is a function of current forest inventory and the percentage of inventory removed (harvested). It is worth noting current forest inventory is not necessarily the same as the inventory available to wood raw material consumers (read more about how forest inventory relates to wood supply). Steep or wet terrain and the cost of building adequate logging roads, for example, can prevent trees from being harvested.

Growth-to-drain ratios serve as a critical measure of future supply. A positive ratio of 1.0 or greater must be maintained in order to ensure sustainable wood basin. When harvest removals exceed forest growth, supply is constrained and prices reach a level where some consumers are forced to exit the market.

An accurate picture of future demand can be constructed by looking at different scenarios unique to any an individual project and supply shed. An essential first step is to identify both the existing and planned facilities that compete for the wood raw materials available in an identified procurement zone. This information can then be used to quantify consumption and develop demand scenarios.

Differing demand scenarios are necessary to adequately forecast future harvest volumes and feedstock costs at start-up and into the future. The cost of wood depends on both demand and the number of trees available to meet that demand. Stumpage prices tend to spike when new demand enters the market and puts pressure on current forest resources and logging capacity 

Ownership Profiles

Forest ownership in the US South is highly fragmented. Private individuals and corporations own the majority of forestland. Timber brokers or wood dealers serve to organize these highly fragmented forests into a functional supply chain.

The market for wood fiber is mostly transacted on a stumpage contract basis where wood suppliers purchase standing timber from the private landowner (i.e. timber is sold on the stump). Brokers and dealers negotiate delivered rates with consumers of wood raw materials, drawing a margin between transactions. Because corporate owners own a substantial number of contiguous acres that offer a more steady supply of timber volume, they sometimes act as direct owners and suppliers of wood-fiber, eliminating the stumpage contract process.

No two supply sheds are alike. Determining whether adequate feedstock can be procured from a supply region throughout the life of a new project is a complicated process. Success will chiefly be determined by whether a company commits to a thorough understanding of the specific procurement zone in which it will be operating.

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