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Recent Precipitation Impacts on Pine Pulpwood Prices in the US South

September 13, 2017
Author: Jay Engle

No single factor impacts stumpage prices more than precipitation. Despite the catastrophic effects of hurricanes Harvey and Irma, most of the US South has already experienced a wetter-than-average summer season as illustrated in the map below, which makes the added rainfall and flooding from these storms even more devastating on many levels. As we noted in an in-depth analysis of South Carolina’s abnormally high precipitation due to hurricane Joaquin in October 2015, such events create a slew of challenges for facilities that rely upon wood raw materials.


60-day Departure Precipitation.png


Over the past 24-month period, pine pulpwood stumpage prices have been on a downward trend; Figure 1 shows this trend on a monthly basis, and Figure 2 shows the precipitation as well as pine pulpwood stumpage prices for that past 24-month period.

 Figure 1Precip_1.png


Figure 2Precip_2.png

While the two lines do not mirror each other exactly, some parts appear to be correlated. Precipitation strongly increased between September and November 2015; pine pulpwood stumpage price followed suit, though it lagged by one to two months. Prices spiked in October 2015 through January 2016. Between that point and February 2017, actual precipitation demonstrated some volatility but was generally on a downward trend. Stumpage price also showed some volatility but followed the same downward trend. But beginning in February 2017, precipitation showed another strong upward surge that lasted through July 2017. Once again, pine pulpwood stumpage price appears to mirror the upward trend, however, with a 3-month delay beginning in May 2017.

In order to get a better visualization and to help understand the patterns of long-term average monthly precipitation, it’s helpful to look at individual long-term monthly average precipitation and actual monthly precipitation, which is charted in Figure 3 below.


Figure 3Precip_3.png


The first 12-month period (Sep. 2015 – Aug. 2016) only had a few short periods where precipitation was below the long-term averages. The second 12-month period (Sep. 2016 – Aug. 2017) started strongly below the long-term averages from the beginning until March 2017. Figure 4 shows the same data in a format that minimizes some of the noise in order to get a better handle on what is actually happening. In this case, precipitation averages were calculated for the two 12-month periods and charted along with the long-term average.


Figure 4Precip_4.png


The chart clearly indicates that precipitation during the first 12-month period was quite a bit above average. The second 12-month period was also above average, but to a much lesser degree. How does this relate to the pine pulpwood stumpage price? The same methodology was used for pine pulpwood stumpage price averages, which are illustrated in Figure 5.


Figure 5 Precip_5.png


US South average pine pulpwood stumpage price follows the same trend as precipitation, but more accentuated. Prices during the first 12-months ran higher than the long-term average, while the second 12-months fell below the long-term average. While Figure 5 accurately shows the precipitation/price trend, it may exaggerate the degree of reaction due to the lag period for stumpage price at the end of the period.

So what’s the lesson in this data? Keep your eyes on the skies. If precipitation continues on an upward trend, look for pine pulpwood stumpage price to also continue a lagging upward trend. However, if precipitation takes an extended downward trend, the upward trend in stumpage price may be short-lived.

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