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Blog

Reliable Data: The Real Key to Resolving Budgeting Challenges

August 22, 2017
Author: Pete Coutu

Everyone familiar with forestry and timber harvesting understands the significance of the four seasons and the challenges posed by seasonality. Sometimes, though, a fifth season presents an entirely new set of challenges: budget season. Participants in the forestry and forest products industry begin implementing new budgets as soon as the current one is complete, but budget-planning season begins in August and picks up just after Labor Day.

Budgeting is, at its core, a form of short-term forecasting. Timber price volatility is subject to regional weather patterns, harvesting conditions, other disruptions in supply, foreign markets and regulatory changes. Unpredictable prices, even if they are temporary, can undermine budgets and erode margins.

To minimize the risk associated with timber price volatility, the budgeting process must be founded in accurate timber price forecasting, produced by a predictive mathematical model construction from transaction-based historical data and thorough market awareness. 

Because they rely on transactional data—not survey data—Forest2Market’s customizable forecasts are the most robust and accurate budgeting tools available for both short- and long-term planning, forecasting and decision making. Both sellers and purchasers of timber face similar challenges.

 

Wood-Consuming Facilities 

Wood-consuming facilities operate in an environment where higher prices due to spot market purchases likely exceed the cost of holding extra inventory due to the low cost of capital. Conventional wisdom to reduce holding costs by carrying less inventory may no longer apply; holding an extra day’s worth of inventory could turn out to be far less expensive than the spot purchases required to reinforce the wood yard when supply gets too low. Forest2Market’s forecasts allow customers to quantify this they can take the appropriate amount of risk and minimize overall supply chain cost. For this reason, budgeting raw material costs may be more directly tied to inventory management than ever before. To know the optimal number of days of inventory to carry, two tools can be deployed during the budgeting process:

  • A benchmark that will allow you to understand your facility's cost and inventory position in comparison to your peer group (Inventory to Annual Consumption Ratio chart below)
  • A timber price forecast that meets all the criteria for a high level of accuracy (5-year quarterly delivered price forecast table below)


    Budget1.png

  

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Timberland Owners

Conversely, timberlands owners and investors need to correctly time their timber harvests and sales to maximize profits and meet budgeting expectations. To do this effectively, they also need reliable forecasts built upon custom criteria that impact their business performance the most. In times of high price volatility, an accurate timber price forecast is essential for planning purposes (5-year quarterly stumpage price forecast below).

 

Budget3.png

The following characteristics distinguish forecasts that are highly accurate from the rest of the pack, and Forest2Market forecasts meet these requirements. 

  • Data Quality and Quantity: Forest2Market’s databases contain more than 300 million actual transactions; 30 million new transactions are added every year. Every transaction is inspected by an industry expert to ensure its accuracy.
  • Forecast Model: Forest2Market’s proprietary forecast models are built on relationships between macroeconomic indicators and supply and demand dynamics, including inventory levels that have been statistically validated with our historical databases.
  • Precise Starting Prices: The forecast starting point is the current actual weighted average market price, which provides an unparalleled level of detail and accuracy from which to establish a forecast and budget. 

On top of these advantages, Forest2Market will also be rolling out a new business intelligence platform in the coming weeks that will add an unparalleled, comprehensive view of the analytics that drive your decision making and budgeting. The platform, SilvaStat360, will provide customers with access to Forest2Market’s extensive, proprietary regional datasets as well as current and historical macroeconomic and market-related statistics. Subscribers will have the ability to use SilvaStat360’s data visualizations to filter and query data and answer specific market-related questions, design forecasting and budgeting criteria and much more. 

To really take your budgeting process to the next level—one that will drive cost savings or higher revenues and improve efficiencies—you need a collection of tools that help you make the right decisions. A custom Forest2Market forecast is the most data-intensive tool on the market. And even though we build each forecast individually based on custom criteria, they are readily available to budgeting, procurement and land management teams not only during budgeting season but at regular intervals throughout the year when budgets are being reviewed and updated.

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