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MARKET WATCH

Site Selection and Wood Procurement Strategies in the US South

Posted by Joe Clark on December 15, 2015

The southern United States is home to the world’s most productive forests and as such, it is a popular region to relocate or site new wood-consuming facilities. The forest products industry in the US South is indeed vibrant, yet feedstock availability depends on a number of factors ranging from weather patterns and seasonality to the economic cycles of those operating within the region. As new facilities continue to come on line, competitive factors cannot be overlooked.

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When it comes to efficiently utilizing the forest’s natural resources, a site selection decision must be matched with a successful wood procurement strategy. The unique factors that are specific to each supply shed must be analyzed before formulating a strategic plan for procuring wood. Accounting for current and future forest inventory and consumption, as well as understanding how ownership profiles impact the supply chain, will improve profitability and drive 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 that current forest inventory is not necessarily the same as the inventory available to wood raw material consumers. Steep or wet terrain and the cost of building an adequate logging infrastructure, for example, can prevent trees from being harvested.

  • Growth-to-drain ratios serve as a critical measure of future supply and sustainability, and a positive ratio of 1.0 or greater must be maintained in order to ensure a sustainable wood basin. When harvest removals exceed forest growth, supply is constrained and prices may 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 an individual supply shed or project. 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 wood raw materials available to meet that demand. It is also important to remember that stumpage prices may spike when new demand enters the market and puts pressure on current forest resources and logging capacity. As the forest products industry in US South continues to grow, project success and profitability depend on a keen understanding of the dynamics that drive these demand scenarios.

Ownership Profiles

  • Forest ownership in the US South is highly fragmented. Private individuals and corporations own the majority of forestland, and timber brokers or wood dealers serve to organize these distinct 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 a 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.

New and existing wood-consuming facilities in the US South must remain attentive to these evolving elements within their respective supply sheds. The most effective and efficient methodology to account for these elements begins with 1) superior market data and 2) supply chain expertise; Forest2Market has comprehensive solutions to build your custom methodology from the ground up.

 site selection heat map

Topics: site selection

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