Timber Price Volatility: the Enemy of Budgeting

Timber price volatility is perhaps the single biggest enemy of successful budgeting. Escalating prices, even if they are temporary, can undermine budgets and erode margins.

An increasing number of facilities are operating in an environment where price volatility (the result of panic buying when wood yard inventories are low) has been high and the cost of capital (and therefore the cost of holding inventory) is low. The conventional wisdom to reduce holding costs by carrying less inventory may no longer apply. Holding an extra day’s inventory could turn out to be far less expensive than the spot purchases required to reinforce the wood yard when supply gets too low. For this reason, budgeting raw material costs may be more directly tied to inventory management than ever before.

But how do you know exactly how many days of inventory to carry? Two tools can help you make this determination during the budgeting process:

• A benchmark that will allow you to understand your facility's position in comparison to your peer group
• A timber price forecast

Especially in times of high raw material cost volatility, an accurate timber price forecast is essential. Forest2Market’s five-year forecasts, the most robust and accurate budgeting tools available, will be released in June. The following characteristics distinguish the five-year forecasts from all other forecasts available on the market:

• Data Quality and Quantity: Forest2Market’s databases contain more than 225 million 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.

To really take your budgeting process to the next level, one that will drive cost savings and improve efficiencies, you need a collection of tools that help you make the right decisions. A five-year forecast is designed to be the most data-intensive tool available to your budgeting and procurement teams.