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MARKET WATCH

Understanding Wood Supply

Posted by LeAndra Spicer on October 22, 2014

When it comes to securing sustainable wood supply, a thorough analysis of forest resources is the only way to truly understand what is available in a given wood basin. A heavily forested area can create the illusion that a region enjoys ample feedstock supply, yet not all trees visible to the eye are available for harvest.

Questions about who owns the trees or whether the trees are commercially available must be answered to accurately assess the available wood fiber supply. Factors such as steep terrain or the cost of building adequate logging roads can prevent trees from being harvested. Within each procurement zone is a unique species mix, age-class mix, soil type, average rain fall, terrain and average growth rate that must also be considered when assessing wood supply over a long-term period.

How many trees are available to the marketplace?

The United States Forest Service conducts periodic assessments of timber inventories across the nation.  Detailed inventory data is recorded in the Forest and Inventory Analysis database that industry analysts use to determine a number of factors that determine available supply, including the:

  •          Percentage breakdown of tree species in an area
  •          Volume of trees in tons
  •          Amount of timber available on a specified number of acres
  •          Ownership type (private vs. corporate landowners) by acreage

In addition to this snapshot of inventory, forecasts of future supply are needed to fully understand the operations a wood basin will reasonably support. It is essential to identify the competitive facilities that consume wood raw materials from the supply shed and to quantify that consumption to determine the percentage of removals.

Supply may be constricted when a forest “grows through” an age class gap or when weather temporarily disrupts harvests. Demand may decrease when a facility is shuttered or increase when a new competitor enters the market.

How much supply can a wood dealer deliver?

A procurement zone is made up of a set of contiguous counties, typically an area with a 75-mile radius. Facilities often work with wood dealers to secure supply from parcels of privately-owned timberlands within a procurement zone.

It is important to take a conservative view of how much wood a dealer can deliver. Wood dealers compete with each other for the same, limited supply of stumpage contracts within a local market and have no real control over the supply that will become available. The varying volumes of supply that three separate wood dealers agree to deliver is not the same as the supply available to the market as a whole.  

Why can’t I put all of the supply a wood dealer offers under long-term agreement?

In terms of length, one year is considered long-term for supply agreements in the forest products industry.  While occasional longer term agreements exist —such as those integrated forest products companies made to secure their supply when they were divesting themselves of timberlands—agreements lasting six months to two years are the norm.

How do I know what is credible?

The data used in developing and updating the index must accurately reflect the total local market.  Because a broad sampling of the market must be included in the index, it is critical that the underlying data be continuously updated to reflect short-term market changes. 

The data used in the index must also remain free of market manipulation. Surveys of market prices expose the index to manipulation when wood buyers are incented to report the low end of their purchasing range and wood sellers benefit when they report the high end of their selling range. Both may be true, but neither is accurate. Data, not anecdotes, identifies what percentage of wood within a procurement zone is currently consumed in the market.

 Wood Supply Agreements Slide Deck

Topics: supply chain, procurement zone

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