|GUIDELINES for||. . .|
|Developing Stand Density Management Regimes|
Future timber prices depend on the answers to two fundamental questions:
It is rather difficult to provide substantive answers to these questions. However, evidence suggests that the future will not be a reflection of the recent past.
Forecasts of future timber scarcity have led many observers to conclude that timber resources will experience real price increases with respect to other commodities over time. Changes in the real price of a commodity is an indicator of its relative scarcity. Increasing prices are associated with increasing scarcity and decreasing prices indicate decreasing scarcity.
The study of resource scarcity by Barnett and Morse (1963) examined prices and costs for the U.S. agriculture, minerals, forestry, fishing and total extractives sectors using data collected by Potter and Christy (1962) for the period 1870 to 1957. With the exception of the forestry sector, Barnett and Morse found that the real price of natural resources did not increase over the period examined.
Manthy (1978) updated the Potter and Christy data to the early 1970s and confirmed Barnett and Morse's results. However, Manthy observed a significant change in the trend of forest product prices after 1950; from 1950 to 1970 real prices remained essentially stable.
Sedjo and Lyon (1990) examined price trends since 1970 and noted significant real increases in timber as well as most other natural resource prices during the 1970s. However, during the early 1980s real timber prices fell again to the levels of the 1950-70 period, and then remained stable. Sedjo and Lyon also concluded that the timber price trends of the post-1950 period were fundamentally different from earlier periods.
In the early 1990s sharp increases in timber prices were again experienced as North America recovered from an economic recession, and demand increased for timber products. At the same time, land-use decisions in the U.S. Pacific Northwest region resulted in the reservation of large areas of forest land for the protection of the northern spotted owl. Since 1990, timber prices have fluctuated wildly, a trend more characteristic of short-term adjustments in timber supply problems than of a return to rapid, long-term price increases.
Factors that tend to moderate timber scarcity include:
It is unrealistic to expect any of these factors to completely offset future real price increases. For example, it is more likely that technological advancements will eventually experience diminishing marginal returns in the sawmill and woods sectors since there is only so much fibre contained within a log and only so much timber produced on a site. However, in view of the combined potential of all moderating factors, caution is advised in assuming rapid, sustained, long-term real price increases.
Projections of future timber price increases take some of these factors into account (Sedjo and Lyon 1990; Dykstra and Kallio 1987). Both studies are based on models of world timber supply and demand. Sedjo and Lyon (1990) predict in their base case scenario that the price of timber would increase over the period 1988-2000 at an annual rate of 0.2%. In a high industrial wood demand scenario, they projected an annual real price increase of 1.2%.
Dykstra and Kallio provide forecasts for different areas of the world and differentiate between the price for conifer and non-conifer species, and between the prices of sawlogs and pulp logs. They project an annual rate of real price increase of 0.3 to 5.9% for conifer sawlogs over the period 1980-2000, depending on the area of the world in which the timber is harvested.
In a study commissioned for Forestry Canada, H.A. Simons Strategic Services Division, and Cortex Consultants Inc. (1993) reviewed historical log, lumber and chip prices in British Columbia. Although only a small proportion of the total BC production of logs is valued on the Vancouver log market, they found that over the last two and a half decades, coastal log prices have increased on average by 0.3%/yr. However, the price increases varied considerably by period and by species. For example, real prices increased during the 1970s by as much as 3.9%/yr.
Vancouver log market prices, as well as those used to calculate provincial stumpage are still influenced significantly by international log and wood product prices. The authors (H.A. Simons and Cortex 1993) developed predictive equations to forecast log price increases for four coastal species groups. Table A1-1 presents species/price expectations for the period 1990-2040.
An analysis by Feltham and Messmer (1996) reviews a number of studies of historical sawn wood prices, projected future price changes, and the use of a time series to calculate historical real price changes and an index of wood quality change for BC and Canada. Their data represent total sawn wood timber volume and value, by species group, for BC and Canada from 1918 to 1990.
Table A1-1. Real price increase forecasts for logs from the coastal regiona
Feltham and Messmer (1996) found the volume-weighted, average, real softwood prices in BC during the period 1926 to 1990 increased 0.53%/yr. Only two BC species experienced a decline in real price. In Canada, the average annual rate of increase was 0.24%; no species declined in real price over the period. The highest rate of price increase in Canada during this period was recorded for hemlock, which increased at an average rate of 1.56%/yr. The largest decline was recorded for Ponderosa pine, which changed in real terms at a rate of -0.32%/yr over the period.
The real price trends for the period 1965 to 1990 differ from those for the period 1926 to 1990. For example, the volume-weighted average of softwood species prices in BC for 1965 to 1990 was only 0.29%, with six BC tree species exhibiting declining prices. Canadian real prices declined by an average of 0.24% each year during this period, with five tree species showing an average annual decline. The highest annual rate of price increase in BC during this period was 2.2% for yellow-cypress, compared to the greatest decline of -1.14% for lodgepole pine. The highest Canadian real price rate increase was only 0.44%/yr for hemlock, compared with the greatest decline for lodgepole pine of -0.34%/yr.
Historical and projected price growth rates vary among studies. Variation may be attributed to the different periods over which the rates are calculated, as well as the different timber products and regions on which they are based. Despite this variation, however, Feltham and Messmer (1996) found consensus on expectations that future prices will increase at decreasing rates for timber supply regions in BC, the Pacific Northwest and the Southern U.S. for virtually all species and timber grades. There was no agreement among the studies on whether the prices of higher quality species and grades would change at a different rate (faster or slower) than prices for lower quality species and grades. The historical rates of price increase ranged from a high of 3.45%/yr for Douglas-fir Grade 1 logs from the 1930s to the 1990s, to a low of -1.6%/yr for hemlock lumber for the period 1965 to 1990.
A species effect on wood quality index was also calculated in the Feltham and Messmer analysis. From 1925 to 1990 the annual rate of decrease in wood quality attributable to the change in species composition averaged 0.14% for BC, and 0.12% for Canada. The Constantino and Haley study (1988), on which this index was based, used log data from the Vancouver Log Market and found an average annual decrease of 0.28%. The divergence between the two studies may be attributed to technological change and its role in dampening the transmission of species composition effects from the log market to the lumber market. Substitution between species may also account for some of the divergence.
Copyright 1999 Province of British Columbia