trends in north american forest products markets: a timo … · 2014-11-19 · trends in north...

Trends in North American Forest Products Markets:A TIMO Perspective

Dr. Bruce P. Glass, Senior Forest Economist November 17, 2014

CAMPBELL GLOBAL

Campbell Global LLC Overview

▪ Founded in 1981 & headquartered in Portland, Oregon, USA

▪ Business focus: Timber & timberland resources

▪ US$6.4 billion in timberland assets under management*

▪ 3.1 million acres (1.3 million hectares) under management ▪ Employ more than 300 staff members in 14 states & two

countries

▪ Timber Industry Management Organization (TIMO): – Source & structure timberland investments for clients – Manage client-owned timberland – Market & sell clients’ timberland investments

* Current asset value based on the most recent independent appraisal or internal valuation data.

November 2014 2

CAMPBELL GLOBAL

Assets Under Management

November 2014 3

Source: RISI, CG

Australia Green Triangle 3.7 million m3 softwood sawlog 25% of Australia total production Total Campbell Holdings: ~232,000 acres (~94,000 hectares)

U.S. South 71.92 million m3 softwood sawlog 51% of U.S. production Total Campbell Holdings: ~2.2 million acres (~900,000 hectares)

U.S. Pacific Northwest 47.36 million m3 softwood sawlog 34% of U.S. production Total Campbell Holdings: ~660,000 acres (~270,000 hectares)

CAMPBELL GLOBAL

Key US Macroeconomic Considerations

▪ Most factors needed for wood products demand recovery are in place:

– Improved household balance sheets

– Lenders are taking on increased risk

– Accelerating employment growth

– Consumers loosening purse strings … cautiously

November 17, 2014 4

CAMPBELL GLOBAL

Household Balance Sheets are in Great Shape

November 17, 2014 5

US Household Debt Payments as a Proportion of Disposable Personal Income

Perc

ent

14%

15%

17%

18%

19%

Mar-84

Jun-8

5

Sept-8

6

Dec-87

Mar-89

Jun-9

0

Sept-9

1

Dec-92

Mar-94

Jun-9

5

Sept-9

6

Dec-97

Mar-99

Jun-0

0

Sept-0

1

Dec-02

Mar-04

Jun-0

5

Sept-0

6

Dec-07

Mar-09

Jun-1

0

Sept-1

1

Dec-12

Mar-14

Jun-1

5

Sept-1

6

Dec-17

Source: FRB

CAMPBELL GLOBAL

Lenders Becoming Increasingly Expansive; Mortgage Lending Still Lags

November 17, 2014 6

CAMPBELL GLOBAL

Residential Construction Employment Especially Buoyant

November 17, 2014 7

US Employment Growth

Year

-ove

r-ye

ar e

mpl

oym

ent g

row

th ra

te

-30%

-23%

-15%

-8%

0%

8%

15%

Jan-0

9

May-09

Sept-0

9

Jan-1

0

May-10

Sept-1

0

Jan-1

1

May-11

Sept-1

1

Jan-1

2

May-12

Sept-1

2

Jan-1

3

May-13

Sept-1

3

Jan-1

4

May-14

Sept-1

4

Jan-1

5

May-15

Sept-1

5

Jan-1

6

May-16

Sept-1

6

Jan-1

7

May-17

Sept-1

7

Jan-1

8

May-18

Sept-1

8Total, non-farm Construction Residential construction

Source: BLS

CAMPBELL GLOBAL

Awaiting Return of the US Consumer …

▪ Paying down debt remains a priority for many

– Interest rates will only go up!

▪ Baby-boomer demographics

– Older households tend to spend less than younger households

▪ Consumer purchasing power turning around – Weak US$ turning around now

– Declining fuel prices

▪ Subdued income growth

– Real wages have struggled to beat inflation for last 5 years

– Job quality issues

▪ Income distribution

November 17, 2014 8

CAMPBELL GLOBAL

Median Real Income Growing Slowly; Rising Wages Needed to Fill Gap

November 17, 2014 9

Real Household Income: Comparison of Median with MeanIn

dex

(Jan

uary

200

0 =

100)

80

90

100

110

120

Jan-0

4

Aug-04

Mar-05

Oct-05

May-06

Dec-06

Jul-0

7

Feb-08

Sept-0

8

Apr-09

Nov-09

Jun-1

0

Jan-1

1

Aug-11

Mar-12

Oct-12

May-13

Dec-13

Jul-1

4

Feb-15

Sept-1

5

Apr-16

Nov-16

Jun-1

7

Jan-1

8

Aug-18

Median Real Household Income (Sentier Research)Mean Real Household Personal Income (BEA, Census)

Source: FEA

CAMPBELL GLOBAL

Sawn Timber & Structural Panels Consumption will Recover when Housing Recovers

November 17, 2014 10

Data are in units reported by source. 1 Mbf sawn timber equals 2.36 m3 full sawn volume or 1.57 m3 actual volume. 1 Msf (3/8” basis) equals 0.89 m3.

CAMPBELL GLOBAL

Most Factors Needed for Housing Recovery also in Place

▪ Excess unsold home inventories down

– Shadow inventories declining also

▪ Pent-up housing demand building

▪ Affordability remains favorable

– Despite rising house prices & subdued income growth


CAMPBELL GLOBAL

Unsold Housing Inventories At or Below Pre-downturn Levels


Inventories of new single-family and existing houses for sale

Hou

ses

for s

ale

(SA

AR

, tho

usan

ds)

0

1.000

2.000

3.000

4.000

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Dec-17

Mar-18

Jun-18

Sept-1

8

New single family Existing

Sources: US Census Bureau, National Association of Realtors

CAMPBELL GLOBAL

Looking Forward to Release of Pent-up Demand from Recession Years


US Pent-up Demand for Housing

Num

ber o

f uni

ts (m

illio

ns)

-0,75

0,00

0,75

1,50

2,25

3,00

2005 2006 2007 2008 2009 2010 2011 2012 2013

Source: RISI

CAMPBELL GLOBAL

Housing Affordability Remains High


Comparison of Median Price for Existing Homes with Home Affordability Index

Affo

rdab

ility

inde

x

(i.e.

, rat

io o

f med

ian

fam

ily in

com

e to

qua

lifyi

ng

inco

me)

0

50

100

150

200

Med

ian

pric

e of

exi

stin

g ho

mes

(nom

inal

US$

)

0

60.000

120.000

180.000

240.000

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

Dec-17

Jun-1

8

Existing home price Affordability (RHS)

Source: NAR

CAMPBELL GLOBAL

Sawn Timber & Structural Panels Consumption Forecast to Rise Steeply


Data are in units reported by source. 1 Mbf sawn timber equals 2.36 m3 full sawn volume or 1.57 m3 actual volume. 1 Msf (3/8” basis) equals 0.89 m3.

CAMPBELL GLOBAL

WHAT DOES THIS MEAN FOR LOG PRICES?


CAMPBELL GLOBAL

What Does this Mean for Log Prices?

▪ Cyclic adjustment phase – Recovery in US housing drives expanding demand

• Especially in US South

– Reduction of deferred harvest volume in US South – Softening log demand in China


CAMPBELL GLOBAL

Significant Deferred Harvest Volumes in US South


Data are in units reported by source. 1 Mbf International ¼” rule log volume equals approximately 5.8 m3.

CAMPBELL GLOBAL

What Does this Mean for Log Prices? (cont.)

▪ Cyclic adjustment phase

▪ Trend phase – Expanding log demand

• Domestic & foreign

– Contracting Canadian timber supply – Potentially expanding US South timber supply


CAMPBELL GLOBAL

North American Export Prospects: China’s Fiber Demand not a Passing Fad


China Fiber DeficitVo

lum

e (m

illio

n cu

bic

met

ers,

roun

dwoo

d eq

uiva

lent

)

0

150

300

450

600

2011 2016 2020

Demand Supply Gap (Imports)

Source: IWG

CAMPBELL GLOBAL

But Where will the Needed Product Come From?(Boiling Frogs)


BC Interior Merchantable Softwood Log Harvest: History and Forecast

Mer

chan

tabl

e lo

g vo

lum

e (m

illio

n cu

bic

met

ers)

0,0

15,0

30,0

45,0

60,0

19951997

19992001

20032005

20072009

2011

2013 (est.) 2015

20172019

20212023

History IWG forecast (2012)Historical average (1995-2013) IWG forecast average (2012-2024)

Note: Merchantable includes sawlog and "low-grade" logs Sources: BC MoFR, IWG

-19% (≈ 9 million m3)

CAMPBELL GLOBALNovember 17, 2014 22

Maturing Age Classes Approaching Harvest in the US South

CAMPBELL GLOBAL

How Much Southern Timber will be Harvested?

▪ Available harvest & haul capacity

▪ Operability, e.g., ground conditions, economic margin

▪ Over-mature age classes, especially natural regeneration

▪ Other harvest restrictions, e.g., conservation plantings, etc.? ▪ Conversion from timberland to ‘higher & better’ use



Sawlog Prices Tracked Sawn Timber Prices Through the Downturn in US West Coast Region …

Delivered Price for Douglas-fir #2 Sawlogs in Lower Columbia River Region Compared with Douglas-fir Lumber Price Index

2013

$/M

bf lu

mbe

r

200

300

400

500

600

700

2013

$/M

bf S

crib

ner l

ong

log

scal

e

200

300

400

500

600

700

800

900

1.000

1.100

1.200

Jan-0

4

Aug-04

Mar-05

Oct-05

May-06

Dec-06

Jul-0

7

Feb-08

Sept-0

8

Apr-09

Nov-09

Jun-1

0

Jan-1

1

Aug-11

Mar-12

Oct-12

May-13

Dec-13

Jul-1

4

Feb-15

Sept-1

5

Apr-16

Nov-16

Jun-1

7

Jan-1

8

Aug-18

Lower Columbia River Douglas-fir lumber (RHS)

Sources: Loglines, WWPA

Data are in units reported by source. 1 Mbf Scribner long log scale equals approximately 6.5 m3 log volume. 1 Mbf sawn timber equals 2.36 m3 full sawn volume or 1.57 m3 actual volume.


… But Sawlog-Sawn Timber Price Tracking Slow to Re-emerge in US South

Pine Sawtimber: Comparison of Stumpage and Delivered Prices in Southeast Texas (TMS Region 2) with Southern Yellow Pine Lumber Price (2x4, #2 kd, Westside)

2013

$/M

bf lu

mbe

r

0

200

400

600

800

2013

$/to

n

0,00

20,00

40,00

60,00

80,00

Mar-08

Sept-0

8

Mar-09

Sept-0

9

Mar-10

Sept-1

0

Mar-11

Sept-1

1

Mar-12

Sept-1

2

Mar-13

Sept-1

3

Mar-14

Sept-1

4

Mar-15

Sept-1

5

Mar-16

Sept-1

6

Mar-17

Sept-1

7

Mar-18

Sept-1

8

Stumpage Delivered Logs SYP 2x4, kd, Westside (RHS)Sources: Timber Mart-South, Random Lengths

Data are in units reported by source. 1 (short) green ton equals approximately 0.82 m3 log volume. 1Mbf sawn timber equals 2.36 m3 full sawn volume or 1.57 m3 actual volume.


Different Set of Drivers Influencing Pulpwood Prices, Especially in US South

Delivered Softwood Fiber Prices in the US South Central Region

2013

US$

/gre

en to

n

10,00

22,50

35,00

47,50

60,00

Sept-1

1

Mar-12

Sept-1

2

Mar-13

Sept-1

3

Mar-14

Sept-1

4

Mar-15

Sept-1

5

Mar-16

Sept-1

6

Mar-17

Sept-1

7

Mar-18

Sept-1

8

Wood chip Pulpwood Pellet-grade wood chipIn-woods biomass Mill residue biomass

Sources: IWR, WBMR

Data are in units reported by source. 1 (short) green ton equals approximately 0.91 tonnes.


Expanding Consumption of Pulpwood Anticipated for OSB & Bioenergy Production

Roundwood Demand in the US South for Pulp, Oriented Strandboard, and Bioenergy Production

Volu

me

(mill

ion

cubi

c m

eter

s)

0

33

65

98

130

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Pulp Oriented strandboard Bioenergy, including pellets

Source: FEA


Will Upsurge in North American Wood Pellet Production Have Legs?

Comparison of Natural Gas Prices in the USA, Germany, and Japan Compared with Average Crude Oil Price

Nom

inal

cru

de o

il pr

ice

(US$

/bar

rel)

0

45

90

135

180

Nom

inal

nat

ural

gas

pric

e (U

S$/B

TU)

0,00

5,00

10,00

15,00

20,00

Jan-9

6

Dec-96

Nov-97

Oct-98

Sept-9

9

Aug-00

Jul-0

1

Jun-0

2

May-03

Apr-04

Mar-05

Feb-06

Jan-0

7

Dec-07

Nov-08

Oct-09

Sept-1

0

Aug-11

Jul-1

2

Jun-1

3

May-14

Apr-15

Mar-16

Feb-17

Jan-1

8

US Germany Japan Mean crude price (Brent, Dubai, WTI; RHS)

Source: IMF

CAMPBELL GLOBAL

Outlook for Rising Real Prices for US Softwood Sawlogs

▪ US housing recovery slowly gathering traction

▪ Strong export demand

– A boon to western timber growers ▪ Log demand & price recovery in the US South awaits:

– Accelerating US housing recovery, in conjunction with

– Tightening SPF sawn timber supply from Canada

– A matter of timing: Which will come first?

▪ Increasingly fierce competition for fiber at woodshed level:

– Pulpmills, pellet mills, OSB mills


CAMPBELL GLOBAL

What Does This Mean for Timberland Value?

▪ Major value drivers: – Price

• Sawlog prices typically double pulplog prices

• Cyclic log price adjustment • Longer-term US demand & supply fundamentals drive trend

prices • Outlook for rising real softwood sawlog prices

– Discount rate • Currently compressing, reflecting:

• Product price expectations • Demand for timberland investments • Availability of investment opportunities


CAMPBELL GLOBAL

QUESTIONS ARE WELCOME


CAMPBELL GLOBAL

APPENDIX



About US$44 Billion in Assets & 30 Million Acres Under Management (12/31/2013)

Source: Timberlink


US Private Timberland Ownership Increasingly Dominated by TIMOs & REITs

Change in Ownership Status of Timberland Formerly Owned by the US Forest Industry,

by Ownership Category

Shar

e of

ow

ners

hip

(are

a ba

sis)

0%

25%

50%

75%

100%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013Conservation Financial Integrated REIT

Notes: (1) Includes REIT conversions; (2) Timberland data from USFS (GTR-NC241 & GTR NRS-27); (3) Totals may not add due to rounding

28%

22%

44%

6%

trends in north american forest products markets: a timo … · 2014-11-19 · trends in north...

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