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2007 Economic Outlook for 2007 Economic Outlook for Inland West Private ForestsInland West Private Forests
Charley McKettaCharley McKetta PhD, CF, UI Emeritus, CF, UI Emeritus
Forest Econ Inc.
Developers of TreeCents ©Developers of TreeCents ©
Family Foresters @ Spokane 1/19/2007Family Foresters @ Spokane 1/19/2007
Today’s Topics
US Single House Starts & Mortgage RatesGlobal Insights 1/07, Mortgage Bankers Assn 1/07
1.000
1.100
1.200
1.300
1.400
1.500
1.600
1.700
1.800
Year/Quarter
MM
Sin
gle
sta
rts
5.5
5.7
5.9
6.1
6.3
6.5
6.7
6.9
7.1
7.3
inte
rest
rat
e %starts GI
starts MBA
rate GI
rate MBA
forecast
Land Fragmentation Econ
Timber Markets
Global Warming Econ
For Private Forests
Family Forest Fragmentation
• How big is the problem?– NIPF #’s up, but parcel size declining– REIT-TIMO reorganization & spin-offs– Possible state & BLM divestments
• What’s the economics?– Estate values > tree farm values – Rural Conversion not timber-based– Most productive forests most developable– Timber sale diseconomies of scale
• How does a forester’s life change?
Land Value Profiles
Acres by Distance to Town
Land
Val
ue $
$/A
cre
Rural Estates Real Tree Farms
Land use is an equilibrium of use rent ($/acre) profiles
Development is quasi-permanent
Play Forests
Private Forests Don’t Put $$ First Primary US Forest Ownership Reasons
0% 5% 10% 15% 20% 25% 30%
Residence adjunct
Unique reason
Enjoyment
Part of farm
Land investment
Recreation
Domestic uses
No answ er
Timber production
% of US Forest Owners
NIPF Average Forest Size(Best & Weyburn 2001)
0
5
10
15
20
25
30
35
40
45
50
1953 1978 1994 2010Year
Ave
rage
Acr
es
This is called “fragmentation”
5.6 million owners already < 10 acres3.7 million owners still > 10 acres
Small Forest Dis-economy
Timber Sale Economies of ScaleCost & Stumpage/MBF = f(MBF)
-1,500
-1,000
-500
0
500
MMBF sold
Cos
t & N
et/M
BF
Ave Cost/MBF
Log Price
Stumpage
What Can YOU Do?• Publicize forest stewardship responsibilities
– Then offset guilt trip by lowering their costs• Retarget services to forest owners’ objectives
– Landscape aesthetics, ecologics & protection– Buffers, habitat & forest health
• Reorient skills to service non-timber goals– “What’s left” & “over time” perspective– Sales to mitigate non-timber practice costs– Partial entries with retained inventory– Appropriate small machines
• Think coordination & collective – Partner multiple small volume loggers & truckers– Link professionals from Arborculture to Wildlife– Broker coordinated neighborhood activities– Concentration yard sales power vs higher handling costs
• Automate yourself for time & cost effectiveness
$ Let’s Do the Numbers $
• Economy Not the Problem—Yet!
• 60% Chance of solid growth
• 20% chance of inflation, high energy prices, dollar weakness & reduced employment & income
Divergent GDP FuturesGlobal Insight 1/07
11.0
11.5
12.0
12.5
13.0
13.5
2005 2006 2007 2008 2009 2010
Year
US 2
000
Trilli
on
$$
Pessimist
Base Line
Optimist
20% Probability
20% Probability
Housing Bust I Been Talkin’ BoutHousing Sector Indicators
US Census 1/07 & Mtg Bankers 1/07
1150
1250
1350
1450
1550
1650
1750
1850
Month/Year
Sta
rts
in 1
000'
s
5.20
5.40
5.60
5.80
6.00
6.20
6.40
6.60
6.80
7.00
7.20
30-y
r M
ort
gag
e %
30-yr rate %
Single Starts
Long Products Price Declines Continue
Lumber & Panel Price IndicesSource: Random Lengths 1/07
200
250
300
350
400
450
500
Month/Year
Lu
mb
er
$$/M
BF
200
250
300
350
400
450
500
550
600
Pan
els
$$/M
SF
Lumber
Panels
K atrina Effect
Log Prices Doin’ What They S’pose to
Boom Era Idaho Sawlog PricesNW Management region 2 medians 1/07
250.0
300.0
350.0
400.0
450.0
500.0
550.0
Year/Quarter
$$/M
BF
DF / WL
HemFir
Ppine Y
LPP
Sorta Bad News
Positive Exceptions
Bulkwood PricesRandom Lengths 12/06, NWM 1/07
10.0
20.0
30.0
40.0
50.0
60.0
Year/Quarter
Logs
$$/
ton
60
70
80
90
100
110
120
130
Chi
ps $
$/B
DUtonw ood
pulpw oodchips
(BC)
Canadian Doins’
Canadian Lumber ImportsRandom Lengths 12/06
1200
1300
1400
1500
1600
1700
1800
1900
2000
2100
Jan-0
5
Apr-0
5Ju
l-05
Oct-05
Jan-0
6
Apr-0
6Ju
l-06
Oct-06
MM
BF
/Mo
nth
250
300
350
400
450
500
$/M
BF
Imports
$/MBF
tarriff trigger
Canada/ US Exchange RatesBank of Canada 1/07
1
1.1
1.2
1.3
1.4
1.5
1.6
$C/$
US
Mind Yer Loonies!
My 2006 Prediction Success?• Rock solid economy
A + : but someone else does this• Housing bust overdue--starts next quarter
A+ : Wow! I’m da man!• Log prices will fall 2nd quarter
A - : they crashed 3nd quarter• Energy prices reasonable til 2010
D - : $50? $65 oil? who knows? Buy a Prius • USFS to remain non-competitive
A + : but a no-brainer every year
Delight At de End of de Tunnel
US Single House Starts & Mortgage RatesGlobal Insights 1/07, Mortgage Bankers Assn 1/07
1.000
1.100
1.200
1.300
1.400
1.500
1.600
1.700
1.800
Year/Quarter
MM
Sin
gle
sta
rts
5.5
5.7
5.9
6.1
6.3
6.5
6.7
6.9
7.1
7.3
inte
rest
rat
e %starts GI
starts MBA
rate GI
rate MBA
forecast
This is What You Come For?Log Value Group Price Projection
200.0
250.0
300.0
350.0
400.0
450.0
500.0
550.0
Year/Quarter
$$/M
BF
RL Index
DF / WL
Hem/ Fir
PP comp
LPP
Once Again ! McKetta Makes:
Do it Yourself Forecasts
• Wood Products Marketswww. randomlengths.com
• Inland West Log Markets http://consulting-foresters.comwww.inlandforest.com
• Forest Products Web Linkswww.forestdirectory.com
• Economic Outlooks www.state.id.us/dfm/econinfo.htmwww.mbba.com
• Housing & Mortgage reportswww.census.govwww.mortgagenewsdaily.com
• RPA websitewww.fs.fed.us/pnw/sev/rpa/
• Forest Econ Inc. analytics & TreeCentswww.treecents.com