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Market Competitiveness for Raw Materials in the U.S

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Market Competitiveness for Raw Materials in the U.S. South: Measuring Relationships Between Market Demand and Stumpage PricesTim Sydor & Brooks Mendell Forisk Consulting LLCSOFEW-2008, Savannah, GA March 9-11, 2008Outlinez Markets for timber in US Southz Competitivenessz Stumpage prices-demand relationshipz “Real-time” elasticity of demand: market levelz Lessons learnedSOFEW-2008, Savannah, GA March 9-11, 2008Markets for Timber: US Southz Markets for timber are local– Timber inventory– Consumer fragmentation– Procurement costsz All factors have direct/indirect effect on competitiveness for raw materials within the marketSOFEW-2008, Savannah, GA March 9-11, 2008Competitiveness z Competitiveness: ability to compete for raw materials– Function of size (demand, number of consumers)z Competitiveness has direct effect on price (stumpage)– H0: higher competitiveness Æ higher priceSOFEW-2008, Savannah, GA March 9-11, 2008Competitiveness: temporalz Temporal competitiveness: market’s flexibility– Responsiveness to price, ηz Knowledge of market’s competitiveness: primary info for timberland investors and new or future timber consumers)ln()ln(%%PQPQ∂∂=∆∆=ηSOFEW-2008, Savannah, GA March 9-11, 2008Stumpage – Demand relationshipMap: Timber Market Profiles & Rankings: US South. 2007. Forisk Consulting &Timber Mart-SouthStumpage: Timber Mart-SouthDemand: Wood Demand ReportSOFEW-2008, Savannah, GA March 9-11, 20082006: PST demand and stumpageRank Market Name Pine Sawtimber Demand 1 South AR 13,092 2 South GA 10,381 3 Southeast TX 9,832 4 East NC 9,726 5 South AL 8,660 6 North LA 8,120 7 East SC 7,499 8 South MS 6,756 9 North AL 6,267 10 North FL 6,133 11 North MS 5,232 12 Northeast TX 2,180 13 South LA 1,705 14 North GA 1,604 15 North AR 1,193 16 West NC 641 17 West SC 133 Rank Market Name Pine Sawtimber 1 South AL $46.10 2 South GA $44.86 3 South AR $44.42 4 North AL $43.52 5 Southeast TX $43.23 6 East SC $42.41 7 North MS $42.24 8 East NC $41.31 9 North LA $40.95 10 South MS $40.31 11 North GA $39.86 12 West SC $38.96 13 North FL $38.19 14 Northeast TX $37.64 15 North AR $36.53 16 South LA $35.20 17 West NC $28.85SOFEW-2008, Savannah, GA March 9-11, 2008Stumpage – Demand relationshipz PPW and PCNS small and insignificant– PCNS negative vs. demandz PST is positive and significant99,120,77611,309,16088,722,108Total demand, tons0.764*-0.3190.3282006 demand0.684*0.2140.293FacilitiesPine STPine CNSPine PWSource: Timber Market Profiles & Rankings: US South 2007* - significant at 5%SOFEW-2008, Savannah, GA March 9-11, 2008Competitiveness: real-time z Static competitiveness does not answer real-time questions– Market development over time (using almost real-time data)– Between-market comparisons– Market-based scenarios (openings/curtailments)z Many questions may be answered with market-based estimation of ηSOFEW-2008, Savannah, GA March 9-11, 2008Estimating market-specific η)ln()ln(%%PQPQ∂∂=∆∆=η• Timeframe:Q4 2005 – Q4 2007• Quarterly• Pine SawtimberSOFEW-2008, Savannah, GA March 9-11, 2008Demand and stumpage in two marketsz Trends match, but no clear relationship7008009001,0001,1001,2001,3001,4001,5001,6002005_4 2006_1 2006_2 2006_3 2006_4 2007_1 2007_2 2007_3 2007_4$0$10$20$30$40$50$60PST, '000 tonsTMS TX_2 PST2,0002,1002,2002,3002,4002,5002,6002,7002,8002,9002005_4 2006_1 2006_2 2006_3 2006_4 2007_1 2007_2 2007_3 2007_4$0$10$20$30$40$50$60PST, '000 tonsTMS GA_2 PSTSOFEW-2008, Savannah, GA March 9-11, 2008Elasticity in two markets0.51*-0.30Time lag= -20.48*-0.32Time lag= -10.41*-0.03Time lag= 0GA_2TX_2Quartersz Timber procurement: time lag (6 -12 month) between bidding (stumpage) to delivery (demand)z PST Elasticity estimates:* - significant at 5%SOFEW-2008, Savannah, GA March 9-11, 2008Lessonsz No (clear) relationship, inconsistent estimates z Influencing factors:– Modeling horizon (post-Katrina, post-housing…)– Random sample? Coverage?– Mill inventories, weather patterns and tract characteristics influence stumpage prices– Substitution (short-term, scale) - PCNS– Wood supply agreementsSOFEW-2008, Savannah, GA March 9-11, 2008Lessonsz Price = f(stand/bid characteristics, weather patterns, mill inventory, else…)z Fine-tuning elasticity estimates:Price = a + B*(stand and bid characteristics) + Ep)ln()ln(%%ppEQEQ∂∂=∆∆=ηSOFEW-2008, Savannah, GA March 9-11, 2008Questions?z Tim Sydor [email protected] Brooks Mendell


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