First, there has to be a basis for the prediction. The basis that I chose was to look at the changes occurring in the forest industry and to look at what I thought the future economic environment might look like.
The Three Key Changes in Progress
• Changing Timberland Ownership
- Shift from forest industry to institutional and other owners
- Well under way and well documented
- Not a new thing but impact is changing
- Sourcing moving from residue to pulpwood
- Sheer magnitude is not well understood
The shift in timberland ownership is well documented so I didn’t spend any time on that whereas the magnitude of the biomass issue is not universally well understood and merited significant discussion. Slides focused on the biomass drivers, sources (Residues or pulpwood? Answer: pulpwood), nationwide energy sources and biomass utilization examples. There is also one slide on the cost of alternative transportation fuel costs (including cellulosic ethanol) relative to the cost of oil. It is a somewhat complex slide but the story it tells is that as oil goes up in price and as research brings costs of alternative fuels down, demand for biofuels grows in leaps. When I gave the talk less than two weeks ago, oil had settled into a trading range around $70. It is now approaching $80.
My view of the drivers behind the economic future looks like this:
• Social drive for renewable energy, energy self-sufficiency and climate change
• High energy costs- The key cost escalator
• High Inflation Rate (perhaps hyperinflation) Driven by:
- Very high government spending
- High oil prices
• Global Industrial Revolution
• Commodity Shortages (natural resources)
There is a series of slides supporting my economic assumptions followed by a series painting my opinion of the future for sawmills, pulpmills, the wood supply chain and the future forest. A brief synopsis follows:
•Biomass/Power companies will be a key part of the industry.
•There will be more “in-woods” operations (chippers, biomass harvesting, biochar, and perhaps mobile methanol).
•A smaller pulp and paper industry will survive and exporting will play a larger role.
•Sawmills: Demographics still favor housing and lumber export market will become significant. Imports less competitive.
•Logging contractors will have a more stable operating environment. Annual production contracts.
•Stumpage market will be more competitive and more stable.
•Plantation establishment will consider energy market.
•Timberland ownership will be a good place to be!
If you would like to see all of the slides, you can go to www.timberlandstrategies.com and navigate to the “Articles” page. The presentation is in html format, which destroyed the “Build” on a key slide (oil prices). I will be adding that one slide as a Powerpoint presentation with the build to make it easier to understand. Run slideshow. Objective is to show how oil prices and cellulosic ethanol (and, by inference, other wood based transportation fuel) costs are converging. Comments, thoughts and differing views are welcome. --Brian