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