U.S. Economy and Housing Market. After offering some encouragement earlier in the year, the budding U.S. economic recovery seems to have stalled out in recent months. Nevertheless, the U.S. unemployment rate has been steadily moving down since the end of 2009 and stands at 8.2 percent as of May. There are 4.3 million more jobs in the U.S. than at the end of 2009. New housing starts are finally creeping up from the historically low and flat level they have been in for the last three years. But the fragile economy faces various serious challenges—there are still too many unemployed workers, foreclosed residential properties will weigh down the housing market for years to come, the European financial crisis drags on, China’s economy is slowing, political gridlock paralyzes Washington DC, and state and local government cutbacks continue.
Log and Lumber Prices. Pacific Northwest log prices continue to hold relatively steady, with the price for a “typical” DNR log delivered to the mill averaging $475/mbf over the first five months of 2012, down slightly from an average of $481/mbf for all of 2011. West Coast lumber prices are up a little from last year, with the Random Lengths’ Coast Dry Random and Stud composite lumber price averaging $282/mbf for the first four months of 2012, compared with an average of $270/mbf for all of 2011.
Timber Sales Prices. Through the first eleven months of nearly-completed FY 2012, DNR timber sales prices have averaged $309/mbf, compared with the $282/mbf price projected for the entire fiscal year in the three previous Forecasts. The FY 2012 average sales price is changed to $301/mbf in this Forecast based on the higher year-to-date results as tempered by an expected lower June average sales price on higher than average monthly sales volume. Since a significant recovery in the U.S. housing market is not foreseen over the next several years, we are holding the projected FY 2013 timber sales price at $274/mbf and the FY 2014 and 2015 prices at $300/mbf. An earlier housing recovery would pull DNR’s timber sale prices higher.
Timber Sales Volume. With FY 2012 nearing its end, projected timber sales volume for the fiscal year is revised downward to 553 mmbf from 656 mmbf since actual volume sold has not matched the earlier target. Previous Forecasts have tied projected timber sales volumes through FY 2014 to the decadal sustainable harvest level established in 2004. This Forecast removes this constraint because updated timber sales plans strongly indicate that this assumption is no longer realistic. Accordingly, the previous FY 2013 and 2014 timber sales volume target levels of 667 mmbf annually are lowered to 580 and 562 mmbf based on updated timber sales estimates. If actual sales results follow these projections, the shortfall on the 5,500 mmbf decadal target for Westside timber sales would be about 275 mmbf. Timber sales volume for FY 2015, which is in the next sustainable harvest decade, is reduced by 10 mmbf to 587 mmbf, reflecting a lower level projection of Eastside sales.
Timber Removal Volume and Prices. In line with the reductions to projected timber sales levels, projected timber removal volumes are also adjusted downward in all years. The largest impact is in FY 2014, when timber removals are projected to be down from 711 to 573 mmbf (a 19 percent reduction). Removal volumes for the other years FYs 2012, 2013, and 2015 are forecast to be down three, nine, and six percent respectively. As a result of increasing the FY 2012 average timber sales to $301 from $282, projected timber removal prices are increased to $317, $289, and $285/mbf for FYs 2012, 2013, and 2014 respectively. FY 2015’s forecast timber removal price is unchanged at $293/mbf.
Bottom Line for Timber Revenues. There are significant reductions to projected timber revenues because of the reductions in projected timber sales volumes in FYs 2012, 2013, and 2014. The timber revenue projection for the 2011-2013 Biennium is revised downward four percent from $336.2 million to $323.3 million. For the 2013-2015 Biennium, the projected revenue from timber removals is revised down 12 percent from $389.1 million to $341.7 million.
Uplands and Aquatic Lands Lease (Non-Timber) Revenues. In addition to revenue from timber removals on state lands, DNR also receives sizable revenues from leases on uplands and aquatic lands. With revenues now expected to be approximately $18.0 million for the current fiscal year, FY 2012 will be the best year ever for revenues from DNR agricultural leases—due to a combination of a by-far record year for irrigated crop lease revenues, a near-record year for orchard and vineyard lease revenues, and the second highest year from dryland crop leases. As a result, the forecast for agricultural lease revenues for FY 2012 is increased by $3.0 million. Commercial lease revenue for FY 2012 is increased by $0.8 million to $10.3 million as revenues are exceeding our earlier cautious projection.
Estimated aquatic lands revenues are raised by $9.9 million in FY 2012 to reflect the results of two geoduck auctions held since the last Forecast. The February auction yielded the second-highest average price ($/lb.) on record. At the time of the February 2012 Forecast it was uncertain whether DNR would hold another geoduck auction (after February’s) during the fiscal year, so it was not included in the Forecast. The auction was in fact held and resulted in $8.0 million in revenue on higher than typical volume. Aquatic lands revenues are also increased $2.2 million, $2.3 million, and $2.3 million in FYs 2013, 2014, and 2015 respectively as a result of raising those years’ projected average geoduck auction prices ($/lb.).
All together, current 2011-2013 Biennium revenues from leases on uplands and aquatic lands are projected to be $139.7 million, up 13 percent from $123.9 million in the February 2012 Forecast. For the 2013-2015 Biennium these revenues are projected to be $125.9 million, up four percent from the previous $121.4 million.
Risks to the Forecast. Compared with previous Forecasts, the risk of not realizing projected timber sales volumes is greatly reduced by doing away with the assumption that timber sales volumes through FY 2014 would need to be high enough to match the decadal sustainable harvest level. Even so, falling short of projected timber sales volumes due to potential environmental and policy issues remains the largest risk to the Forecast. Also on the down side are the many challenges to U.S. economic recovery cited in the opening paragraph above.