Craig Calhoon, Economist, DNR Office of Budget & Economics
U.S. Economy and Housing Market. The U.S. economy, which showed several encouraging signs of recovery early this year, has since proceeded in fits and starts. Although the unemployment rate has generally moved down since the end of 2009 and stands at 8.1 percent as of August, the workforce has also grown smaller and the average duration of unemployment remains stuck at about 40 weeks. There are now 4.1 million more jobs than at the end of 2009, but almost 200,000 fewer than in June of this year. New housing starts are slowly climbing up from the historically low and flat level of the last three years. Despite promising trends in the housing market, the fragile economy faces serious challenges: there are still too many unemployed workers, and state and local government cutbacks continue; the European financial crisis drags on, though recent ECB policies may improve things; China’s economy is slowing; political gridlock has paralyzed Washington D.C. and the November elections loom large on business and investment optimism.
Forecast Period Extended. Starting from this forecast, FYs 2016 and 2017 will be added to the forecast period.
Log and Lumber Prices. Pacific Northwest log prices continue to hold relatively steady. The price for a “typical” DNR log delivered to the mill averaged $473/mbf over the first eight months of 2012, down slightly from $481/mbf for all of 2011. West Coast lumber prices are up from last year: the Random Lengths’ Coast Dry Random and Stud composite lumber price averaged $297/mbf for the first seven months of 2012, compared with $270/mbf for all of 2011.
Timber Sales Prices. DNR’s timber sales prices averaged $296/mbf in FY 2012, compared with $339/mbf for FY 2011. The FY 2013 average sales price is predicted to be about $280/mbf. Based on estimates of timber mix to be offered for sale and on increasing confidence in a genuine (albeit slow) recovery in the U.S. housing market, we forecast timber sales prices will be $315/mbf in FY 2014, $335/mbf in FY 2015, $319/mbf in FY 2016, and $308/mbf in FY 2017.
Timber Sales Volume. Except for FY 2013, projected sales volumes for FYs 2013-2015 follow the June 2012 Forecast. Projected timber sales volume for FY 2013 is revised downward from 580 mmbf to 560 mmbf to account for increased complexity in preparing harvest units for sale. Timber sales volume for FY 2015, which is in the next sustainable harvest decade, was reduced by 10 mmbf to 587 mmbf, reflecting a lowered projection for Eastside sales. Sales volumes for FYs 2016 and 2017 are each predicted to be about 587 mmbf.
Timber Removal Volume and Prices. FY 2012 is now complete, and timber removal volume—at 511 mmbf for the year—was below the much higher levels in the two previous fiscal years. However, the average FY 2012 removal price was up at $321/mbf, bolstered by FY 2011’s average sale price of $339/mbf. FY 2013’s 20 mmbf reduction in timber sales volume will only modestly affect over-all removals; although a portion of this effect will be felt in this fiscal year, most will be in FY 14 since removals lag behind sales. Removal volumes for FYs 2013-2017 are forecast to be 538, 582, 601, 581, and 587 mmbf respectively. Projected timber removal prices are forecast to be $283, $291, $311, $325, and $320/mbf for each of the fiscal years in the forecast period.
Bottom Line for Timber Revenues. Projected price increases will temper the effect of the 20 mmbf decrease in FY 2013 timber sales volume on revenues in the first three years of the forecast period. The timber revenue projection for the 2011-2013 Biennium is revised downward two percent from $323.3 million to $320.1 million. For the 2013-2015 Biennium, the projected revenue from timber removals is revised up four percent from $341.7 million to $356.5. Revenues for the 2015-2017 Biennium are predicted to be $376.8 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 management of leases on uplands and aquatic lands. FY 2012 had the highest revenues on record from agricultural and other upland leases ($26.6 million), commercial properties ($10.3 million), and aquatic lands ($39.6 million).
Compared to the previous forecast, revenues from agricultural and other upland leases are forecast to be up three percent to $24.7 million in FY 2013, up six percent to $23.5 million in FY 2014, and up six percent to $23.9 million in FY 2015. Forecast revenues for FY 2016-2017 are $24.2 million and $24.5 million, respectively.
There is no change in the predicted $9.5 million in commercial lease revenues for FY 2013; revenues in outlying years are forecast to be modestly higher.
Estimated aquatic lands revenues are lowered by four percent to $29.7 million in FY 2013, by two percent to $30.1 million in FY 2014, and by one percent to $31.0 million in FY 2015. These reductions reflect the return of price volatility in the geoduck market, uncertain and possibly flagging demand in China, and the results of the August 2012 geoduck auction. The August auction’s average price per pound was the lowest in over three years and formed part of a three-auction downward trend. Forecast aquatic revenues for FYs 2016 and 2017 are $31.9 million and $32.8 million, respectively.
Total 2011-2013 Biennium revenues from leases on uplands and aquatic lands are projected to be $140.3 million, up one-half percent from $139.7 million in the June 2012 Forecast. For the 2013-2015 Biennium these revenues are projected to be $128.0 million, up two percent from the previous $125.9 million. Revenues for the 2016-2017 Biennium are expected to total $133.1 million.
Risks to the Forecast. On the upside, there is a chance of a quicker and stronger recovery in the U.S. housing market. Falling short of projected timber sales volumes due to potential environmental and policy issues remains the largest risk to the Forecast. Also on the downside are the many challenges to U.S. economic recovery cited in the opening paragraph above.