UPDATED: September 29, 2014
Economic & Revenue Forecasts
DNR manages a $400 million biennial budget produced by revenues from state trust and public lands. Our economic forecasts help protect Washington’s natural resources and manage millions of acres of trust lands on behalf of public schools, universities, counties, and other trust beneficiaries. The information and authoritative data we collect about Washington forestry products help policymakers, industry, planners — and you — to stay on top of market trends. Published quarterly, we develop each Forecast by gathering and analyzing accurate data about current economic conditions. Then, we make objective projections of future revenue for trust funds and their beneficiaries.
September 2014 DNR Economic and Revenue Forecast Highlights
U.S. Economy and Housing Market. While a harsh winter and business inventory adjustments caused the U.S. economy to shrink by 2.1 percent (annualized) in the first quarter of 2014, preliminary estimates of second quarter growth show a strong rebound at an annualized rate of 4.2 percent. Year-over-year GDP growth remains modest at almost 2.5 percent. In October 2009 the unemployment rate peaked at 10.0 percent, but has slowly fallen to 6.2 percent as of July 2014. While these are positive signals, the U.S. economy still faces significant challenges. Improvements to the housing market have been disappointingly slow: New housing starts in 2013 averaged 928,000, 52 percent over 2011, but have stagnated near a million so far in 2014. U.S. housing prices have been trending upward since January 2012, but price growth stalled in the second quarter of 2014. While it is dropping, unemployment remains historically high and there are significant difficulties for younger graduates and workers, as well as the long-term unemployed. Internationally, the economy of the European Union is shaky, with several countries still in recession and the threat of a deflationary spiral looming. The crises in Crimea and Ukraine have introduced significant political and economic uncertainty and China’s economy continues to show signs of underlying structural and demographic problems. Finally, the U.S. government still has not implemented a coherent, growth-driven economic policy—which is unlikely to happen in the highly politicized environment of an election year.
Lumber and Log Prices. Lumber and log prices were up in 2013 and continue to improve. While it varied widely, Random Lengths’ Coast Dry Random and Stud composite lumber price averaged $370/mbf in 2013 and averaged $379/mbf thus far in 2014, up over 20 percent from the 2012 average of $309/mbf. Pacific Northwest log prices have also moved up sharply after being fairly flat for 2011 and most of 2012. The price for a ‘typical’ DNR log delivered to the mill continued to climb from 2013’s $564/mbf average, up 18 percent from 2012, to a nominal high of $624/mbf in January, the highest price since 2000. However, the average price has since pulled back to $558/mbf as of July.
Timber Sales Volume. FY 14 timber sales volumes totalled 497 mmbf, 20 mmbf lower than the June Forecast. Given current timber sales plans and absent a new sustainable harvest calculation, sales volumes for FY 15 and future years are still estimated to total about 500 mmbf.
Timber Sales Prices. The FY 14 average sales price came in at $356/mbf, almost exactly as estimated in June. Weighted by volume, sales prices have averaged $330/mbf through the first two months of FY 15. The new predicted sales price for FY 15 is $381/mbf, down 3 percent from the June estimate. Due to a broad downward forecast revision in timber prices, future sales price estimates are lowered to about $391/mbf in FY 16, and $394/mbf in FY 17.
Timber Removal Volume and Prices. Changes in the harvest plans of DNR timber purchasers and lower year-to-date harvest volume have led to shifts in anticipated timber removal volumes throughout most of the forecast period. Removal volumes for FYs 15-17 are forecast to be 552 (-47), 600 (+68), and 468 (-47) mmbf. Timber removal prices are projected to be about $352 (-$2), $370 (-$12), and $382 (-$21) per mbf for FYs 15-17, respectively. These removal prices reflect changes in the removal timing and follow from, and lag behind, the changes projected in timber sales prices.
Bottom Line for Timber Revenues. Changes in the harvest plans of DNR timber purchasers and lower year-to-date harvest volume have led to shifts in anticipated timber removal volumes throughout most of the forecast period. Removal volumes for FYs 15-17 are forecast to be 552 (-47), 600 (+68), and 468 (-47) mmbf. Timber removal prices are projected to be about $352 (-$2), $370 (-$12), and $382 (-$21) per mbf for FYs 15-17, respectively. These removal prices reflect changes in the removal timing and follow from, and lag behind, the changes projected in timber sales prices.
Uplands and Aquatic Lands Lease (Non-Timber) Revenues. In addition to revenue from timber removals on state-managed lands, DNR also generates sizable revenues from managing leases on uplands and aquatic lands.
Projected revenues from agricultural and other upland leases are unchanged from the June Forecast. Revenues from all of these classes combined are predicted to total $35.8, $35.9, and $36.1 million in FYs 15-17 respectively.
Revenues from aquatic lands are projected to total about $30.4 million in FY 15, down slightly from the June estimate. Expectations for FYs 16-17 have been reduced to $30.5 million and $31.9 million, respectively.
Total Revenues. Total 2013-2015 Biennium revenues are projected to be $487.1 million, down $14.8 million (3.0 percent) from the previous forecast. Revenues for the 2016-2017 Biennium are expected to total $535.0 million, down $12.4 million (2.3 percent) from the June Forecast.
Risks to the Forecast. Although significant curtailments in timber sales volumes were assumed in the June 2013 Forecast, final timber sales in each year may be further reduced due to environmental, operational, and policy issues. These risks remain for the September forecast. Additionally, the assumed sustainable harvest limit of 500 mmbf could prove too high.
Upside potential for timber prices, and therefore to subsequent removal prices, seem to slightly outweigh downside risks. Downside risks include a further decline in the housing prices and demand, and decreased demand from China. Both of these have largely been accounted for in the price forecasts. However, the upside potential of an unexpected strengthening of the nascent recovery in the U.S. housing market is fairly low given the rates of employment and wage growth, and continued tight lending conditions. Supply-side influences of stumpage price—such as timber mix and quality—are poorer this year and difficult to estimate in future years, but are assumed to be about average. Also on the downside are the many challenges to U.S. economic recovery cited above.
Although, the end of the Chinese ban on geoduck imports from the Pacific Northwest has eased much of the uncertainty surrounding geoduck demand, geoduck prices are historically volatile and there are still questions about the testing conditions that China will accept. There is no guarantee that a blanket ban will not be reinstated. Additionally, there are indications that geoduck divers are pushing for higher wages. Taken together, this means that both the geoduck sales price and harvest volumes may become even more difficult to predict in the coming years.
2013 Economic & Revenue Forecasts
2012 Economic & Revenue Forecasts
2011 Economic & Revenue Forecasts
2010 Economic & Revenue Forecasts
2009 Economic & Revenue Forecasts
For Economic & Revenue Forecasts older than 2009
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