UPDATED: February 28, 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 of 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.
February 2014 DNR Economic and Revenue Forecast Highlights
U.S. Economy and Housing Market. The U.S. economy is still improving in fits and starts. In October 2009, the unemployment rate peaked at 10.0 percent, dropping back to 6.7 percent as of December 2013, while the unemployment rate for recent undergraduates continues to push 13 percent. Year-over-year GDP growth remains modest at below two percent, averaged over the last four quarters ending in December; the recent government shutdown will suppress GDP in this and future quarters. The housing market continues to show positive signs: new housing starts in the 2013 averaged 928,000 (up 18 percent over 2012 and 52 percent over 2011) and average U.S. housing prices have increased in each of the last 22 months through November. The U.S. economy still faces significant challenges. There are still too many unemployed workers, though some have reentered the workforce after having left; the financial and economic crises in Europe are improving, but several European countries remain in recession; China’s economy has slowed; and the U.S. government still has not implemented a coherent, growth-driven economic policy.
Lumber and Log Prices. Lumber and log prices were up in 2013. While it varied widely, Random Lengths’ Coast Dry Random and Stud composite lumber price averaged $370/mbf—up 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 climbed dramatically to a nominal high of $587/mbf in April, the highest price since 2000. The log price then fell a bit before climbing back to $610/mbf in December, to average $564/mbf for the year—up 18 percent from 2012’s average of $480/mbf.
Timber Sales Volume. FY 14 timber sales volumes expectations are nearer to 524 mmbf than the 540 mmbf projected in the November Forecast. Volumes are still expected to total about 500 mmbf in each of the outlying years.
Timber Sales Prices. FY 14 average sales price is now predicted to be about $345/mbf, up two percent from the $337/mbf predicted in November. Weighted by volume, sales prices have averaged $342/mbf in the first seven months of the fiscal year. The predicted sales price for FY 15 is essentially unchanged, at $382/mbf. Based on changes to anticipated thinning sale volumes and a reassessment of the cyclical nature of lumber, log, and stumpage inventories, future sales prices estimates are lowered to about $493/mbf in FY 16, and $401/mbf in FY 17.
Timber Removal Volume and Prices. Moderate changes in DNR timber purchasers’ harvest plans for volume currently under contract have led to shifts in anticipated timber removal volumes throughout most of the forecast period. Removal volumes for FYs 14-17 are forecast to be 544 (+6), 552 (-19), 515 (-12), and 511 (+10) mmbf. Timber removal prices are projected to be about $309 (+$0.3), $349 (+$8.0), $379 (+$0.9), and $392 (-$8.8) per mbf for each fiscal year. 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. With the exception of the current year, the above changes to timber sales prices, sales volumes, and harvest timing, effectively reduce projected revenues in the outlying years. The timber revenue projection for the 2013-2015 Biennium is barely changed, at $360.4 million. Revenues in the 2015-2017 Biennium are predicted to be $395.1 million, down one percent from $399.6 million.
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.
Revenues from agricultural and other upland leases are similar to the November Forecast. Agricultural leases—particularly orchard/vineyard and irrigated leases—are projected to generate an additional $1.4 million in FY 14, whereas commercial leases will contribute about $0.3 million less in FY 15. Revenues from all of these classes combined are predicted to total $37.8, $34.8, $35.4, and $35.6 million in FYs 14-17 respectively.
Revenues from aquatic lands are expected to be about the same as predicted in November: about $30.2 million in FY 14, $31.5 million in FY 15, $32.1 million in FY 16, and $32.4 million in FY 17.
Total Revenues. Total 2013-2015 Biennium revenues are projected to be $494.7 million, up $0.9 million from the previous projection. Revenues for the 2016-2017 Biennium are expected to total $530.6 million, down $4.4 million (one percent) from the November estimate.
Risks to the Forecast. Although significant curtailments in timber sales volumes were assumed in the June 2013 Forecast, further reductions due to potential environmental, operational, and policy issues (e.g., riparian management areas and continued timber harvest deferrals pending implementation of a long-term marbled murrelet conservation strategy) remain a real risk. This risk is particularly heavy for FYs 15-17.
While there are downside risks to the demand-side influences of timber sales prices—and therefore to subsequent removal prices—there is also upside potential if the nascent recovery in the U.S. housing market strengthens sooner than anticipated. Supply-side influences of stumpage price—such as timber mix and quality—are 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.
Because of the many uncertainties surrounding China’s ban of shellfish from the West Coast—not least of all the ban’s duration— it is very difficult to forecast the magnitude of the ban’s effect on revenues from the sale and harvest of wild geoduck in this and future years. This Forecast includes more conservative volume and price assumptions than did the November Forecast for the remaining two auctions in FY 14. The total geoduck revenue projection for FY 14 is unchanged due to the first two auctions of the year having such high prices; they roughly balance these new, lower assumptions. However, this new forecast assumes that bidders in the next few auctions continue to buy and harvest as they have during the first two months of the ban. Should this prove not to be the case, the $8.3 million of revenues projected for the remainder of this year may not be realized.
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