UPDATED: November 27, 2013
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.
November 2013 DNR Economic and Revenue Forecast Highlights
U.S. Economy and Housing Market. The U.S. economy is improving in fits and starts. The unemployment rate peaked at 10.0 percent in October 2009 and has since dropped to 7.3 percent as of October, barely lower than a year ago. The unemployment rate for recent undergraduates is pushing 13 percent. Year-over-year GDP growth remains modest at below two percent over the last four quarters ending in September, and the recent government shutdown will lower GDP in this and future quarters. The housing market continues to show positive signs: new housing starts in the first eight months of 2013 averaged 907,000 (seasonally adjusted annual rate) and average U.S. housing prices have increased in each of the last 19 months through August. 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 instead of implementing a coherent, growth-driven economic policy, the U.S. government is engaging in perilous brinkmanship.
Lumber and Log Prices. Lumber and log prices are up in 2013. The Random Lengths’ Coast Dry Random and Stud composite lumber price hit $414/mbf in April 2013, an impressive 44 percent year-over-year increase, before falling off steeply to $322/mbf in June. Predicted by forest economists, this drop was due to the uneven response of bringing lumber production back online and is interpreted as a temporary setback and not the beginning of a long-term downward price trend. October prices averaged $366/mbf, and there will be considerable price volatility moving forward. The average price in 2013 is 20 percent higher than the same period in 2012. 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 $568/mbf in October.
Timber Sales Volume. Projected timber sales volumes for FYs 2014-2017 are unchanged from the September Forecast. Timber sales volumes are still predicted to be 540 mmbf in FY 2014 and about 500 mmbf in each of the outlying years.
Timber Sales Prices. The FY 2014 average sales price is now predicted to be about $337/mbf, down one percent from the $340/mbf predicted in September. Weighted by volume, sales prices have averaged $309/mbf in the first five months of the fiscal year. The lowered price expectations for this year are the effect of low value thinning sales. The predicted sales price for FY 2015 is lowered by $27 to $381/mbf. Based on continued confidence in a genuine recovery in the U.S., housing market, future sales prices estimates are lowered only slightly to about $405/mbf in FY 2016 and $412/mbf in FY 2017.
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 in most years of the forecast period. Removal volumes for FYs 2014-2017 are forecast to be 538 (-14), 572 (-14), 526 (+13), and 501 (+2) mmbf respectively. Projected timber removal prices are lower than the September Forecast at $308 (-$4.0), $340 (-$6.8), $377 (-$13.7), and $401 (-$11.7) per mbf for each fiscal year in the forecast period. 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. Accounting for the drop in timber sales prices and moderate changes to the timing of removals, anticipated timber revenues have decreased throughout the forecast period. The timber revenue projection for the 2013-2015 Biennium is revised downward four percent from $375.1 million to $359.9 million. Revenues in the 2015-2017 Biennium are predicted to be $399.3 million, down two percent from $406.5 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 very similar to the September Forecast; orchard leases are projected to generate an additional $0.5 million in FY 2014. With the exception of a $0.5 million drop in FY 2014, there are no changes to predicted commercial lease revenues over the forecast period. Revenues from these commercial leases are predicted to total $9.6, $9.9, $9.9, and $9.9 million in FYs 2014-2017 respectively.
Due to a minor revision in projected aquaculture revenues, revenues from aquatic lands are expected to be slightly higher than previously predicted in FY 2014, and unchanged in outlying years. Revenues from aquatic lands are expected to total about $30.2 million in FY 2014, $31.5 million in FY 2015, $32.1 million in FY 2016, and $32.4 million in FY 2017.
Total Revenues. Total 2013-2015 Biennium revenues are projected to be $493.1 million, down $14.9 million (three percent) from the previous projection. Revenues for the 2016-2017 Biennium are expected to total $534.8 million, down $7.2 million (one percent) from the September estimate.
Risks to the Forecast. Although significant curtailments in timber sales volumes were assumed in the June 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 2015-2017.
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 in the opening paragraph above.
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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