Economic & Revenue Forecasts
UPDATED: March 30, 2015
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.
march 2015 DNR Economic and Revenue Forecast HighlightsLumber and Log Prices. Lumber and log prices increased markedly in 2013 and somewhat less so in 2014. Random Lengths’ Coast Dry Random and Stud composite lumber price averaged $370/mbf in 2013, $373/mbf in 2014, and $341/mbf so far in 2015. Washington log prices moved up sharply from a two-year plateau in 2013 and continued to rise in 2014. The average price for a ‘typical’ DNR log delivered to the mill reached $591/mbf in 2014, and has averaged $560/mbf so far in 2015.
Timber Sales Volume. DNR has sold 248 mmbf thus far this fiscal year, which is about half of the revised 491 mmbf planned for FY15. Given current timber sales plans—and absent a new sustainable harvest calculation—sales volumes are still pegged at about 500 mmbf in each future year.
Timber Sales Prices. The FY14 sales price averaged $356/mbf. Weighted by volume, sales prices have averaged $375/mbf through February. Sales prices in FY15 are predicted to average $352/mbf, down three percent from November’s $365/mbf forecast. This reduction is primarily due to the continued slowdown in export markets, particularly China; to lower demand in end-use markets; and to an ample regional supply of logs. Stumpage sales price estimates are lowered to $365/mbf in FY16 and to $373/mbf in FY17, down six and one percent, respectively, from the November forecast.
Timber Removal Volume and Prices. Changes in the harvest plans of DNR timber purchasers 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 487 (-40), 612 (+39), 499 (-18) mmbf. Timber removal prices are projected to be about $339 (-$4), $350 (-$23), $358 (-$23) per mbf for FYs 15-17. 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. The above changes to timber sales prices, sales volumes, and harvest timing have reduced projected revenues in all years of the forecast. The timber revenue projection for the 2013-2015 Biennium is lowered 4.6 percent to $318 million. Revenues in the 2015-2017 Biennium are predicted to be $393 million, down 4.4 percent from November’s forecast.
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 revised up to $37 million in FYs 15 and 16 (up $1.4 million and $1.6 million, respectively). Outlying years are also revised upward.
Revenues from aquatic lands are projected to total about $30 million in FY15, up $1.1 million from the November estimate. Revenue expectations for FYs 16 and 17 have been revised to $32 and $31 million. Aquatic revenue changes in this forecast are largely due to changes in the expected revenue from DNR’s marketing of wildstock geoduck.
Total Revenues. Revenues for the 2013-2015 Biennium are projected to total $459 million, down $13 million (three percent) from the previous forecast. Revenues for the 2016-2017 Biennium are expected to total $531 million, down $13 million (two percent) from the November forecast.
Notes to the Forecast. Although our sales volume estimate for the current fiscal year is based on the best available internal planning data, timber sales in outlying years may be reduced due to unexpected policy, environmental, and operational issues. The assumed sustainable harvest limit of 500 mmbf could prove too high.
In the current fiscal year, the revised timber price estimate assumes an average price of $330/mbf in each of the remaining four months of sales, which is well below recent averages. Recent timber auction prices suggest that purchasers of DNR timber are preparing for higher end-product prices in the coming year than are forecast by a number of industry analysts. Moreover, purchasers may have been paying more for timber than they ‘need’ to, given lower concurrent log prices. In short, the FY15 price forecast incorporates conservative market assumptions that may not prove out.
In outlying years, upside and downside risks to the timber price forecast—and therefore to subsequent removal prices and revenues—are more in balance.
One major downside risk for the forecast is timber and lumber demand from China. While a decrease in demand has largely been accounted for in the price forecasts and by markets, there is growing concern that that the slowdown in Chinese construction, and economic growth more generally, will be much more dramatic than has been expected.
The upside potential of an unexpected strengthening of the nascent recovery in the U.S. housing market is still fairly low, but has become possible with the strong employment growth and reasonable wage growth seen in 2014. Real wage growth combined with employment growth could provide the necessary base for household formations to increase, and therefore demand for housing—the major driver of the timber market.
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 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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