Quarterly Economic and Revenue Forecasts
UPDATED: February 27, 2017
This quarterly forecast includes our analysis of current economic conditions and our objective projections of future revenue for state trust funds and their beneficiaries.
For Economic and Revenue Forecasts 2013 and prior years, contact Office of Budget and Economics, PH: 360-902-1730; FAX: 360-902-1775; or email: firstname.lastname@example.org
February 27, 2017
Lumber and Log Prices. After peaking at $373/mbf in 2014, coast lumber prices fell to $311/mbf for 2015. They recovered slightly in 2016, averaging $326/mbf, mostly due to higher first quarter housing starts than in 2015. The increase in starts spiked lumber demand, catching lumber dealers off-guard, and pushed prices up from the end of the first quarter. Prices retreated toward the end of the year but did not fall to earlier lows.
Through 2015 a `typical' DNR log averaged $521/mbf, falling from the $591/mbf average in 2014. The average price for 2016 was slightly higher at $536/mbf. The decline in 2015 was primarily due to the dramatic slowdown in demand from China and an ample regional supply of both logs and lumber. Log prices are expected to increase in 2017 due to increased lumber demand.
Timber Sales Volume. Given current timber sales plans, the sales volume forecast for FY 17 is increased by 15 mmbf to 500 mmbf. Sales plans in outlying years have not changed, so absent a new sustainable harvest calculation, sales volumes in those years are forecast to remain at 500 mmbf.
Timber Sales Prices. Industry analysts expect higher prices in CY 2017. FY 17 auction prices have averaged $335/mbf to-date; while stronger than the bid prices through the same period last year, these results are a bit weaker than assumed in the November Forecast. Although we lowered our forecast to $350/mbf in November, the February Forecast includes a modest reduction (-$6/mbf) to this fiscal year's estimate. The sales price forecasts for outlying years are unchanged.
Timber Removal Volume and Prices. Accounting for changes to purchaser plans and the timing of contract expirations, we're lowering FY 17 harvest volume expectations by 15 mmbf to 565 mmbf. In FYs 18-20, compensating increases of 27, 13, and 1 mmbf yield annual estimates of 631, 543, and 515 mmbf.
The average timber removal price for FY 17 is reduced to $295/mbf. Timber removal prices for FYs 18-21 are projected to be about $322 (-$26), $349 (-$14) and $355 (-$2) per mbf. These removal prices reflect changes in the removal timing and follow from, and lag behind, the changes projected in timber sales prices and from an internal adjustment in the model.
Timber Revenue. The above changes to timber sales prices, sales volumes, and harvest timing have shifted projected revenue down in all forecast years. Revenues for the 2015-2017 biennium are forecast to total $328 million, down three percent ($9 million) from November's forecast. Forecast revenues for the 2017-2019 biennium are decreased by two percent ($10 million) to $393 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.
Upland lease revenue estimates are decreased by $0.1 million in FY 17 due to a large decrease in expected dryland revenue, which is almost fully compensated by increases in expected revenue for irrigated agriculture, commercial leases, and other upland revenue. Revenue forecasts for outlying years are decreased modestly due to reductions in dryland revenue.
The average geoduck auction price for the November auction was much higher than expected. Higher prices combined with higher sales volume expectations have pushed up the geoduck revenue forecast for FY 17 by $4 million and for FY 18 by $1 million. These increases outweigh small decreases in expected earnings from aquatic leases. In outlying years the forecasts for aquatics revenues are reduced due to lower expectations for aquatic leases.
Total Revenues. Forecast revenues for the 2015-2017 Biennium (FYs 16-17) are lowered by $5 million to $471 million. Most of the revenue change is driven by expected timber prices and harvest timing. Revenues for the 2017-2019 Biennium (FYs 18 and 19) are decreased by $10 million to $532 million.
Notes to the Forecast. While the sales volume estimates are based on the best available internal planning data, they are subject to adjustments due to ongoing operational and policy issues. These issues may also affect sales volumes in outlying years, where the assumed sustainable harvest volume of 500 mmbf might be too high.
A continuing downside risk for the forecast is timber and lumber demand from China, with ongoing concern that the country's current slowdown could become dramatically worse.
In previous forecasts, we noted that the expiration of the Softwood Lumber Agreement posed a major downside risk to the forecast: the expiration of tariffs might allow a flood of cheaper Canadian lumber into the U.S., suppressing domestic prices. This doesn't seem to have happened. Current expectations are that recent filings with the U.S. Department of Commerce and the U.S. International Trade Commission will result in countervailing and antidumping duties on Canadian lumber starting at the end of the first quarter of 2017.
Robust growth in U.S. housing demand would provide much needed, if unlikely, high-side potential. This has not yet occurred, despite strong employment growth for the last two years. The lack of housing demand is likely due to a number of impediments---persistently stringent lending standards, a continued tough labor market for younger workers, student loan debt, and general economic and social malaise---most of which are easing, but none of which show signs of completely abating just yet.
In late 2015, China again instituted a ban on geoduck imports from the Pacific Northwest due to paralytic shellfish poison (PSP) and arsenic concerns. However, once again, this didn't appear to impact prices or harvest activity. In late February 2016, the Washington Department of Health posted an article saying that China had lifted the ban and it listed the areas cleared for geoduck export to China. It is entirely possible that China could re-enact a more forceful ban on geoduck that would have a dramatic effect on geoduck prices, and therefore revenue.
Additionally, on-going friction between geoduck purchasers and divers could disrupt the market, though these seem to have settled. As always in the geoduck fisheries, PSP closures create uncertainty around harvest volumes as well.
Archived Economic & Revenue Forecasts
Fiscal year 2017
September 2016 | November 2016 | February 2017 | June 2017
Fiscal Year 2016
Fiscal Year 2015
Fiscal Year 2014
Office of Budget & Economics
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