Quarterly Economic and Revenue Forecasts
   

UPDATED: March 5, 2024
 
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 from 2013 and prior years, contact the Office of Budget and Economics by phone at 360-902-1730 or by email at obe@dnr.wa.gov.
 

Forecast Summary

Lumber and Log Prices. Lumber prices were exceptionally volatile from 2020 to 2022, repeatedly doubling or tripling within months and then crashing back down sometime later. For example, in 2021, prices peaked at around $1,600/mbf in May, then plummeted to a low of $414/mbf in August1. However, since the beginning of 2023, prices have remained relatively stable and lower than recent years, staying in between $370/mbf and $490/mbf, with an average of $427/mbf. Prices are expected to remain in this range until late 2024.
 
High lumber prices appear to have pulled up log prices, and at this point it seems that the sustained lower lumber prices in 2023 are pulling down log prices, albiet slowly. Log prices peaked at $790/mbf in July 2022, and since then have gradually declined to $612/mbf in December 2023. This is still higher than most periods in the last 20 years in nominal terms, though not in real terms. Like lumber prices, log prices are expected to remain in a fairly narrow range near current prices until they start to increase in late 2024.
 
Timber Sales Volume. Similar to FYs 22 and 23, there has been a significant decrease in the volume of wood DNR plans in the third quarter forecast. In the November forecast, DNR had planned to offer between 550-570 mmbf for FY 24. The planned volume offered now is 489 mmbf, and the forecast is reduced to 480 mmbf, which takes into account the likelihood of some planned sales to go unsold at auction, delayed, or cancelled.
 
Historically, a buffer of around 10 percent of planned sales volume has been adequate to account for the typical risks to sales. However, internal departmental decisions, increasing pressure for lawsuits, and community and county resistance to some prepared sales have shown that buffer to be inadequate in the last three years. These issues have been particularly problematic for volume delivery because they have occurred on sales that have already been fully prepared - the work that went into them is a sunk cost and is gone, and the program often doesn’t have enough time or resources to bring new, alternative sales to auction. It is not clear yet how this type of risk will change in the future as the program adapts to the new environment, but starting next forecast we are likely to build in a larger buffer to planned sales volume.
 
Timber Sales Prices. Timber sales prices for FY 23 ended the year at $390/mbf.
 
The forecast timber sales price for FY 24 is reduced by $10/mbf to $350/mbf. This is due almost entirely to the reduction in the volume offered for sales—the reduced volume is largely from the west side of the state, which typically has higher value timber.
 
Outlying years’ prices are unchanged at the long-term average of $350/mbf.
 
Timber Removal Volume and Prices. The 508 mmbf removal volume in FY 23 was slightly higher than the 500 mmbf forecast. The FY 24 removal forecast is reduced by 10 mmbf to 500 mmbf. Harvests on DNR lands have been slower than expected to-date, apparently due to readily available private logs, and harvests for next couple of the months are likely to be hampered by weather. The downside risk for the removal volume outweighs the upside.
 
The removal price forecast is reduced for FY 24 through FY 26.
 
Timber Revenue. The timber revenue forecast is reduced for FY 24 through FY 26, but is unchanged for all other years.
 
Non-Timber Uplands Revenues. In addition to revenue from timber removals on state-managed lands, DNR generates sizable revenues from managing leases on other uplands.
 
The commercial uplands lease revenue forecast is reduced by $0.6 million for both FYs 24 and 25. The primary cause of this is the loss of a large lessee in February 2024, with an annual rent of $1 million. An additional issue is a roof failure on another large lease that has caused the lessee to stop paying rent. The forecast includes the assumptions that the empty property will be re-let by the end of 2024 and that the lessee of the other property will pay a large portion of the back rent due. The downside risks for the commercial leases forecast far outweigh the upside.
 
While there are no changes to the forecast from irrigated agriculture and orchard/vineyard, there are notable opposing risks for these revenue sources. First, the revenue to-date for irrigated is much lower than expected. However, there doesn’t appear to be any reason for this - there have not been notable changes in any leases that would account for a difference this large. Consequently, we are assuming that the delayed revenue is due to a change in the timing of revenue that we’re unable to pinpoint yet.
 
Second, revenue for orchard/vineyard is much higher than expected at this point in the year and is on-track to be similar to last year. However, there are substantial risks to orchard/vineyard revenue that should start pulling it down, so we haven’t changed this forecast either. Wine grape demand has fallen substantially, with at least one major buyer reducing their purchasing contracts — equivalent to around 1/6 of the total wine grape acres in production in the state. Additionally, cherries had a large crop this year but low demand, leading to some grower to decide not to harvest all of their crop.
 
Aquatic Revenues. Aquatic lease revenue for FY 23 was $2 million higher than we had expected in the June forecast. This was primarily due to much higher, and unexpected, revenue in water-dependent and non-water-dependent leases.
 
The revenue to-data for non-water-dependent rents are much higher than we’d expect at this point in the year. It appears that the higher revenue from FY 23 presaged actual revenue growth, as opposed to a one-time jump. It appears that as some of these leases go through reassessment, the appraised values has been increasing. Additionally, these leases escalate based on inflation, which have been unusually high over the last couple of years. Consequently, the non-water-dependent revenue forecast is increased by $0.4 million for all forecast years.
 
Other than a drop in easement rents, which are typically very small and notoriously difficult to forecast, revenue to-date for other revenue sources is roughly where we’d expect. Additionally, there are no major upcoming issues for these sources, so there are no other changes to aquatic lease revenue.
 
The geoduck forecast revenue for FY 24 is notably higher than the surrounding years because bonus bid revenue that had been expected in FY 23 was shifted into FY 24. Aside from that, all year’s forecast revenue for geoduck has been increased.
 
We have re-worked the geoduck pricing model to only include data from post-2010. China meaningfully entered the geoduck markets in 2010 and created a step-change in prices. The previous model included those pre-2010 prices and it caused the model to predict a continued upward trend in the future, which does not seem likely. Basing the model on post-2010 period gives the model a better fit and provides a more reasonable forecast.
 
The increased forecast for all years is based on the new pricing model. Additionally, the FY 24 revenue forecast is increased based on actual prices for the more recent auctions, which were still higher than our previous forecasts.
 
It is important to note that the increase in prices has offset a decrease in the mass of geoduck likely harvested. The total allowable catch of geoduck has been decreasing in recent years and is expected to be around 1.8 million pounds this year - down from 2.2 million pounds in 2015.
 
As usual, geoduck revenue faces a number of risks that can cause it to vary wildly. Particularly pertinent right now is the availability of compliance vessels. There has been a maintenance backlog on compliance vessels, and their lack of availability has recently temporarily halted harvests.
 
As usual, additional risks include:
  • paralytic shellfish poison closures
  • weather issues - such as sewage contamination from flooding run-off
  • China’s policies around geoduck, including their stance on arsenic detection and tariffs still on the books from the "trade-war" from 2018-2019
  • China's economic growth
 
Total Revenues. Total revenue for the 2023-25 biennium is reduced by $4.6 million to $526 million, while the 2025-2027 biennium is increased by $1.0 million to $510 million.
 
Other notes to the Forecast. There are, as always, a number of sources of uncertainty around DNR revenue specifically, and the overall economy more broadly. These include:
  • uncertainty about the type and quality of stumpage DNR is able to bring to market more than six months out; and
  • the ongoing (but apparently dormant) trade war and political tension with China directly affecting timber, agricultural products and geoduck exports and price.
 
Climate change has emerged as a meaningful short- and long-term risk as opposed to an amorphous risk in the far future, as previously rare extreme weather events become more common. In 2021, drought in Washington decreased wheat production on DNR lands by about 40 percent. In September and October 2021, extraordinary rainfall in British Columbia destroyed roads and railways, essentially halting timber harvests, lumber production, and timber exports through the Port of Vancouver. In mid-June 2022, there was concurrently: massive flooding in Montana and Wyoming, thunderstorms that took out power-grids in the Great Lakes, and a record setting heat-wave that killed over 2,000 cattle in Kansas2.
 
Climate change will increasingly affect Washington’s fire seasons — drought and rising temperatures dry out fuels fast, leaving conditions ripe for wildfires to begin earlier in the year, burn longer, and spread more unpredictably than in the past. Although these haven’t seriously affected DNR timberland revenue since 2015, they pose a significant risk to both our short-term timber revenue forecast — potentially destroying standing timber under contract — and long-term revenue by destroying younger stands that would be harvested in future decades. Research suggests that the massive fires in Oregon around Labor Day 2020 caused not only immediate damage, but will reduce future Oregon harvests by 115 to 365 mmbf per year for the next 40 years. That, with the more immediate damage from the fires, suggests an overall economic impact of $5.9 billion on Oregon’s Forest Sector3.
 
  1. The prices used here are for West Coast standard or better 2x4 Douglas-fir/Hemlock boards. Also, see (figure [fig:lls]) for a chart showing how these prices have moved
  2. https://www.washingtonpost.com/climate-environment/2022/06/16/summer-climate-disasters/
  3. 2020 Labor Day Fires: Economic Impacts to Oregon’s Forest Sector, Oregon Forest Resources Institute - https://oregonforests.org/node/840

Fiscal Year 2024

September 2023  |  November 2023  |  February 2024  |  June 2024

 

Fiscal Year 2023

September 2022  |  November 2022  |  February 2023  |  June 2023

 

Fiscal Year 2022

September 2021  |  November 2021  |  February 2022  |  June 2022

 

Fiscal Year 2021

September 2020  |  November 2020  |  February 2021  |  June 2021

 

Fiscal Year 2020

September 2019  |  November 2019  |  February 2020  |  June 2020*

 
*Not completed due to COVID-19 pandemic.
 

Fiscal Year 2019

September 2018  |  November 2018  |  February 2019  |  June 2019

Fiscal Year 2018

September 2017  |  November 2017  |  February 2018  |  June 2018

 
 

Fiscal year 2017

September 2016  |  November 2016  |  February 2017  |  June 2017

 

Fiscal Year 2016

September 2015  |  November 2015  |  February 2016  |  June 2016

 

Fiscal Year 2015

September 2014  |  November 2014  |  March 2015  |  June 2015

Fiscal Year 2014

September 2013  |  November 2013  |  February 2014  |  June 2014

 
Office of Budget & Economics
1111 Washington St. SE 
MS 47001
Olympia, WA 98504-7001
360-902-1730
Fax 360-902-1775
obe@dnr.wa.gov
 
  1. 2020 Labor Day Fires: Economic Impacts to Oregon’s Forest Sector, Oregon Forest Resources Institute ''https://oregonforests.org/node/840''