Effective Analysis of Timber Markets Tells a Story

Often, there is a “better” way to do things. It doesn’t really matter if you put your pants on with the leg left first or the right, but it is easier to put your pants on before your shoes. Early in my forestry career, I attended a “total quality management” workshop and Wayne, the instructor, drove home the point that there is often a “best” or “better” way to do a job, no matter your preference. “That’s called a good process. We’ve figured out better ways to use a chainsaw or drive a truck, ways that are safer and more productive, so master those.”

Relevance to Timberland Investing

In our work as forest industry researchers, we found that our “better” way to produce and deliver conclusions and recommendations was to do so as evidence-based stories. We ask, “what is the story?” when evaluating the evidence. How does this timber market function and perform relative to others? To what extent is this wood basket exposed to or immune from regional risks? Does it benefit from an “absence of negatives”? How well positioned is it to benefit from specific “upsides” and opportunities?

During our annual Timber Market Analysis class, we walk through a step-by-step process to understand, track, and analyze the price, demand, supply, and competitive dynamics of local timber markets and wood baskets. Our instructors coordinate the flow of the material to emphasize the most effective “order of operations” and delivery of key messages.

For example, we must define an “operable” and “analyzable” market before evaluating it. This includes multiple dimensions that account for the local timber market or wood basket as something geographic, operational, and economic. A market in forestry is not just a circle on a map; it is also a marketplace with buyers and sellers linked by supply chains.

With a market defined, we move on to baselining supplies and demand and operational issues as we develop forward looking projections. A logical flow of analysis reduces error and highlights key opportunities. A natural analytic progression and clear “story” for communicating results facilitates the usefulness of evaluating timber markets for investment purposes. This is true across roles, from forestry consultants to timberland owners and investors to wood procurement professionals and professionals in finance, accounting and law.

The practice of identifying and communicating the throughline of a timber market provides a means for clients and investors to quickly evaluate for themselves the results and ask questions during their due diligence. Having clarity with respect to the narrative offers a first step for evaluating scenarios and making decisions.