Progress 09/01/11 to 08/31/15
Outputs
Target Audience:Government agencies; forest landowners; forest industrial firms; loggers; the general public Changes/Problems:
Nothing Reported
What opportunities for training and professional development has the project provided?Not intended to provide training and professional development opportunities; nothing to report How have the results been disseminated to communities of interest?Major study findings have been presented in a professional meeting and submitted for peer review and publciation. C. Sun. 2015. Imperfect competition and timber market dynamics after hurricanes. The 2nd Symposium of International Society of Forest Resource Economics. June 1, 2015. Vancouver, Canada. What do you plan to do during the next reporting period to accomplish the goals?Nothing to report. This is the termination report.
Impacts
What was accomplished under these goals?
The immediate bearing of a hurricane on forests is tree damage and an increase of timber supply during salvage operations. A hurricane also can increase lumber demand in impacted regions during reconstruction phase. After a hurricane, governments often adopt various policies in helping forest communities recover from the disturbance. These supply and demand shocks can affect timber and forest products markets through vertical linkage along timber supply chain. In this study, the impact of hurricanes on forestry is assessed through a partial equilibrium model. Hurricane Katrina of 2005 and a heavily affected region in Mississippi are used for an illustration. Major findings reveal that stumpage price can recover gradually with less timber salvaged over time. Landowners with undamaged timber have positive producer surplus when the timber market is recovered, but loggers and sawmills only gain slightly from the process. By parameter, several of them (e.g., price elasticity of supply for stumpage) have a larger impact than the others. Market power of industrial firm shows some moderate impact on the lumber market, but a small impact only on the stumpage and log market. By exogenous shift, salvage sales have the largest impact, followed by inventory loss effect and lumber demand increase. Several conclusions can be drawn from the analyses and findings. First of all, the market evolution after a hurricane is inherently dynamic and the recovery of timber market takes time. The partial equilibrium model is estimated with assumptions for five quarters and the findings reveal the dynamic process well. When a hurricane damages timber and salvage sales flood a local market, timber price will be depressed and the harvest quantity will increase dramatically. This disturbance to timber supply will be passed to other markets through the vertical linkage of harvesting and processing. Market participants will gain or loss from the change, depending on their position in the market and the speed of recovery in the timber market. Landowners of undamaged timber will suffer from the depressed price and reduced harvest from their land during the recovery period. Landowners of damaged timber will benefit from the salvage temporarily, but suffer in the long term as it takes time for a forest stand to recover or reestablish. In general, trees decay and loss value over time, so salvage sales have the largest value right after a hurricane, decline gradually over time, and stop after about one year. The inherently dynamic nature of this issue is the foundation of any policy design and discussion. The analyses also reveal that loggers and mills experience a much smaller impact from hurricanes than forest landowners and consumers of lumber products. From the perspective of governmental policy, this suggests that efforts in expanding harvesting and processing services are less helpful to facilitate the recovery in timber market than commonly expected. These efforts from governments, for instance, include clearing public roads, relaxing weight limits for timber transportation, permitting or subsidizing larger salvage log storage at mills. These policies may help and support forest communities spiritually in difficult time, and in regions with very tight supply of logging service, help more logging firms move to the affected region. Nevertheless, based on the findings from this study, overall these policies may have limited impacts through the market mechanism. Policy intervention related to lumber product demand has the best promise in facilitating recovery of timber market. The quantity of lumber demand in the affected region can increase because of the rebuilding activities. This rise in product demand can be passed to the upstream logging and timber markets, and therefore, provides benefits to all market participants. This is true even when the price elasticity of demand for lumber product used in this study is very inelastic. The implication is that governments can provide financial and technical assistance to help homeowners or businesses start rebuilding activities as early as possible after a hurricane, and furthermore, encourage builders to use lumbers produced from damaged region as much as possible. With the expanded lumber demand, excess timber supply will be digested more promptly and efficiently through the market, and ultimately, help forest communities in recovering from hurricanes and achieving sustainable growth.
Publications
- Type:
Journal Articles
Status:
Under Review
Year Published:
2015
Citation:
Sun, C. Under review. Timber market recovery after a hurricane. Forest Science. 33 pages.
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Progress 09/01/13 to 08/31/14
Outputs
Target Audience: Government agencies; forest landowners; the general public Changes/Problems:
Nothing Reported
What opportunities for training and professional development has the project provided? Not intended to provide training and professional development opportunities; nothing to report How have the results been disseminated to communities of interest? Major study findings have been presented in a professional meeting and published on Land Economics, one of the leading refereed journals in resource economics. What do you plan to do during the next reporting period to accomplish the goals? Follow the plan listed in the project proposal.
Impacts
What was accomplished under these goals?
After several decades’ evolution, the softwood lumber market in North America has become the battlefield of lumber producers from three major regions with similar market shares: the southern United States, the western United States, and Canada. The competition among these regions has been affected by many factors, including timber resource endowments, forestland ownership, environmental protection and public land policies, trade disputes between the two countries, and the general economy status. Following previous market integration studies, a threshold vector error correction model is developed in this study to investigate the nonlinear price transmission in the softwood lumber market among these regions. The time span includes 34 years between 1978 and 2011, and is longer than those used in previous studies. The major conclusion is that price transmission among lumber production regions in North America is nonlinear and asymmetric. As the first study that utilizes a nonlinear time series model to analyze softwood lumber price dynamics and the impact of resource policies, the new findings from this study have several policy and management implications. The lumber price in the southern United States shows the most flexibility and the largest magnitude in responding to price disequilibrium with other regions. Forestlands in both the western United States and Canada are mostly owned by the public, whereas about 90% of forestlands in the southern United States are owned by the private, including nonindustrial forest landowners, industrial firms, and institutional investors. The dominance of market mechanism in the South may be largely responsible for the active behavior of the southern lumber price in regional competition. This finding has important implications to forest policy design and implementation. In general, policymakers utilize instruments of coercion and regulations, financial aids, technical service, and public land ownership in achieving forest policy goals. In particular, government management of public forestlands is expected to produce more nonmarket goods and demonstrate public preferences of natural resource management to private forest landowners. The new finding reveals that when the share of lumber production from privately owned forests is sufficiently large, the interaction between public and private forestland ownership can be modified substantially. Feedbacks from the southern market can disclose the preferences of private landowners and other market participants in the face of evolving environmental regulations and market competition. These timely feedbacks provide valuable information to the general public and policymakers for policy design, implementation and evaluation. The nonlinear price transmission differs among regions. The domestic pair between the West and the South in the United States has the lowest correlation, the smallest average of price margins, but the highest volatility of price margins. Some positive asymmetric price transmission is identified between the western and southern prices. In contrast, the other two pairs with the Canadian price involved have larger correlation coefficients and are more prone to negative asymmetry. This suggests that producers in the West and South are slow in responding to an enlarged price margin between the two regions, but fast in responding to a reduced price margin. In contrast, both the western and southern prices have reacted to any price disequilibrium relative to the Canadian price in a way that these prices follow each other as closely as possible. These differences among regional price pairs may be attributed to product differentiation and varying degree of substitution between imported and domestic softwood products. Given the difference between the two countries (e.g., forestland ownership), softwood lumber trade disputes between Canada and the United States will likely continue. Incorporating nonlinearity and asymmetry in welfare analyses may reveal different impacts on market participants across regions, and thus improve the existing assessments in this area. From a policy perspective, the finding from the present study highlights the need to consider nonlinear price transmission among regional prices in pursuing a better trade remedy to softwood lumber dispute in North America. Different events can generate very diverse and nonlinear price adjustments. The generalized impulse response analyses reveal that over the period between 1991 and 1993 related to the federal timber restrictions, short-term price responses are more sophisticated with varying duration and magnitudes, especially when the price shock is initiated on the western price. This is consistent with the fact that the contentious disputes over the spotted owl lasted for several years in the 1990s. The global financial crisis that started in 2008 has been more prevalent over all the regions under consideration, and the responses over this period are more balanced among the three price pairs. In general, when nonlinear price transmission exists, the effect of a shock depends on the history of the time series when the shock occurs, the sign of the shock, and the magnitude of the shock. The implication of this finding is that in adopting a specific forest policy or evaluating its effectiveness, individual assessments should be conducted to examine the nonlinear and asymmetric impacts that are unique to the policy under consideration.
Publications
- Type:
Journal Articles
Status:
Published
Year Published:
2013
Citation:
Ning, Z. and C. Sun. 2013. Vertical price transmission in timber and lumber markets. Journal of Forest Economics 20(1): 17-32.
Sun, C. and Z. Ning. 2014. Timber restrictions, financial crisis, and price transmission in North American softwood lumber markets. Land Economics 90(2): 306-323.
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Progress 09/01/12 to 08/31/13
Outputs
Target Audience: Government agencies; forest landowners; the general public Changes/Problems:
Nothing Reported
What opportunities for training and professional development has the project provided?
Nothing Reported
How have the results been disseminated to communities of interest? Major study findings have been presented in a professional meeting and published on refereed journals and conference proceedings. Sun, C. 2012. Nonlinear lumber price transmission. The 1st International Symposium of Forest Economics. October 14, 2012. Beijing, P.R. China. Ning, Z. and C. Sun. 2012. Analysis of the spatial price linkage between forest products markets in the South and Northwest. The 42th Annual Southern Forest Economics Workshop. March 20, 2012. Charlotte, NC. What do you plan to do during the next reporting period to accomplish the goals? Follow the plan listed in the project proposal.
Impacts
What was accomplished under these goals?
Timber and related manufacturing activities are an important component of the economy in the United States. The vertical integration of timber and forest products markets have received limited attention in the past. To address this research need, quarterly time series related to sawtimber and framing lumber products for softwood are used to construct representative stumpage price, delivered timber price, and lumber price in the South and West between 1977 and 2011. Linear and nonlinear threshold cointegration analyses are utilized to examine the price dynamics in the long term. Symmetric and asymmetric error correction models are also employed to assess the price transmission in the short term. A number of conclusions were reached from the analyses. First of all, along the timber supply chain, cointegration in the early stage (i.e., stumpage/delivered timber price pair) is stronger than in the latter stage (i.e., delivered/lumber price pair). The magnitude of the responses is larger and the speed is faster in the early stage. This finding is supported by the Johansen and Engle-Granger cointegration analyses, the nonlinear threshold model, and the error correction model. This is reasonable because a bigger share of the production cost in the early stage comes from timber than in the latter stage. This study uses the price of sawtimber and dimension lumber. If the analyses are applied on prices of pulpwood and paper products, the trend may be even more apparent, as a smaller percentage of paper product costs are related to pulpwood only. Between the southern and western regions, the South shows slightly stronger market integration. This may be partially due to the facts that the stumpage and delivered timber prices in the South are collected from a single source, and the western prices are collected from two different sources. Nonetheless, both the stumpage and delivered timber prices are more stable in the South than in the West. Public forest ownership is dominant in the West and timber harvesting restrictions on federal lands in the region have generated fundamentally more volatile timber prices. This has made prompt price transmission and adjustment more difficult, and consequently, the timber and lumber markets less integrated in the West. Finally, asymmetric price transmission is found along the timber supply chain. Prices are more responsive when the price margin is increased than decreased in the long term, where the degree of asymmetry varies by pair in the short term. This may indicate that the timber and lumber product markets are fairly efficient in the United States. Market participants are motived to adjust timber harvesting or lumber manufacturing activities swiftly when harvesting margins or processing margins increase.
Publications
- Type:
Other
Status:
Awaiting Publication
Year Published:
2013
Citation:
Ning, Z. and C. Sun. 2013. Vertical price transmission in timber and lumber markets. Journal of Forest Economics. Forthcoming.
- Type:
Conference Papers and Presentations
Status:
Published
Year Published:
2012
Citation:
Sun, C. 2012. Nonlinear lumber price transmission. The 1st International Symposium of Forest Economics. P. 191 210 in Proceedings of the 1st International Symposium of Forest Economics, Beijing Forestry University, Y. Wen (ed.). Beijing, P. R. China.
- Type:
Conference Papers and Presentations
Status:
Published
Year Published:
2013
Citation:
Ning, Z. and C. Sun. 2013. Spatial price linkage between forest products markets in the South and the Pacific Northwest. In Proceedings of the 42th Annual Southern Forest Economics Workshop 2012, M.E. Aronow (ed.). Charlotte, NC. 20 p.
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Progress 09/01/11 to 08/31/12
Outputs
OUTPUTS: Understanding timber price dynamics is of great importance as a number of disturbances (e.g., hurricanes and business cycles) can affect the supply and demand of timber and lumber products. Previous studies have analyzed the determinants of southern pine stumpage prices, and linked regional stumpage and national lumber markets using the derived demand approach. This has been a need to evaluate whether the price transmission between different stages of wood products is symmetric in either magnitude or speed. In this study, the dynamics between upstream and downstream prices among major stages in the timber and lumber markets are assessed using threshold cointegration models. Prices of timber and lumber products have been collected for two regions (South and West) between 1977 and 2011. The threshold cointegration and asymmetric error correction models were used to analyze the data by region. The results were presented in a professional meeting. Presentation: Ning, Z. and C. Sun. 2011. Vertical price linkage between timber and forest products prices in the South. The 41th Annual Southern Forest Economics Workshop. Little Rock, AR. PARTICIPANTS: Dr. Changyou Sun, Associate Professor, Department of Forestry, Mississippi State University, Mississippi State, MS 39762; Phone: (662) 325-7271; E-mail: csun@cfr.msstate.edu. Ms. Z. Ning, graduate research assistant, Department of Forestry, Mississippi State University, Mississippi State, MS 39762. TARGET AUDIENCES: Government agencies; forest landowners; the general public PROJECT MODIFICATIONS: Not relevant to this project.
Impacts
Main outcomes from the study are that the timber and lumber markets are efficient and can restore equilibrium in the long term after market shocks. The threshold cointegration model and error correction model reveal the presence of asymmetric price transmission. Prices of forest products along the vertical supply chain are more sensitive when the price margin is squeezed than stretched. These outcomes can help develop efficient and equitable policy programs that ultimately support sustainable growth of forest and rural communities under increasing challenges from natural catastrophes.
Publications
- Ning, Z., C. Sun. 2012. Vertical price linkage between timber and forest products prices in the South. In Proceedings of the 41th Annual Southern Forest Economics Workshop 2011, S.R. Mehmood (ed.). Little Rock, AR. 15 p.
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