Pulpwood Production, Prices, and Markets in North Carolina by

In this paper, we first analyze trends in pulpwood production (1980-1997) and prices (1977-1998) in North Carolina. We then attempt to investigate spatial integration of the delivered and stumpage pulpwood markets for both mixed hardwood and pine in two regions of North Carolina (western; central and east combined). Results indicate that North Carolina's total roundwood removal volumes have grown at the rate of 3.3% per year, hardwoods at 3.7% per year, and softwoods at 3.1% per year with varying rates of growth among different FIA survey units. The two coastal FIA survey units dominate in softwood production, accounting for 74% of average total production over the period 1980 to1997. The clearest trend is in the piedmont, where hardwood roundwood removals have shown substantial sustained increases over the last ten years. Mixed hardwood pulpwood prices have risen, suggesting a greater demand and increasing economic scarcity, particularly in the central and east region. The delivered pine pulpwood prices declined, suggesting relative abundance of pine pulpwood stumpage and/or logging efficiencies. With the exception of the delivered pine pulpwood market, the mixed hardwood pulpwood markets and stumpage pine market are cointegrated indicating that the two regions behave as one market for these products. Enhanced timber markets across the state, including wood chipmills, are increasing integrated product markets. 1 Research Associate, Department of Forestry, N.C. State University, Raleigh, N.C. 27695 2 Research Associate, Nicholas School of the Environment, Duke University, Durham N.C. 27708 3 Professor, Department of Forestry, N.C. State University, Raleigh, N.C. 27695 INTRODUCTION North Carolina has roughly 18.7 million acres of timberland as of 1990. Of this, 48% is located in the coastal plain (9 million acres), 31% in the piedmont (5.7 million acres), and 21% in the mountains (4 million acres) (Brown, 1998, 1998b). There are 5 main pulpmills, with 4 located in the Coastal Plain and one in the Mountains. There are 18 major chipmills that take roundwood , chip it, and ship the chips to other locations. Of these 4 are in the Mountains, 9 in the Piedmont, and 5 in the Coastal Plain. Timber products are well recognized as an important component of the North Carolina State economy. Overall the timber product sector has shown significant growth in recent decades. Among the different sectors, the pulp and paper sector has particularly shown significant growth, with output volumes increasing 200% over the 1955 to 1995 period according to currently ongoing research. These timber products are sold in markets, that are spatially linked and interdependent. Regional prices of these products can be used to study the linkages in the market. Trends in pulpwood removal volumes and prices over time can capture any changes in the resource base and market conditions. We can view the two North Carolina regions western (NC1) and central and eastern combined (NC2) as one market if the prices in each market move together and do not diverge by more than the transportation and transaction costs in the long run. We are interested in examining whether the two regions (NC1 and NC2) are spatially integrated as one complete market for pulpwood or if they behave as separate markets. Cointegration tests have been used in recent years to examine this issue. Cointegration tests for the existence of a long-run equilibrium relationship among spatially separated markets. A state of equilibrium where price changes in one market result in equilibrating changes in the other such that local prices in alternative markets differ by no more than transportation and transaction costs is called the law of one price. According to Engle and Granger (1987), the law of one price should hold if markets are cointegrated. Several researchers have examined the issue of market cointegration and law of one price. Buongiorno and Uusivuori (1992) studied the U.S. pulp and paper export market; Jung and Doroodian (1994) looked at the U.S. lumber market. Murray and Wear (1998) analyzed Pacific Northwest and Southern lumber market. Limited work has been done on the southern pulpwood market. Nagubadi and Munn investigated pulpwood stumpage markets in the South Central U.S. In this paper, we focus our attention on the pulpwood market in North Carolina, studying pulpwood production, price trends, and market cointegration to understand the nature of the pulpwood market. Finally we consider the effect of chipmills on the pulpwood market. The specific objectives of this research were to: • Analyze trends in pulpwood production and prices • Conduct cointegration analysis of price series for pulpwood • Examine the pulpwood market and the chipmill linkages DATA AND METHODOLOGY Timber product output and pulpwood surveys conducted by the USDA Forest Service were used to analyze pulpwood production. We examined trends in roundwood pulpwood production (softwoods and hardwoods) for the period 1980 to 1997 for the four USDA Forest Service Forest Inventory and Analysis (FIA) survey units in North Carolina (Mountains, Piedmont, Northern Coastal Plain and Southern Coastal Plain). Time series analysis of the data contained in the Southern Pulpwood Production (SPP) reports allows a description of annual roundwood pulpwood production trends within North Carolina at the FIA survey unit level. We also used aggregateTimber Product Output (TPO) data to measure broad regional production trends in the state. We examined trends in pulpwood prices between 1977 and 1998 for two North Carolina regions, the western (NC1) and the central and eastern (NC2) region. We used University of Georgia's "Timber Mart South" data for pulpwood price analysis (TMS 1977-1998). Timber Mart South reported prices monthly from 1977 until the end of 1987 and since 1988 to the present, it reports quarterly. There were three regions in North Carolina and Virginia in the Timber Mart South price reports until 1991. However, the reporting area coverage changed to two regions in 1992. The three region price series that existed up until 1991 was converted into a two region price series by a weighting procedure developed by the Southern Research Station and North Carolina State University, so that the different time frames are comparable (Prestemon 1997). As a result, consistent price data for the two regions were available from 1977-1997 for the state of North Carolina. There are two different prices considered for the analysis: (1) the delivered log price which is the price at the mill and (2) the stumpage price of standing trees in the woods. Quarterly average delivered and stumpage prices of mixed hardwood and pine pulpwood product categories, were used in the analysis. All reported prices were adjusted for inflation using the all commodity producer price index (1982=100), and regression techniques were used to estimate trends in real prices. The regression used to analyze prices and pulpwood volume removal trends follows.