Weakening Prices

Last month’s galloping analysis of weakening treeplanting prices failed to explain why prices have taken until now to respond to an ongoing decline in the number of trees planted annually since 1995/96…

Last month’s galloping analysis of weakening treeplanting prices failed to explain why prices have taken until now to respond to an ongoing decline in the number of trees planted annually since 1995/96. Using ministry of forests figures the analysis showed the volume of trees planted on Crown Land peaked at 260-million in 96/96, then dropped by 20 percent over the next two years, finally levelling off at 210-million. Current seedling requests show that level will be maintained for the next two years.

However, as some contractors and nursery operators point out, using trees planted as an indicator of the actual amount of treeplanting work available may be misleading. Nursery space is at a premium in the province as greenhouses are filled to capacity in order to grow smaller numbers of larger seedlings. Nurseries now measure the square footage occupied with seedlings as a more useful and reliable indicator of productivity rather than just the number of seedlings being grown.

That same principle could apply to treeplanting work. Larger trees take more work to plant and in effect increase the demand. This would offset some of the impact the decline in seedling numbers would indicate. Just looking at the drop in trees planted exaggerates the actual decline in treeplanting work.

As well the ministry’s figures do not include trees planted on private land. Those figures are hard to come by but their absence from the totals would also create a bleaker picture.

Adding in these inputs may or may not explain why treeplanting prices have held until now over most of the last three years. Regardless of that contractors continue to report the slumping market contagion has spread into all tiers of contract tendering from low bid auction, through invitiational, and into direct awards.

Contractors who commented on the last analysis attribute the declining prices to misinformation, panic, and the aggressive strategies of a small handful of contractors pursuing increased market share. They all indicate the market has responded with price declines out of proportion to any drops in the amount of work available.

Firms who are dedicated to one particular activity have the least cushion to absorb any decline in work and prices. The best example of this is the desperate condition of stand tending contractors in the province.

Brushers and sheepgrazers all report dismal declines with numerous firms exiting or preparing to exit the industry.

Firms that rely solely on treeplanting may be far healthier than their colleagues in brushing but they are vulnerable in the same way. As long as the treeplanting market is dominated by operations primarily dependent on treeplanting it will react sharply to fluctuations in treeplanting work supply and demand.

Larger silviculture firms, diversified operations, and contractors with niche markets are best insulated from the weakening market prices since they have configured their resources, or simply have more of them, to deal better with industry downturns.

On the upside those low cost contractors who have bid below normal returns will fail or disappoint their clients to the point where buyers will start to look for more reliable contractors. This should strengthen prices. This is a pattern which has been with the industry for decades.

It will likely repeat itself.

Figures showing a decline in the annual allowable cut may also be misleading. As we log poorer sites across the province more hectares will have to be disturbed requiring more reforestation effort even though the cut may not be increasing.

As well, contractors point out, the growing hectares of reforested land waiting to achieve free to grow status is expanding rapidly compared to the hectares leaving the system. This could represent a huge pent up opportunity. If this is the case the new demand could be used to revitalize the stand tending sector and provide a chance for some firms to diversify.