This quarterly forecast includes our analysis of current economic conditions and our objective projections of future revenue for state trust funds and their beneficiaries.

 

 

Lumber and Log Prices. 

 

Since the beginning of 2023, lumber prices have remained relatively stable and lower than recent years, staying in between $370/mbf and $490/mbf, with an average of $427/mbf.

 

The price outlook for lumber is uncertain. Lumber prices are largely driven by demand - primarily from homebuilding. Mortgage rates are currently decreasing, which would normally increase demand for homes and for homebuilding. However, the president-elect of the U.S. has made campaign promises to undertake "mass-deportation" of undocumented immigrants. By one estimate, around 14 percent of the construction workforce is undocumented immigrants, so large scale deportations could seriously limit labor supply for the industry - which would also limit homebuilding, and lumber demand, which would tend to push prices down.

 

Log prices generally trend with lumber prices, but the relationship is not one-to-one. Since the beginning of 2023, log prices have remained in a relatively narrow range - from around $610/mbf to $660/mbf. This is higher than most periods in the last 20 years in nominal terms, though not in real terms.

 

Following from lumber prices, the outlook for log prices is uncertain. However, log prices are typically bounded on the low end because timberland owners can usually simply wait to harvest until prices get better. To that end, we expect log prices to remain in their current range, though possibly on the low end.

 

Timber Sales Volume. 

 

The timber sales volume forecast is unchanged at 480 mmbf. Currently, DNR has planned to auction about 585 mmbf in FY 25 and has sold 136 mmbf through the November auction.

 

Historically, a buffer of around 10 percent of planned sales volume has been adequate to account for the typical risks to sales. However, for the last several years there has been increased opposition to DNR timber sales, both through challenges to sale approval and through lawsuits. After reviewing those sales most likely to be opposed or challenged via lawsuit, and including a buffer for other risks to sales, the unchanged forecast of 480 mmbf appears appropriate.

 

 

The forecast timber sales price for FYs 25 and 26 is unchanged at $340/mbf. This is lower than the outlying years because the reduced sales volume is from sales that are typically higher value. Fewer high value sales will tend to reduce the average sales price.

 

Outlying years’ prices are unchanged at the long-term average of $350/mbf. This is based on the assumption that current opposition to DNR sales will resolve in such a way that prices will return to their long term average. This may be optimistic.

 

 

Harvests on DNR lands were slower than expected throughout FY 24. This was apparently largely due to readily available private logs, though weather issues apparently contributed as well.

 

Forecast removal volumes are unchanged. However, harvest volumes are a little slower than expected for FY 25, and may be reduced in the next forecast if slow harvesting continues.

 

The removal price forecast is changed slightly based on updated inventory values FY 25 through FY 28.

 

Timber Revenue. The timber revenue forecast is altered slightly for FY 256 through FY 28, due to the change in harvest prices.

 

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 increased by $0.2 million in FY 26, and increased by $0.4 million in outlying years. This is due to the newly signed lease for a Costco in Richland, which is planned to open in late 2025. During development, the lease will generate only minimal revenue, but after opening it will generate around $0.4 million per year. This will likely change in the coming forecasts as there is still a large unleased property that should command a rent of around $1 million. However, this revenue isn’t included in the current forecast as the property has remained vacant since January.

 

Orchard/vineyard revenue to-date has been on par with what we had expected, however, there was $1.3 million in lease revenue for FY 24 that was unpaid. This is a one-time increase to FY 25 revenue. It should be noted that orchard/vineyard revenue is still facing downward pressure, with wine grape demand still very low. The difficult environment is driving some lessees to change their crops, which will lead to a transition period of lower revenue. However, after that, revenue should start to increase again as growers are producing more valuable crops. Until we have better information, we are leaving the outlying years’ forecast unchanged.

 

Aquatic Revenues. The non-water-dependent revenue forecast is increased in FY 25 due to a large one-time back-payment of rent that was not invoiced in FY 24. We have only increased the forecast by part of this amount, so if everything continues on as it is, then this will likely increase further in the next forecast.

 

Other aquatic lease revenue forecasts are unchanged.

 

The geoduck 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.

 

Geoduck revenue for this forecast is increased by $0.4 million based on higher than expected prices in the September auction. However, this forecast was prepared before the presidential election and the December auction. The December auction was much lower than we had expected as a result of both issues with tracts testing positive for arsenic, and the results of the presidential election and promised tariffs from the president-elect. See the Other Notes section for a discussion, but the geoduck forecast will likely be revised down significantly in the next forecast.

 

As usual, geoduck revenue faces a number of risks that can cause it to vary wildly. In addition to what is discussed above, these include

Total Revenues. The forecast revenue for the 2023-25 biennium is increased by $3.8 million to $510 million, while the 2025-27 biennium is increased by $1.1 million to $500 million.

 

 

This forecast was prepared before the U.S. elections in November. Both the commissioner and presidential offices will likely have a significant effect on DNR revenues, though at different levels and through different mechanisms. Given that campaign promises do not always turn into policy, the only reasonable point forecast we could make was a steady state. However, some of those campaign promises will likely turn into policy and for some, even the expectation of the policy will affect DNR revenue.

 

At the macroeconomic level, the two major economic policies likely to affect DNR revenue that the president-elect has proposed are a substantial increase in tariffs and a "mass deportation" program.

 

An increase in tariffs on the scale proposed by the president-elect will elicit reciprocol tariffs from U.S. trading partners. Already, Xi Jinping, the leader of China, has promised large tariffs in response to those proposed. A similar situation has already happened before, in 2018 in the previous presidential administration. This had a massive effect on geoduck revenue for DNR, with revenue falling from $26 million in FY 18 to $11 million in FY 20. The effect of the tariff was obviously confounded by the COVID-19 pandemic, but the effect of the tariffs had already pushed down DNR geoduck auction prices from $11.30 per pound in FY 18 to $5.27 in the first six months of FY 20 - before the pandemic started.

 

If tariffs, and reciprocol tariffs, are introduced, we can expect a substantial drop in geoduck revenue. Additionally, because the risk of sudden tariffs introduces substantial business risk, geoduck buyers will drop their bid prices accordingly. So, DNR is very likely to see meaningfully lower geoduck revenue even if the tariffs are never introduced.

 

In addition to geoduck, a substantial portion of agricultural products grown on DNR lands is exported to China, particularly wheat. So, there will likely be other areas where tariffs will reduce DNR revenue.

 

The "mass deportation" policy would introduce a significant shock to the U.S. economy and forecasting its overall effect is very difficult. As noted in the discussion on lumber and log prices, one likely effect is a substantial reduction in labor for the construction industry, which will likely weaken lumber, and therefore log, demand. There are important questions about what kind of deportation program is actually possible, so the ultimate size and effect are uncertain.

 

At the state level, the new commissioner has also proposed policies that would likely affect DNR revenue. The most prominent of which is setting aside some amount of "legacy" forecasts from harvest. Given the uncertainty around where these forests are, their potential value and merchantability, and the final enacted policy, it is difficult to tell what effect this will have on DNR revenue.

 

At first glance, it seems likely that this policy would reduce revenues by some amount, both by restricting the volume of wood sold and by targeting potentially higher value timber. However, there are many questions about what a final enacted policy would look like and what kind of flexibility DNR might have in mitigating any potential revenue changes.

 

Given the uncertainties around each of these levels of the policy environment, previous forecasts were made based on the most likely scenarios with a reasonable degree of certainty, with a bias toward the status-quo where there is significant uncertainty.

 

There are, as always, a number of other sources of uncertainty around DNR revenue specifically, and the overall economy more broadly. These include:

Finally, 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 Kansas¹.

 

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 Sector².

 

 

 

 

 

 

 

 

 

 

 

 

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. https://www.washingtonpost.com/climate-environment/2022/06/16/summer-climate-disasters/
2. 2020 Labor Day Fires: Economic Impacts to Oregon’s Forest Sector, Oregon Forest Resources Institute ''https://oregonforests.org/node/840''