Wood Chips and the U.S. Economy
Unofficially the United States is now in an economic recession. Investment bankers Merrill Lynch say so.
Officially, the US may not be in recession for months. That kind of announcement usually comes from the White House, but since this a presidential election year, and the party of the sitting president usually is ousted when there’s bad economic performance, the Oval Office will be slow to admit a downturn.
Already the Federal Reserve has mentioned another half point cut in short term interest rates to try keep the economy from falling off a cliff. It’s hoped that lower interest rates will spur borrowing and get the economy moving again.
(Of course, it’s too much borrowing that brought on the recession in the first place.)
Lower interest rates have another not so stellar effect. Low rates also mean low returns for overseas investors lending to the US. There’s a better place to invest, they say: oil. As we’ve seen over the past months, as interest rates fall the price of oil goes up.
Any savings consumers may get in lower interest rates they may lose with higher prices at the pump.
Low interest rates, too, cause the value of the dollar to drop relative to other currencies. Little rate of return, little faith in the US, drives the dollar lower. This raises the price of imports (inflationary, bad for consumers ) and lowers the price of exports (good for exporters, if you can find any.
For an industrial nation the US is not very industrial anymore. The US manufactures little to export, little that the world wants to buy.
We do export wood chips, however. Yes, wood chips, shredded waste wood and bark from sawmills as well as ground-up tree limbs and roots. We export them to Europe.
According to Forest to Market (F2M), a forest and wood products information and pricing company, as the Europeans import more and more wood chips to supplement coal in powerplants and to cut greenhouse gas emissions, the price of wood chips is going up in the US market. The sagging dollar makes wood chips from the US a bargain in European markets increasing demand for them.
But the wood chip supply in the Pacific Northwest and the South is also getting tighter and driving up prices. New home building is down and along with it the demand for lumber. As lumber producers slow, waste wood chip supply slows too, decreasing supply and increasing prices.
To keep the supply of wood chips flowing and meet demand, lumber companies are resorting to chipping logs that previously might have been sawn into boards. Talk about wasted wood.
The reduced supply of wood chips has raised prices by almost 10 percent since the third quarter of 2006.
So at a time when more US utilities are also looking to burning wood chips and other biomass to neutralize greenhouse gas emissions, wood chips are getting more expensive at home but purchased at bargain rates by interests overseas.
The Federal Reserve is walking a tightrope between controlling inflation, particularly high energy costs, and encouraging consumers to borrow and spend at a time when they’d be better off saving and paying off debt. If there’s one bright side it’s this: the rate of greenhouse gas emissions growth will decline in a slowing economy.
Forest to Market (F2M)