Mr. Brad Franchi

GLG News by Mr. Brad Franchi, President

GLG News is now G+ Insights

G+ is a community for professionals, academics and entrepreneurs to connect through online discussions and in-person meetings. You will continue to see G+ Insights (formerly GLG News) here as well as on the G+ website, where you can share and discuss the G+ Insights you read.

Japan earthquake and tsunami, 2011

March 14, 2011

Latest Friday, Japan suffered one the greatest natural disasters in the history of civilization. The extremely powerful earthquake and tsunami has some estimates of the loss up to life up to 10,000 people at this point. After the magnitude of what happened sinks in, Japan will need to address re-building infrastructure destroyed by these two events. One of the commodities that will be important to recovery is softwood lumber

El Nino gives away to La Nina while in climate nuetral

August 12, 2010

Analysis of:El Ni�o and La Ni�a: Weather's Sibling Rivalry | www.dummies.com

If you recall, last year was dominated by strong El Nino conditions, which included very heavy rain patterns. in the Southern Pine Belt in the US South. By late winter many mills were exhausting timber supplies, and the spot market for especially hardwood pulpwood, with spot prices spiking 50% or more.This El Nino quickly turned down into La Nina or possible neutral conditions, marking a very quick turn around for this cycle.This transition is one of the shorter ones.

NOAA sees El Niño continuing into 2010, with possible record Damages

February 12, 2010

Analysis of:NOAA sees El Nino strengthening through 2009 | www.reuters.com

The 2009-10 El Niño cycle is heading to exceed all predictions of intensity. Starting with abundant rainfall last autumn, and continuing through the Midwest, and in the South USA. The last two most powerful El Niño were the1997-1998 cycle, followed by the 1982-83 event, I was speaking to local logging managers earlier this week, and it became apparent that spot markets on pulpwood is rising as much as 30 to 40%, in an effort to keep the paper Mills supplied.

Lumber pricing moves up in 2010, El Nino adds to rising costs

January 29, 2010

Analysis of:NAHB: Framing Lumber Prices | www.nahb.org

As usual, the timber and lumber markets are showing a high degree of correlation. The National Association of Builders is showing $14 per MBF increase so far in 2010. Although a months worth od data is not a solid trend, it does make sense when considering other factors. A tepid lumber rally, combined with El Nino, and new Biomass demand will all "push" pricing forward. If you recall, the timber and lumber markets are highly correlated, if not lagged. as loggers struggle to raise production

Timber REITs - A brief history of how we got here ?

January 15, 2010

Analysis of:The Basics Of REIT Taxation | www.investopedia.com

A review of the last 50 years of industrial timberlands begins during the depression, as these large paper companies purchased huge tracts of timber and at very low basis. In the early 1980s, Sir James Goldsmith and others realized the entire corporation could be bought and broken up – to get the timber virtually free. The mills preferred c-corp ownership and enjoyed low costs as the depletion rates were very low, under $0.25 per ton in some cases.

WY REIT - how does the announced REIT stack up to previous timber REITs?

January 5, 2010

Analysis of:WY to become REIT | abcnews.go.com

Recently, WY announced a conversion to the REIT ownership, marking the near end of C-Corp timberlands. THis conversion, resisted for many years by WY can be compared to other other efforts.The original REIT effort was completed by the sale of the former GP timberlands to Plum Creek. The merger was augmented by employment of an obscure finance tool, the Reverse Morris Trust (RMT), in which the smaller entity absorbs the larger business. Examination of previous conversions might shed light?

WY takes the REIT plunge - marks almost total divest of C-Corp

December 16, 2009

Analysis of:Weyerhaeuser Announces Intent to Elect REIT Status; Timing Under Consideration | www.earthtimes.org

The WY change in status marks the end of the wild CCorp ride, acres formally owned peaked out in the 1980's at 50 MM acres, Corporate raiding, defensive owners, and REIT formation has driven these CCorp lands down to 5-6 MM acres, owned mainly by WY and MWV, REIT rules are much more stringent then CCorp lands, and until last year the GAAP rules favored REiTs. One major difference is with most earnings returned to investors, operating capital may be limited,I have white papers avaiable

NOAA has reduced hurricane forecast due to a more robust EL NIno episode

September 9, 2009

Analysis of:NOAA cuts hurricane forecast, cites El Nino | www.reuters.com

Out of the fry pan and into the fire? NOAA reduces hurricane forecast - El Nino windshear helps keep hurricanes at bay, upper level winds associated with El Nino disrupt internal events with the hurricane NOAA significantly reduced hurricane predictions recently - as the El Nino cycle strengthens stating "El Nino is here already"

Barrons Timber Analysis article might oversimplify the situation?

August 12, 2009

Analysis of:Timber companies vulnerable to price drop-Barron's | www.reuters.com

Barron's timber article states that US timber may be overvalued by up to 50%. Barron's points out, correctly that even last year in the midst of 30%+ declines in stock values, timberland values actually rose 7%. If we return to the basic fundamentals of timberland ownership, a point by point summary would includeUS Timberlands yields 4-8% per year in biological growth.US recreational leases for these properties have risen steadily to $15-$25 /acLumber and other products have lost value?

Review of some recent El Nino events - Consequences can linger !

July 21, 2009

Analysis of:EL NIÑO/SOUTHERN OSCILLATION (ENSO), DIAGNOSTIC DISCUSSION | www.cpc.noaa.gov

Terms and definitions El Nino - Refers to a weather event that usually last a year or more. El Nino is driven by warm waters in the tropical pacific. Most recent El Nino's have beaten a path across the US West and dumped up to 25% or more additional rainfall across the SE USA, during the wettest time of the year. La Nina - is driven by a cool water event. Recent La Ninas have not been near as severe as the El Ninos. Generally not a concern for Forest Products

El Nino - 2009 - 2010 - promises to effect timber and paper production

July 12, 2009

Analysis of:NOAA - National Oceanic and Atmospheric Administration - El Ni�o Arrives; Expected to Persist through Winter 2009-10 | www.noaanews.noaa.gov

NOOA is predicting El Nino conditions to effect World and US weather.  In the Southern US El Nino conditions have occurred about every 5 years.  This phenomena is caused by warming seas in Asia, which then sets up a "Freight Train" of wetter than normal conditions over the SE USA.  After a period of time, logging, especially hardwoods, can be come difficult or impossible to conduct.  In at least one recent El Nino period, several Southen pulp and sawmills have been forced to take down time, due to a lack of hardwood fiber in the local wood baskets.  Other mills have resorted to procuring higher cost chips or pulpwood, generally logged from other regions where the El Nino is not as intense. El Nino can have some positive effects, also.  The increased wind shear can help mitigate hurricane development.

Once again, the forest products industry shows a high degree of correlation

June 4, 2009

Analysis of:Sharply declining wood costs for pulpmills worldwide in the 1Q 2009, according to Wood Resource Quarterly | www.openpr.com

Once again the forest products industry finds new ways to minimize cost. Traditionally when one end of the market experiences declining demand, another part of the industry utilizes that fiber. Times are different now, as the entire industry is experiencing poor demand. This is forcing some private landowners to not harvest timber, but retain the trees on the stump to capture the biological growth of 2 to 6% per year, as well as time.  Although demand is weak, the biomass Mills are using this decline in demand to move up from strictly low-end fuel chips, into the pulpwood markets, and take advantage of decreased paper demand. Recent predictions are for paper to start to recover in 2010. At that point there may increased competition between paper Mills and biomass Mills over both fuel wood pulpwood. Another sign of increased activity, will be the reloading of the pulpwood and saw timber markets from very low inventories. It can take a years to reload the pulpwood or saw timber markets

The NCRIEF Timber Index remains positive through Q1, 2009

May 8, 2009

Analysis of:Welcome to NCRIEF Timber Index | www.ncreif.com

Timber remained positive through Q1 of 2009.  There is a "camp" that maintain timber is being bolstered by the sale- regroup - Sale process.  This is referred to as "flipping timberland" Although there are many acres, in small parcels that have historically been traded - a new class of owner is firming up the low end of the market.  The recreational (hunting - fishing) contingent have been aggressively purchasing these small tracts.  Many of these owners are becoming attached to timber investments Another pressure on these acres is the emerging consumption and diversion of timber into the emerging Biomass market.

Housing starts are proving to be erratic, with effects on pulpwood demand and increased costs. Biomass demand is pushing pulpwood from the small timber side

April 28, 2009

Analysis of:Housing Starts Fell Sharply In March - | washingtonpost.com

Housing starts continue to be hard to predict, with better than anticipated results for Feb, followed by worse results in March.  This difficulty of prediction and curtailed lumber production has kept pulpwood in tighter than usual supply.  The sawmills utilize about 60% of logs as lumber, and the remaining 40% is sold to pulpmills as "clean chips".  When sawtimber production is curtailed, the paper mills must compete for pulpwood, or take down time. A relatively new demand, from the low end of the fiber resource is the continued increase in utilization of small pulpwood furnish used in the ever growing biomass mill demand. A change in the market forces cannot always be satisfied quickly as it can take up to 6 months or more to reload these procurement systems.

As the Stevenson , AL mill goes - with the future of SSCC?

February 2, 2009

Analysis of:SSCC files bankruptcy | thedailysentinel.com

The Stevenson, Alabama mill has a lot of things in it's favor, including relative youth, low competition for fiber, and a recent huge expansion.  Originally built in the late 1970's by the Mead Corp., it is 30 years old versus many other mills of 75 years or more of age. The mill also has barge access for incoming raw materials (fiber, chemicals, and fuels), and outgoing finished products. The mill uses a very high % of hardwood - in an operating area that is dominated by hardwood pulpwood.  The mill was expanded in 2000 - 2001, with a brand new second pulp mill.  The mill consumes a fair amount of recycled fiber, in leu of virgin softwood fiber. The mill is also located in an area that supports the forest products industry, politically and socially.

Is there room for moderate Biomass Plants - or will the Mega Mill prevail?

January 27, 2009

Analysis of: New Biomass-to-Energy Plant to Create Green Jobs around Milltown, Indiana - The Green Jobs Report | gather.com

My grandfather used to say what goes around comes around.  I always took to understand that in his eyes, changes that continues are mainly reused ideas and modified some to tweak them.  Ideas that are passed over at one time may become valuable in another time frame.  I picked up on this announcement yesterday as a moderate size Biomass Mill is being planned for a small town in Indiana which is a fair amount of hardwood furniture construction which will generate biomass for the mill, and is slated to require 25 employees and produce 28 MW The entire Plant has a CAPEX of about $8MM. with startup slated for 2011. One could interpret this as going around and coming back around?  Biomass mills in the US started off as small mini-mills, and kept getting larger until recent announcement in GA, FL and, and TX are rivaling full scale Pulpmills. these mills should do well for a period of time as competition for raw material should be much easier than in the core biomass regions of the South…..

One possible method of analyzing fiber synergies in large Mill transactions.

January 26, 2009

Analysis of: SSCC Smurfit-Stone Container Corp. bankruptcy fears grow | www.tradingmarkets.com

 The article states “In response to worsening conditions, the company has accelerated its effort to reduce staffing and close more plants". SSCC continues down the bankruptcy path, the next step would be to quantify relationships between mills and any competitor Mills in the operating areas.  For purposes of this example I chose a 75 mile radius around the Stone Container Mill at Stevenson, Alabama which will be referred to as the target.  The mills within the 75 mile radius are called candidates.   To accomplish this task we need to load the coordinates of the mills into what's called a Geographic Information System (GIS).  Since this analysis is based on the Stevenson, Alabama mill, we need to load the mill data for the states of Alabama, Georgia, and Tennessee into the GIS, which represents the probable procurement areas for this mill, which totals Al = 18, GA=24, and TN = 14; 56 candidates mills. 

What are the options the 12 remaining Stone Container mills?

January 23, 2009

Analysis of:Smurfit-Stone preparing for bankruptcy, reports say | www.chicagotribune.com

Stone container as of now, owns and operates 12 packaging mills in the United States.  Over the last two years,  Stone was already closed six paper mills in the US.  If we examine the size of the mills that were idled versus the remaining mills, we can get an idea of possible outcomes. Mills that were closed in the last two years had a total capacity of 572 thousands short tons per year and an average closure of 95 M short tons per year. The 12 remaining mills have a total capacity 5.9 million short tons per year, with an average size of 495 M Short tons per year. This data implies that the mills  closed were older and a lot smaller than the current operating mills.   

China's new capacity of 8 mills, averages out to over 2 MM green tons per mill.

September 12, 2008

Analysis of:Pulpwatch.org Rates Mills on Social, Environmental Performance | www.greenbiz.com

By any measurement, these are huge additions to capacity, and the article also points out new pulp operations coming on line in South America totalling over 8 MM tons of pulp capacity. The article also points out that many small operations in China will be closed - and fiber diverted - If this comes to fruition - it is still analogous to sticking your finger into the hole in the dike I am constantly amazed by the "shrinking" of the required market reach, of fiber.  If one examines US South pulpwood pricing - from the 1980's to present - pine has significantly higher in price than mixed Hardwood - when there were any markets at all.  Over time, pine and hardwood arbitrage to the point of indifference, about equal costs.  I wonder if these recent events will replay the past - will the Forest Products Industry become "fiber indifferent"?

BIOMASS - the next card in the deck?

August 26, 2008

Analysis of:Sawmills Falling Silent | www.nationalpost.com

As the author points up - chip supplies for pulp mills are becoming hard to procure.  The next "wave" of change is the emerging (erupting?) biomass markets.  There are over 40 US mills either announced, under construction, or running.  The largest of the bio pellet plants rival pulpmills in wood consumption.  These plants are running on fuelwood - except the Cottondale, FL mill - which started up recently on pulpwood.  Wood Pellets and cellulose ethanol are the leading outputs of these plants.  Wood Pellets require about 2 tons of residue per ton of pellets and ethanol yields about 30-40 gallons per ton of residue.  

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