From the Director's Desk: July Pellet Data Released; Eyeing a Changing PFI Caucus
July Pellet Data Released
July Data (5-year average)
East
Sales – 81,792 (80,288)
Production – 88,000 (87,737)
Inventory – 110,381 (172,075)
West
Sales – 20,081 (22,259)
Production – 30,997 (33,259)
Inventory – 105,220 (89,410)
South
Sales – 16,652 (16,918)
Production – 31,602 (15,244)
Inventory – 49,891 (55,910)
All U.S.
Sales – 118,525 (120,245)
Production – 150,599 (136,240)
Inventory – 265,492 (317,396)
Any discussion about the wood pellet data released last week by the Energy Information Administration must begin with a recognition that the East saw its lowest July inventory position in the report’s history earlier this summer. At 110,381 tons, the region entered the ‘early-buy’ season well below the next closest low ebb (119,626 tons) set in 2020. Despite production totals running about 14% ahead of last year in the East, producers have failed to shore up their inventory positions. If the current production pace is maintained, the region will finish the year with 1,117,300 tons of production or 136,000 additional tons over last year. With heating oil prices over $6/gallon in many pellet-burning areas of the country, it feels like every ton of this ramped-up production will be needed. Even with higher production totals, pellet sales in the East have outstripped production in August, September and October almost every year. An analysis using the average sales from the last three years and production levels 13% ahead of last year, pellet inventories will fall to 77,000 tons by the end of this month and then begin to recover in November. These are assumptions built on accumulated data and even when using the highest sales totals from each of the last three years, the inventories look as though they’ll meet inbound demand. To zero out the inventory altogether, you would have to achieve the highest sales total ever for each of the remaining months. While certainly not probable, it isn’t impossible.
One thing the industry has learned is that you simply can’t fake Heating Degree Days. Consumer behavior, a perception of scarcity and high heating oil prices all have an impact on when and how consumers buy heating fuel, but only accumulated Heating Degree Days (HDDs) can drive usage. Look no further than the inventory position in the West to understand the impact of mild weather on pellet sales. In July, the West had an eye-popping 105,000 tons of wood pellet inventory, just 5,000 tons short of the position in the East for a market that is half the size. Heating seasons are made, or lost, on what happens in November and December. Prolonged, frigid temperatures or damp, rainy weather keep people inside, nudging that thermostat towards higher usage. How this winter shakes out, and how long producer inventory will last hinge on the weather in the next couple of months.
Eyeing a Changing PFI Caucus
In one month, mid-term elections will be over and the landscape of the 120th Congress will finally be in sharp focus. While not officially a caucus, I refer to the men and women who represent our membership in the Senate or the House as the PFI Caucus. This includes 42 Senators and 37 Representatives. The current party distribution is 46 Republicans, 31 Democrats and 2 Independents. 51 of these caucus seats are on the ballot this year (14 Senate seats and all 37 House seats) and seven of those elections are currently listed as “toss-ups” by the Cook Political Report (as of September 23).
PFI Caucus Senate Toss-Ups:
Iowa – Ashley Hinson (R) vs. Josh Turek (D)
Maine – Susan Collins (R) vs. Troy Jackson (D)
Michigan – Gary Peters (R) vs. Abdul El-Sayed (D)
New Hampshire – John Sununu (R) vs. Chris Pappas (D)
Ohio – Jon Husted (R) vs. Sherrod Brown (D)
PFI Caucus House Toss-Ups:
Michigan (4) – Bill Huizenga (R) vs. Sean McCann (D)
Virginia (1) – Rob Wittman (R) vs. Shannon Taylor (D)
Each of these races holds real intrigue for the PFI Caucus, most notably perhaps Rep. Bill Huizenga, who just recently visited Michigan Wood Fuels and seems to be an up-and-coming ally of our sector.
Perhaps more interesting to consider are the committees we have been diligently working with to advance legislation to protect consumer energy choice (House Energy & Commerce) and those programs within the Farm Bill that are relevant to our sector (House and Senate Ag committees). Generally speaking, Republican control of these committees has proven advantageous to our interests. The Energy Choice Act introduced by Rep. Nick Langworthy (R) was able to work out of committee because the committee was chaired by another Republican, Kentucky’s Brett Guthrie. The Republican chairs of both chambers' ag committees Rep. GT Thompson and Sen. John Boozman have been receptive to our fly-in teams and hail from wood manufacturing states. I’ve stated many times in the Pellet Wire that perhaps the member of Congress that best understands wood pellet manufacturing is Rep. GT Thompson. GT wears his heart for all things forest products on his sleeve. Having him as the chair of the ag committee was a real advantage. Sen. Boozman is not far behind GT in his understanding of the importance of adding value to wood fiber. Arkansas is up to its eyeballs in underutilized wood fiber. Expanding markets for wood and wood residuals is of paramount importance to the Boozman office.
No matter how the election shakes out, the PFI is committed to working with whoever is office. The value proposition of wood pellet manufacturing SHOULD appeal to policymakers from both sides of the aisle. The role of the PFI is to tell our story and figure out what gets traction with whom. The 120th Congress will inherit a wood products sector beset with challenges. Softwood demand is off. Hardwood demand is off. The market for residuals is shrinking, but so too are the produced residuals. Forest products are a foundational industry in this country and the challenges facing the sector aren’t going away.
