Built-in Demand will be a Major Factor

By William E. Baugh William E. Baugh & Associates Newport Beach. Ca.

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balance, because of fundamental factors of demand, has continued to be favorable throughout 1979 in spite of it being a mod- est year of production compared to the previous two years.

Although a general economic slowdown is quite possible next year and unit volume, (which has historically trended with real Gross National Product). may slow, we believe that price increases will exceed the rate of inflation. Overall value of shipments will grow faster than real GNP (about 4%r per year) as more and more buyers become involved in the "commodity syndrome" of wanting goods rather than cash as basic materials advance.

We expect the recent interest in the acquisition and/or merger of forest products companies will continue as acquirers recognize the greatly understated asset value of timberlands and high replacement cost of plant facilities, especially in relation to market prices of these shares.

The underlying value of lumber and plywood, particularly from a replacement cost standpoint, will continue to be backed by the value of timber. The ereatest asset held

Story at a Glance

Smaller purchases by dealers as a cash manage- ment method; more wholesale distribution activity. further breakdown of species preference. 1.6 million housing starts in '80. increased recognition of the value of timberlands.

by the major forest products companies is their valuable timberland. While the value of timberland is highly theoretical it does represent an asset that managements will not dissipate because of over-producing in an adverse short term economic market because long term demographics indicate long term demand.

Despite rising prices and record money rates, housing starts in 1980 should achieve a level of 1,600,000 or more as need for housing accompanied by long term rates present buying opportunity to the prospective buyer.

An unprecedented demand for housing and remodeling appears to be shaping up for the next decade. The Mortgage Bankers Association of America estimates that 2.2 to 2.4 million housing starts per year will be needed during the 1980s to provide shelter for new households and replace losses to existing housing stock. Backing up this statistic is a Census Bureau estimate that by 1990 there could be as many as 107 million households in the United States. compared to 76 million last year. That's a 4lol, gain.

The Sunbelt States and the West will continue to grow in demand and actively because of continuing population shift. When consideration is given to the fact that 40(X, of the nation's population growth since 1970 has occured in the states of California, Texas and Florida (plus extraordinary growth in adjacent or in-between areas) it will present a challenge to managements to participate in this opportunity amid rising costs of labor,administration, and borrowing.

As market values rise in the 1980s, smaller increments will probably be purchased by dealers as one method of cash management causing even more truck shipments (probably deregulated) and additional wholesale distribution yard activity for the spot market plus a further breaking down of historical species preference. No doubt the western buyer will continue to go along with the national trend of getting the job done with what is cost effective when needed.

On balance. there is much to look forward to in the long term outlook as we in the West provide services to fulfill the need of a growing market. We are in the right place; which reminds us of the old story regarding bank robber Willie Sutton. When asked, "Why do you rob banks?", he replied, "Because that's where the money is."