Through a Glass Darkly

The 2018-‘19 home heating season is a perfect case study of the yearly challenge wood pellet manufacturers and their retail partners face when trying to plan for, produce and have available enough wood pellets to meet demand.
By Tim Portz | April 04, 2019

The 2018-‘19 home heating season is a perfect case study of the yearly challenge wood pellet manufacturers and their retail partners face when trying to plan for, produce and have available enough wood pellets to meet demand. Ours is an industry with its very own Goldilocks-like dilemma, with every member in the wood pellet supply chain hoping to maintain an inventory position that is “just right.” In a perfect world, wood pellet producers can fill every order they receive throughout the heating season, and enter the spring and summer inventory build-up months with very little carryover. In that same, perfect world, every retailer selling pellets would see its last pallet sold just as their first load of garden mulch arrived, ready to occupy the just-vacated floor space.

It is, of course, absurd to hope for such a perfect balance of pellet supply and demand, but the thought exercise is helpful in illustrating the enormity of the operational challenge wood pellet producers face each year. Compounding this challenge is that, arguably, the biggest driver in annual pellet demand is the depth and length of winter. Pellet usage correlates tightly to heating degree days, and year-to year-variances of 10-15 percent are not uncommon, as what each winter will bring is anyone’s guess. This winter has the Upper Midwest mired in a winter that doesn’t seem in any hurry to end. Early March delivered many days where daytime high temperatures matched the historical daytime average low.

Weather can also introduce less obvious challenges for producers. Each year, the forest products industry must manage through mud season, the period when the ground softens as it thaws, making it impossible for logging crews to get into the woods to harvest logs for waiting sawmills. Mud season has been a reality in the forest products sector forever, and for the most part, the industry has developed strategies to build up inventory in woodyards to see them through mud season without interrupting production. Occasionally, Mother Nature throws the sector a curve ball. Many parts of Pennsylvania experienced record-breaking rainfall year in 2018, creating what one Pennsylvania-based PFI member called a “nine-month mud season.” For large portions of the prime pellet manufacturing season, upstream logging grounds to a virtual halt. Without logs, sawmills throttle back, idle or shutdown altogether, and the residue streams upon which pellet producers rely slow to a trickle. This year, concern about tight fiber inventories started to surface in late summer.

These are the vagaries of our industry, and they come with the territory. Recognizing that each year will bring with it weather variables that we can’t predict makes it crucial that we have a complete understanding of the measurable variables that impact our business. No. 1 on that list has to be the number of wood pellet-burning appliances sold each year. Last year, the PFI launched Operation 100k, an ambitious effort to reestablish 100,000 units as the yearly average number of pellet appliances sold. While the effort was broadly cheered by our membership and board, it brought into sharp focus how little we really know about how many appliances are sold each year, where they are sold and how they are used. While a total number is published annually in a summer issue of Hearth & Home, a magazine serving the specialty hearth sector, the detail behind it is a little thin. For wood pellet producers, this needs to change, and we look forward to working with our colleagues in the hearth sector to increase overall appliance sales visibility without encroaching on anyone’s proprietary marketplace intelligence.

Finally, it is worth asking when the impact of the exploding barbecue pellet market will begin to impact annual demand. While the pellet usage per appliance is a tiny fraction of heating appliance usage, the units out there are adding up quickly, and it isn’t outrageous to suggest their total demand will begin to be felt. In an industry that has to confront so many variables that we will never be able to predict, the importance of understanding the things we can has never been greater. 


Author: Tim Portz
Executive Director, Pellet Fuels Institute
tim@pelletheat.org
pelletheat.org